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Nos. 2-81830
811-3666
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
______________________________
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 16
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
______________________________
HORACE MANN SHORT-TERM INVESTMENT FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
One Horace Mann Plaza, Springfield, Illinois 62715
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(Address of Principal Executive Offices)
(217) 789-2500
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(Registrant's Telephone Number)
CSC-Lawyers Incorporating Service Company
11 East Chase Street, Suite 9E
Baltimore, MD 21202
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(Name and Address of Agent for Service)
Copies of Communications to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601-1003
_________________________________
It is proposed that this filing will become effective:
___Immediately upon filing pursuant to paragraph (b) of Rule 485
X On May 1, 1996 pursuant to paragraph (b) of Rule 485
___
___60 days after filing pursuant to paragraph (a)(i) of Rule 485
pursuant to paragraph (a)(i) of Rule 485
___75 days after filing pursuant to paragraph (a)(ii) of Rule 485
___On (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
___this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has registered an indefinite amount of securities in accordance
with Rule 24f-2 under the Investment Company Act of 1940. The Rule 24f-2 Notice
for the fiscal year ending December 31, 1995, was filed on February 20,
1996.
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HORACE MANN SHORT-TERM FUND, INC.
Cross Reference Sheet Required by Rule 404(a)
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Item Number in Form N-1A Caption
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PART A - PROSPECTUS
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1. Cover Page Cover
2. Synopsis
(a) (b) (c) *
3. Condensed Financial Information
(a) December 31, 1995 Annual
Report - "Financial Highlights"
(b) *
4. General Description of the Registrant
(a) (b) (c) The Funds, their Investment
Objectives and Policies; Types of
Investments and Associated Risks
5. Management of the Fund
(a) (b) (c) (d) (e) Management
(f) December 31, 1995 Annual
Report - "Financial Highlights"
(g) *
5A. Management's Discussion of Fund Performance
(a) (b) December 31, 1995 Annual Report
6. Capital Stock and other Securities
(a) (b) (c) (e) (f) (g) Voting Rights, Purchases and
Redemptions; Shareholder Inquiries;
Dividends, Distributions and Federal
Taxes
(d) *
7. Purchase of Securities Being Offered
(a) (d) (e) (f) *
(b) Purchases and Redemptions
(c) Dividends, Distributions and
Federal Taxes
8. Redemption or Repurchase
(a) Purchases and Redemptions
(b) (c) (d) *
9. Pending Legal Proceedings *
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Horace Mann Short-Term Fund, Inc.
Cross Reference Sheet (continued)
Item Number in Form N-1A Caption
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PART B - STATEMENT OF ADDITIONAL INFORMATION
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10. Cover Page Cover
11. Table of Contents Table of Contents
12. General Information and History *
13. Investment Objectives and Policies
(a) (c) (d) *
(b) Investment Restrictions
14. Management of the Fund
(a) (b) Management of the Funds
(c) *
15. Control Persons and Principal
Holders of Securities
(a) (b) Control Persons and Principal
Holders of Securities
(c) Management of the Funds
16. Investment Advisory and Other Securities
(a) (b) (c) (d) (g) (h) (i) Investment Advisory Agreement;
Business Management Agreement and
Other Services
(e) (f) *
17. Brokerage Allocation
(a) (c) (d) Brokerage Allocation
(b) (e) *
18. Capital Stock and Other Securities
(a) Control Persons and Principal
Holders of Securities
(b) *
19. Purchase, Redemption and Pricing of
Securities Being Offered
(b) Purchase, Redemption and Pricing
of Fund Shares
(a) (c) *
20. Tax Status Tax Status
21. Underwriters
(a) (b) (c) *
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Horace Mann Short-Term Fund, Inc.
Cross Reference Sheet (continued)
Item Number in Form N-1A Caption
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PART B - STATEMENT OF ADDITIONAL INFORMATION
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22. Calculations of Performance Data
(a) *
(b) December 31, 1995 Annual Report
-"Financial Highlights"
23. Financial Statements December 31, 1995 Annual Report
PART C
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Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
*Omitted from the Prospectus or Statement of Additional Information because
the Item is not applicable.
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PROSPECTUS
HORACE MANN GROWTH FUND, INC.
HORACE MANN INCOME FUND, INC.
HORACE MANN BALANCED FUND, INC.
HORACE MANN SHORT-TERM INVESTMENT FUND, INC.
MAY 1, 1996
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(This page intentionally left blank)
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Horace Mann Growth Fund, Inc.
Horace Mann Income Fund, Inc.
Horace Mann Balanced Fund, Inc.
Horace Mann Short-Term Investment Fund, Inc.
The Horace Mann Growth Fund, Inc. ("Growth Fund"), Horace Mann Income Fund,
Inc. ("Income Fund"), Horace Mann Balanced Fund, Inc. ("Balanced Fund"), and
Horace Mann Short-Term Investment Fund, Inc. ("Short-Term Fund"), are open-end,
diversified, management investment companies registered under the Investment
Company Act of 1940. These funds collectively are referred to as the "Funds."
The Funds issue shares of common stock that are continually offered for sale.
Fund shares may be purchased or redeemed at net asset value.
The primary investment objective of the Growth Fund is long-term capital
growth; conservation of principal and production of income are secondary
objectives. The Growth Fund invests primarily in common stocks.
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 Income Fund invests primarily in debt securities.
The investment objective of the Balanced Fund is to realize high long-term
total rate of return consistent with prudent investment risks. The Balanced
Fund's assets are invested in a mix of common stocks, debt securities and money
market instruments.
The primary investment objective of the Short-Term Fund is to realize maximum
current income to the extent consistent with liquidity. Preservation of
principal is a secondary objective. The Short-Term Fund attempts to realize its
objectives through investments in short-term debt instruments; it is not a money
market fund and does not maintain a constant net asset value per share.
As a result of the market risk inherent in any investment, there is no
assurance that these investment objectives will be realized.
In the opinion of the staff of the Securities and Exchange Commission, the use
of this combined Prospectus may make each Fund liable for any misstatement or
omission in this Prospectus regardless of the particular Fund to which it
pertains.
This Prospectus sets forth concisely the information a prospective investor
should know before investing. Additional information about the Funds has been
filed with the Securities and Exchange Commission in a Statement of Additional
Information, dated May 1, 1996, which is incorporated herein by reference and
may be amended from time to time. The Statement of Additional Information is
available upon request, without charge, by writing to the Horace Mann Funds,
P.O. Box 4657, Springfield, Illinois 62708-4657, by sending a telefacsimile
(FAX) transmission to (217) 527-2307, or by telephoning (217) 789-2500 or (800)
999-1030 (toll-free). The Table of Contents of the Statement of Additional
Information appears on page 9 of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
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The date of this Prospectus is May 1, 1996.
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Table of Contents
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Topic Page
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The Funds, Their Investment Objectives and Policies.....................................1
Growth Fund...........................................................................1
Income Fund...........................................................................1
Balanced Fund.........................................................................2
Short-Term Fund.......................................................................2
Types of Investments and Associated Risks...............................................3
Management..............................................................................5
Investment Adviser, Wellington Management Company.....................................6
Business Manager, Horace Mann Investors, Inc..........................................6
Transfer & Dividend Paying Agent, Horace Mann Service Corporation.....................7
Purchases and Redemptions...............................................................7
Dividends, Distributions and Federal Taxes..............................................8
Voting Rights...........................................................................8
Public Shareholder Communications.......................................................8
Shareholder Inquiries...................................................................9
Additional Information..................................................................9
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Condensed Financial Information
The condensed financial information for the Funds under the heading "Financial
Highlights" and the Report of Independent Auditors thereon, is incorporated
herein by reference from the Funds' Annual Report for the year ended December
31, 1995. Additional information about the Funds' performance, including
Management's Discussion and Analysis, is also contained in the 1995 Annual
Report which accompanies this Prospectus. Additional copies of the Annual
Report may be obtained without charge by writing to the Horace Mann Funds, P.O.
Box 4657, Springfield, Illinois 62708-4657, by sending a request by
telefacsimile (FAX) transmission to (217) 527-2307, or by telephoning (217) 789-
2500 or (800) 999-1030 (toll-free).
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The Funds, Their Investment Objectives And Policies
The Funds operate as open-end diversified management investment companies.
The Income Fund, the Balanced Fund and the Short-Term Fund each were
incorporated under Maryland law on September 22, 1982. The Growth Fund was
organized as a Maryland corporation on May 21, 1957.
The investment objectives and policies of each Fund are described below.
Prospective purchasers should recognize that there are risks in the ownership of
any security and that there can be no assurance that the objectives of the Funds
will be realized.
The investment objectives may not be changed without the approval of the
holders of a majority of a Fund's outstanding voting securities or 67% of the
shares represented at a meeting of shareholders at which the holders of 50% or
more of the outstanding shares are represented. (See "Voting Rights.")
Each Fund seeks to attain its objectives by pursuing investment policies that
call for investments in certain types of securities and by employing various
investment strategies. These investment policies and strategies may be changed
without shareholder approval. However, each Fund will not, as a matter of
policy, change its investment policies without notice to its shareholders.
Supplemental information on the investment policies as well as a description
of the investment restrictions of each Fund are contained in the Statement of
Additional Information.
Growth Fund
The investment objective of the Growth Fund is long-term capital growth.
Secondary objectives are conservation of principal and production of income.
The Growth Fund ordinarily invests substantially all of its assets in common
stocks of domestic companies of various sizes and operating histories, both
listed and non-listed, in a variety of industries. The Growth Fund may also
invest in preferred stocks or investment grade bonds or debentures of domestic
companies and U.S. Government securities. Additionally, up to 10% of the Growth
Fund's assets may be invested in U.S. dollar-denominated securities of foreign
issuers, including common stock, preferred stock, convertible debentures, and
American Depository Receipts.
To achieve its objectives of long-term capital growth, conservation of
principal and production of income, the Growth Fund employs a "Value-Yield"
strategy in making investments. "Value-Yield" investing concentrates on stocks
which sell at low prices relative to certain measures of company value such as
the price/earnings ratio and the price/book ratio. These stocks also tend to
have above-average dividend yields.
The Growth Fund may make interim investments in short-term debt instruments in
order to generate a return on otherwise idle cash. If a market decline is
expected, the Growth Fund may sell its portfolio securities and invest all or
part of the proceeds in investment grade corporate bonds, debentures, preferred
stock and U.S. Government securities; or it may retain funds in the form of cash
or cash equivalents.
The investment policies of the Growth Fund limit investments in debt
securities to those debt securities described below for the Income Fund.
Income Fund
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 Income Fund seeks to attain its objectives through the following
investment policies:
1. At least 80% of the Income Fund's total assets are invested in:
(a) publicly offered debt securities, including mortgage-backed and other
asset-backed securities, within the four highest ratings (Aaa, Aa, A or Baa)
as determined by Moody's Investors Service, Inc. ("Moody's") or (AAA, AA, A or
BBB) by Standard and Poor's Corporation ("S&P"). For a more complete
description of ratings of debt securities, see Appendix A of the Statement of
Additional Information;
(b) securities issued or guaranteed by the U.S. Government or its agencies;
(c) publicly offered debt securities issued or guaranteed by a national or
state bank or bank holding company within the four highest ratings as
determined by both Moody's and S&P;
(d) U.S. dollar-denominated debt obligations of foreign governments,
foreign corporations, foreign branches of U.S. banks, and foreign banks
limited to the three highest ratings as determined by Moody's (Aaa, Aa or A)
or S&P (AAA, AA or A) and that do not exceed 10% of the Income Fund's total
assets;
(e) commercial paper having a rating within the two highest grades as
determined by both Moody's (Prime-1 or Prime-2) and S&P (A-1 or A-2). For a
more complete description of ratings of commercial paper, see Appendix A of
the Statement of Additional Information;
(f) repurchase and reverse repurchase agreements involving any of the above
instruments, provided that the market value of the underlying security is at
least 102% of the price of the repurchase agreement;
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(g) time deposits with maturities less than seven days; or
(h) cash or cash equivalents.
2. Up to 20% of the Income Fund's total assets may be invested in preferred
stocks and obligations not described above, including convertible securities and
securities carrying warrants to purchase equity securities.
The Income Fund will not invest in common stocks directly, but may retain up
to 20% of its total assets in common stocks acquired upon conversion of debt
securities or preferred stock, or upon exercise of warrants acquired with debt
securities.
To realize the objectives of maximizing current income consistent with prudent
investment risk and preservation of capital, at least 80% of the Income Fund's
total assets are normally invested in intermediate-term bonds and debentures
with effective maturities of two to ten years. Values of intermediate-term
bonds tend to be less volatile than bonds with maturities greater than ten years
but normally provide lower yields.
During periods of volatility or when an unusual decline in the value of long-
term obligations is anticipated, for defensive purposes, however, the Income
Fund will place a larger portion of its assets in cash and short-term
obligations. The Income Fund's holdings of short-term obligations and equity
securities during such periods may temporarily exceed an aggregate total of 20%
of the Income Fund's total assets.
Moreover, as a matter of investment policy, the Income Fund will not invest
more than 10% of its total assets in illiquid repurchase and reverse repurchase
agreements or any similar instruments that may be deemed to be illiquid.
Instead of holding its entire portfolio to maturity, the Income Fund will engage
in portfolio trading when trading will help achieve its investment objectives.
Balanced Fund
The investment objective of the Balanced Fund is to realize high long-term
total rate of return consistent with prudent investment risks. Total rate of
return consists of current income including dividends, interest, discount
accruals and capital appreciation.
The Balanced Fund seeks to attain this objective through a selective mix of
investments in common stocks, bonds, and other debt instruments. The Balanced
Fund holds the same kinds of stocks and bonds held separately by the Growth Fund
and Income Fund. For a description of the types of stocks and bonds in which
the Balanced Fund is permitted to invest, see - "The Funds, Their Investment
Objectives and Policies - Growth Fund and - Income Fund", above.
The mix of investments in the Balanced Fund is regularly adjusted between
stocks and bonds to capitalize on perceived variations in return potential
produced by the changing financial market and economic conditions. This mixture
of stocks and bonds reduces the volatility of investment returns while still
providing the potential for higher long-term total returns that can only be
achieved by including some exposure to stocks. As a matter of investment policy,
50% to 75% of the Balanced Fund's total assets will be invested in stocks and
25% to 50% of the value of its assets will be invested in bonds or other types
of fixed income securities, such as mortgage-backed securities.
Up to 100% of the Balanced Fund's total assets may be invested temporarily in
short-term debt instruments for defensive purposes, such as responding to
adverse securities market or economic conditions. Additionally, no more than
10% of the total assets may be invested in illiquid repurchase and reverse
repurchase agreements or any other instruments that may be deemed to be
illiquid. Major changes in investment mix may occur several times within a year
or over several years, depending upon market and economic conditions.
Short-Term Fund
The investment objective of the Short-Term Fund is to realize maximum current
income to the extent consistent with liquidity. Preservation of principal is a
secondary objective. The Short-Term Fund is not a money market fund and does
not maintain a stable net asset value per share.
The Short-Term Fund seeks to attain its objectives by investing in the
following types of short-term debt instruments with maturities generally not
exceeding one year. The Short-Term Fund invests in:
1. U.S. Treasury Bills and other obligations of or guaranteed by the U.S.
Government or its agencies;
2. obligations (including certificates of deposit, time deposits with
maturities less than seven days, or bankers' acceptances) of major U.S. banks;
3. commercial paper within the two highest ratings as determined by Moody's
(Prime-1 or Prime-2) or S&P (A-1 or A-2). For a more complete description of
ratings of commercial paper, see Appendix A of the Statement of Additional
Information;
4. U.S. dollar-denominated debt obligations of foreign governments, foreign
corporations, foreign branches of U.S. banks, and foreign banks limited to the
three highest ratings as determined by Moody's (Aaa, Aa or A) or S&P (AAA, AA or
A) and that do not exceed 10% of the Short-Term Fund's total assets. For a more
complete description of ratings of debt securities, see Appendix A of the
Statement of Additional Information;
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5. publicly traded bonds, debentures and notes with a rating within the four
highest grades as determined by Moody's or S&P;
6. repurchase and reverse repurchase agreements involving any of the above
instruments; or
7. cash or cash equivalents.
The Short-Term Fund attempts to maximize return of its portfolio by trading to
take advantage of changing money market conditions and trends. The Short-Term
Fund also trades to take advantage of disparities in yield relationships between
money market instruments. This procedure may increase or decrease the portfolio
yield depending on the Investment Adviser's ability to correctly time and
execute these transactions. The Short-Term Fund intends generally to purchase
securities that mature within one year, but will not purchase securities with
maturities that exceed two years except for securities subject to repurchase
agreements and reverse repurchase agreements. The Short-Term Fund will not
invest more than 10% of its total assets, however, in illiquid repurchase and
reverse repurchase agreements or any other instruments that may be deemed to be
illiquid.
Types of Investments and Associated Risks
Investments in any type of security are subject to varying degrees of market
risk, financial risk, and in some cases, reinvestment risk. Although the Funds
are subject to these risks, their investment policies and restrictions are
designed to reduce such risk. Further, each Fund exercises due care in the
selection of its portfolio securities.
MARKET RISK is the potential for fluctuations in the price of the security
because of market factors. For equity securities, market risk is the
possibility of change in price caused by stock market price changes; for debt
securities, market risk is the possibility that the price will fall because of
changing interest rates. In general, debt securities' prices vary inversely
with changes in interest rates. If interest rates rise, bond prices generally
fall; if interest rates fall, bond prices generally rise. In addition, for a
given change in interest rates, longer-maturity bonds fluctuate more in price
(gaining or losing more in value) than shorter-maturity bonds.
FINANCIAL RISK is based on the financial situation of the issuer. For equity
securities, financial risk is the possibility that the price of the security
will fall because of poor earnings performance by the issuer. For debt
securities, financial risk is the possibility that a bond issuer will fail to
make timely payments of interest or principal to a fund. The financial risk of
a fund depends on the credit quality of its underlying securities. In general,
the lower the credit quality of a fund's securities, the higher a fund's yield,
all other factors such as maturity being equal.
REINVESTMENT RISK is the possibility that, during periods of falling interest
rates, a debt security with a high stated interest rate will be prepaid (or
"called") prior to its expected maturity date. If during periods of falling
interest rates a debt security with a high stated interest rate is called away,
the unanticipated proceeds would likely be invested at lower interest rates, and
the fund's income may decline. Call provisions, which may lead to reinvestment
risk, are most common for intermediate and long-term municipal, corporate and
mortgage-backed securities. To the extent securities subject to call were
acquired at a premium, the potential for appreciation in the event of a decline
in interest rates may be limited and may even result in losses.
In addition to the risks generally associated with investing, there are risks
particular to certain types of investments. The following provides additional
information on various types of instruments in which the Funds may invest and
their associated risks. A Fund may not buy all these instruments to the extent
permitted unless it believes that doing so will help the Fund achieve its
objectives.
U.S. GOVERNMENT OBLIGATIONS - U.S. Government obligations are direct
obligations of the U.S. Government and are supported by the full faith and
credit of the U.S. Government. U.S. Government agency securities are issued or
guaranteed by U.S. Government sponsored enterprises and federal agencies. Some
of these securities are backed by the full faith and credit of the U.S.
Government; others are backed by the agency's right to borrow a specified amount
from the U.S. Treasury; and still others, while not guaranteed directly or
indirectly by the U.S. Government, are backed with collateral in the form of
cash, Treasury securities or debt instruments that the lending institution has
acquired through its lending activities.
MORTGAGE-BACKED SECURITIES - Mortgage-backed securities represent interests in
pools of mortgage loans made by lenders such as commercial banks and savings and
loan institutions. Pools of mortgage loans are assembled for sale to investors
by various government-related organizations. The principal government guarantor
of mortgage-backed securities is the Government National Mortgage Association
("GNMA"). GNMA is authorized to guarantee, with the full faith and credit of
the U.S. Government, the timely payment of principal and interest on GNMA
securities. Mortgage loans are pooled by various other governmental entities
including the Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal
National Mortgage Association ("FNMA"). FHLMC is a corporate instrumentality of
the U.S. Government and FNMA is a government-sponsored corporation owned
entirely by private stockholders.
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Mortgage-backed securities differ from traditional debt securities. Among the
major differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans generally may be prepaid at any time.
Since prepayment rates vary widely, it is not possible to accurately predict the
average maturity of a particular mortgage-backed pool; however, statistics
published by the Federal Housing Authority indicate that the average life of
mortgages with 25- to 30-year maturities (the type of mortgages backing the vast
majority of mortgage-backed securities) is approximately 12 years. Mortgage-
backed securities may decrease in value as a result of increases in interest
rates and may benefit less than other fixed income securities from declining
interest rates because of the risk of prepayment.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) AND MULTICLASS PASS-THROUGH
SECURITIES - CMOs are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Typically, CMOs are collateralized by GNMA,
FNMA or FHLMC Certificates, but also may be collateralized by whole loans or
private mortgage pass-through securities ("Mortgage Assets"). Multiclass pass-
through securities are equity interests held in a trust composed of Mortgage
Assets. Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the capital to pay debt service on the CMOs
or make scheduled distributions on the multiclass pass-through securities. CMOs
may be issued by agencies or instrumentalities of the U.S. Government, or by
private originators of, or investors in, mortgage loans, including depository
institutions, mortgage banks, investment banks and special purpose subsidiaries
of the foregoing.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs is issued at a specific fixed or floating coupon rate and has
a stated maturity or final distribution date. Principal prepayments on the
Mortgage Assets may cause the CMOs to be retired substantially earlier than
their stated maturities or final distribution dates. Interest is paid or
accrues on all classes of CMOs on a monthly, quarterly or semi-annual basis.
The principal of and interest on the Mortgage Assets may be allocated among the
several classes of a CMO series in a number of different ways. Generally, the
purpose of the allocation of the cash flow of a CMO to the various classes is to
obtain a more predictable cash flow to the individual class than exists with the
underlying collateral of the CMO. As a general rule, the more predictable the
cash flow to a particular CMO the lower the anticipated yield will be on that
class at the time of issuance relative to prevailing market yields on mortgage-
backed securities.
A portfolio also may invest in, among other things, parallel pay CMOs and
Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds always are
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
ASSET-BACKED SECURITIES - Through the use of trusts and special purpose
corporations, various types of assets, primarily automobile and credit card
receivables, are being pooled in pass-through structures similar to the mortgage
pass-through structures described above. Asset-backed securities generally do
not have the benefit of the same security interest in the related collateral as
is the case with mortgage-backed securities. There is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Credit card receivables are generally unsecured and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, some of which may reduce the ability to obtain full
payment. In the case of automobile receivables, the securities interest in the
underlying automobiles are often not transferred when the pool is created, with
the resulting possibility that the collateral could be resold. In general,
these types of loans are of shorter average life than mortgage loans and are
less likely to have substantial prepayments.
RISK FACTORS RELATING TO INVESTING IN MORTGAGE-BACKED AND ASSET-BACKED
SECURITIES - The yield characteristics of mortgage-backed and asset-backed
securities differ from traditional debt securities. Among the major differences
are that interest and principal payments are made more frequently, usually
monthly, and that principal may be prepaid at any time because the underlying
mortgage loans or other assets generally may be prepaid at any time. As a
result, if a portfolio purchases such a security at a premium, a prepayment rate
that is faster than expected will reduce yield to maturity, while a prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity. Alternatively, if a fund purchases these securities at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity.
In addition, mortgage-backed securities which are secured by manufactured
(mobile) homes and multi-family residential properties, such as GNMA and FNMA
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certificates, are subject to a higher risk of default than are other types of
mortgage-backed securities.
Although the extent of prepayments on a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed-rate
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by a portfolio are likely to be greater during a
period of declining interest rates and, as a result, likely to be reinvested at
lower interest rates than during a period of rising interest rates. Asset-
backed securities, although less likely to experience the same prepayment rates
as mortgage-backed securities, may respond to certain of the same factors
influencing prepayments, while at other times different factors will
predominate. Mortgage-backed securities and asset-backed securities may
decrease in value as a result of increases in interest rates and may benefit
less than other fixed-income securities from declining interest rates because of
the risk of prepayment.
ADJUSTABLE RATE MORTGAGE SECURITIES - Adjustable rate mortgage securities are
pass-through mortgage securities collateralized by mortgages with adjustable
rather than fixed rates. A description of these instruments is contained in
Appendix B of the Funds' Statement of Additional Information.
REPURCHASE AGREEMENTS - Repurchase agreements are instruments under which a
fund acquires ownership of a security and the seller agrees, at the time of the
sale, to repurchase the security at a mutually agreed upon time and price,
thereby determining the yield during a fund's holding period. A fund entering
into a repurchase agreement is exposed to the risk that the other party to the
agreement may be unable to keep its commitment to repurchase. In that event, a
fund may incur disposition costs in connection with liquidating the collateral
(i.e., the underlying security). Moreover, if bankruptcy proceedings are
commenced with respect to the selling party, receipt of the value of the
collateral may be delayed or substantially limited and a loss may be incurred if
the collateral securing the repurchase agreement declines in value during the
bankruptcy proceedings. The Funds believe that these risks are not material
inasmuch as each Fund will evaluate the credit worthiness of all entities with
which it proposes to enter into repurchase agreements, and will seek to assure
that each arrangement is adequately collateralized. For a more detailed
description of Repurchase Agreements, see the Statement of Additional
Information - Appendix B.
FOREIGN SECURITIES - As described under "The Funds, Their Investment
Objectives and Policies," each Fund may invest up to 10% of its total assets in
certain U.S. dollar-denominated securities of foreign issuers.
For the Growth and Balanced Funds, the limitation with respect to foreign
securities includes investments in sponsored and unsponsored American Depository
Receipts ("ADRs"). ADRs are U.S. dollar-denominated securities backed by
foreign securities deposited in a U.S. securities depository. ADRs are created
for trading in the U.S. markets.
Sponsored ADRs trade on recognized U.S. stock exchanges and firms that sponsor
ADRs will supply shareholders with English translations of company information
made public in the home country. Unsponsored ADRs typically trade in the U.S.
"over-the-counter" market. Generally, less information is available on
unsponsored ADRs since foreign issuers of unsponsored ADRs are not obligated to
disclose material company information in the United States.
The value of an ADR will fluctuate with the value of the underlying foreign
security, reflect any changes in currency exchange rates and otherwise involve
risks associated with investing in foreign securities. The Growth Fund and
Balanced Funds' investments in ADRs will be limited solely to those that are
regularly traded on recognized U.S. exchanges or in the U.S. over-the-counter
market.
To the extent the Funds purchase Eurodollar certificates of deposit issued by
foreign branches of U.S. banks and foreign banks, or Eurobonds issued by foreign
branches of U.S. corporations, consideration will be given to their
marketability and possible restrictions on the flow of international currency
transactions.
There may be less publicly available information about a foreign issuer than
about a domestic issuer. Foreign issuers, including foreign branches of U.S.
banks, are subject to different accounting and reporting requirements which are
generally less extensive than the requirements applicable to domestic issuers.
Foreign stock markets (other than Japan) have substantially less volume than the
United States exchanges, and securities of foreign issuers are generally less
liquid and more volatile than those of comparable domestic issuers. There is
frequently less governmental regulation of exchanges, broker-dealers and issuers
than in the United States, and brokerage costs may be higher. In addition,
investments in foreign companies may be subject to the possibility of
nationalization, withholding of taxes on dividends at the source, expropriation
or confiscatory taxation, currency blockage, political or economic instability
or diplomatic developments that could adversely affect the value of those
investments. Finally, in the event of a default of any foreign obligation, it
may be difficult for the Funds to obtain or to enforce a judgment against the
issuer.
Management
The overall responsibility for the supervision of the
5
<PAGE>
affairs of the Funds vests in the Board of Directors. As described below, the
Board has contracted with others to provide certain services to the funds.
Investment Adviser, Wellington Management Company
The Funds employ Wellington Management Company ("Wellington Management") to
manage the investment and reinvestment of the assets of the Funds and to
continuously review, supervise and administer the Funds' investment programs.
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 December 31, 1995, Wellington
Management had discretionary management authority with respect to approximately
$109.2 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.
John R. Ryan, CFA, Senior Vice President and Managing Partner of Wellington
Management, began providing investment advice to the Growth Fund and stock
portion of the Balanced Fund on November 1, 1989, and assumed primary
responsibility for the day-to-day investment management of the Growth Fund and
stock portion of the Balanced Fund on December 1, 1992. Mr. Ryan has been a
portfolio manager with Wellington Management's Value/Yield investment team since
1981 and has held the position of Senior Vice President of Wellington Management
since 1988. Mr. Ryan became a Managing Partner of the firm on January 1, 1996.
John C. Keogh, Senior Vice President of Wellington Management, began providing
investment advice to the Income Fund, Short-Term Fund and bond portion of the
Balanced Fund on November 1, 1989, and assumed primary responsibility for the
day-to-day investment management of the Income Fund, Short-Term Fund and bond
portion of the Balanced Fund on September 1, 1991. Mr. Keogh has been a
portfolio manager with Wellington Management's fixed income group since 1985 and
held the position of Vice President from 1984 until he was promoted to Senior
Vice President of Wellington Management in January 1994.
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%
Income Fund On Initial $100 million 0.250%
On Next $100 million 0.200%
Over $200 million 0.150%
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%
Short-Term Fund On Initial $100 million 0.125%
On Next $100 million 0.100%
Over $200 million 0.075%
</TABLE>
For fiscal year ended December 31, 1995, the Growth Fund paid 0.33%, the
Income Fund paid 0.25% and the Balanced Fund paid 0.30% to Wellington Management
as a percentage of net assets. The Short-Term Fund's fee of 0.13% was paid to
Wellington Management by Horace Mann Investors, Inc.
The 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 Management to use its best efforts to obtain
the best available price and most favorable execution.
Business Manager, Horace Mann Investors, Inc.
Horace Mann Investors, Inc. ("Investors"), serves as the business manager of
each Fund. Investors, located at One Horace Mann Plaza, Springfield, Illinois
62715-0001, is registered with the Securities and Exchange Commission as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. (NASD). 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.
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.
6
<PAGE>
Investors charges each Fund a pro rata fee computed on the aggregate total net
assets of all Funds managed by Investors and sponsored by HMLIC 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. Investors
waives 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.
Transfer and Dividend Paying Agent, Horace Mann Service Corporation
Horace Mann Service Corporation, One Horace Mann Plaza, P.O. Box 4657,
Springfield, Illinois 62708-4657, acts as the transfer agent and dividend paying
agent.
Purchases and Redemptions
Shares of each Fund are currently sold only to HMLIC separate accounts. In the
event that HMLIC establishes additional separate accounts, shares of these Funds
may be made available for purchase by such additional separate accounts.
Previously, shares of the Growth Fund were available to the public. While Growth
Fund shares may no longer be purchased by the general public, existing public
shareholders may acquire additional shares through the automatic reinvestment of
dividends and distributions in accordance with Revenue Ruling 82-55.
Each Fund sells and redeems its shares at net asset value per share, without a
sales or redemption charge. The net asset value of each Fund's shares is
determined on each day the New York Stock Exchange ("NYSE") is open for trading
at the close of the NYSE (normally 3:00 p.m. Central Time). The computation is
made by dividing the net assets by the number of outstanding shares. Net assets
are equal to the total assets of the Fund less its liabilities. A purchase is
effected at the price based on the next calculation of net asset value per share
after receipt of a request. A security listed or traded on an exchange is
valued at its last sales price on the exchange where it is principally traded.
In the absence of a current quotation, the security is valued at the mean
between the last bid and asked prices on the exchange. Securities traded over-
the-counter are valued at the last current bid price. Debt securities that have
a remaining maturity of 60 days or less are valued at cost, plus or minus any
amortized discount or premium. When market quotations are not available,
securities are valued at fair value as determined in good faith by the Board of
Directors.
Except in extraordinary circumstances and as permissible under the Investment
Company Act of 1940, redemption proceeds are paid on or before the fifth
business day following the date the request for redemption is received.
REDEMPTION OF GROWTH FUND SHARES BY EXISTING PUBLIC SHAREHOLDERS - The Growth
Fund will redeem shares from public shareholders at the net asset value per
share next determined after receipt of a redemption request. If stock
certificates have been issued, the signature of each party must be guaranteed by
an officer of a commercial bank, trust company, or a member of the New York
Stock Exchange. If certificates are lost, the shareholder will need to submit
an Affidavit of Loss form with the signature(s) notarized if 100 or less shares
are surrendered, and a Lost Instrument Bond will be required if over 100 shares
are surrendered. A Lost Instrument Bond can be obtained from an insurance
carrier. The cost for this bond must be paid by the shareholder.
If no certificates have been issued to the shareholder, redemption may be
accomplished by signing a written request. The request should be sent to the
Horace Mann Growth Fund, Inc. P.O. Box 4657, Springfield, Illinois 62708-4657
and should identify the account by number and the name(s) in which the account
is registered. The request must be signed exactly as the account is registered.
On a jointly held account, all owners must sign.
All redemption requests by mail should be sent certified with return receipt
requested. Provided the request is received in good form, payment for shares
redeemed will be made by the Fund within three business days of the receipt.
SYSTEMATIC CASH WITHDRAWAL PLAN - When a Growth Fund public shareholder has
accumulated $5,000 or more of Growth Fund shares in his or her account, shares
may be withdrawn automatically through the Systematic Cash Withdrawal Plan (the
"Plan"). A shareholder may receive checks monthly, quarterly, semiannually or
annually in any amount requested, but not less than $25. A Plan application is
available, upon request, from the transfer agent. The value of a public
shareholder's account is determined at the net asset value on the date a Plan
application is received by the Growth Fund. Payments under the Plan will be
made either on the 1st or 15th of the month as selected by the shareholder. A
sufficient number of shares will be redeemed from the shareholder's account to
provide funds for payments made under the Plan, thus reducing the shareholder's
account value. Depending on the amount and frequency of withdrawals, payments
under
7
<PAGE>
the Plan may exhaust the shareholder's account. There is no redemption charge
with respect to the shares redeemed from the shareholder's account. A Plan may
be terminated upon written request.
Dividends, Distributions and Federal Taxes
It is intended that all Funds will continue to qualify as regulated investment
companies under the Internal Revenue Code and, therefore, will not be subject to
federal income taxes to the extent earnings are distributed to shareholders.
All dividends or distributions paid on Fund shares held by a separate account,
net of separate account contract charges, are automatically reinvested in shares
of the respective Fund at the net asset value determined on the dividend payment
date.
Effective in December of each year, each Fund intends to declare and make
distributions representing not less than 98% of its net investment income and
98% of its net realized capital gains. The Income, Balanced, and Short-Term
Funds are exempt from the 4% excise tax levied against regulated investment
companies for failure to distribute at least 98% of their net investment income
and net realized capital gains.
Public shareholders of the Growth Fund may elect to receive cash dividends and
will be notified of the amount and type of distribution. If a shareholder
elects to receive a cash dividend and the dividend check is returned by the
postal service, attempts will be made to locate the shareholder. If the
attempts to locate are unsuccessful, the shareholders dividend option will be
changed to reinvestment. When new shares are added to a Growth Fund public
shareholder's account through the reinvestment of dividends or when
distributions occur (which dividends will be taxable to the shareholder whether
paid in cash or reinvested in additional shares), a confirmation statement is
sent to the public shareholder showing the number of shares that were credited
or debited to the account, the net asset value per share and the total number of
shares in the account. A dividend or capital gains distribution will reduce the
per share net asset value by the amount of the dividend or distribution.
Shortly after the end of each year, Growth Fund shareholders will be informed of
the amount of and the federal income tax treatment of all distributions made
during the year. If not otherwise subject to tax on their income, public
shareholders will not be required to pay tax on amounts distributed to them.
Shareholders must determine for themselves the applicability of state and local
taxes to dividends and distributions received on Growth Fund shares.
The Growth Fund may be required to withhold federal income tax at a rate of
31% from dividend and redemption payments made to any public shareholder who
fails to furnish a certified taxpayer identification number ("TIN") or when the
Internal Revenue Service notifies the Growth Fund that the shareholder has
provided the Growth Fund with an incorrect TIN or failed to properly report
certain income for federal income tax purposes. Any withheld amount can be
credited against the shareholder's federal income tax obligation.
Voting Rights
Each Fund has authorized capital of 50 million shares of common stock. Par
value is $.10 for the Income Fund, Balanced Fund and Short-Term Fund, and $1.00
for the Growth Fund. Shares of each Fund are of the same class with equal
rights and privileges. Each share is entitled to vote on all matters submitted
to a vote of shareholders. The shares of each Fund are fully paid and non-
assessable and have no preference as to conversion, exchange, dividends,
retirement or other features. The shares of each Fund have no pre-exemptive
rights. The shares of each Fund have noncumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
directors can elect 100% of the directors if they choose to do so.
Each person with voting rights will be provided with reports and proxy
materials relating to the applicable Fund(s). To be entitled to vote, a
shareholder (either a public shareholder of the Growth Fund or an insurance
company separate account) must have been a shareholder on the record date. The
number of Fund shares for which a shareholder may vote is determined by dividing
the value of an interest in a Fund by the net asset value of one share of the
Fund, as of the same date.
As of April 1, 1996, Horace Mann Life Insurance Company Separate Account owned
approximately 70.67%, 96.04%, 95.43% and 84.16% of the outstanding shares of
the Growth Fund, Income Fund, Balanced Fund and Short-Term Fund, respectively.
Horace Mann Life Insurance Company Separate Account B held approximately 7.06%
of the Growth Fund. Horace Mann Life Insurance Company Allegiance Separate
Account A held approximately 2.22% of the Growth Fund. Since these separate
accounts' voting rights are passed through to contract owners and participants,
HMLIC itself does not exercise voting control.
Public Shareholder Communications
To ensure receipt of communications related to investments in the Growth Fund,
public shareholders must notify the Growth Fund of address changes. Notice of a
change in address may be sent to the Horace Mann Growth Fund, Inc., P.O. Box
4657, Springfield, Illinois 62708-4657. Shareholders may also provide notice of
an address change by sending a telefacsimile (FAX) transmission to (217) 527-
2307 or by calling (217) 789-2500 or (800) 999-1030 (toll free).
8
<PAGE>
Shareholders Inquiries
For questions concerning investments in the Funds through HMLIC's annuity
contracts, call HMLIC's toll free customer service number, (800) 999-1030.
Written questions should be sent by mail to Horace Mann Life Insurance Company
at P.O. Box 4657, Springfield, Illinois 62708-4657 or by telefacsimile (FAX)
transmission to (217) 527-2307.
Growth Fund public shareholders may contact the Growth Fund by calling (800)
999-1030 or (217) 789-2500. Written questions concerning a Growth Fund public
shareholder's account may be sent by mail to Horace Mann Growth Fund, Inc., P.O.
Box 4657, Springfield, Illinois 62708-4657 or by telefacsimile (FAX)
transmission to (217) 527-2307.
Additional Information
A copy of the Statement of Additional Information providing more detailed
information about the Funds is available, without charge, upon request. The
Table of Contents of this Statement follows:
<TABLE>
<CAPTION>
Topic Page
- ----- ----
<S> <C>
Investment Policies.............................................. 2
Growth Fund.................................................... 2
Income Fund.................................................... 3
Balanced Fund.................................................. 3
Short-Term Fund................................................ 3
Investment Restrictions.......................................... 3
Management of the Funds.......................................... 5
Board of Directors............................................. 5
Officers....................................................... 7
Investment Advisory Agreements................................... 8
Brokerage Allocation............................................. 9
Business Management Agreements and Other Services................ 10
Purchase, Redemption and Pricing of Fund Shares.................. 11
Tax Status....................................................... 12
Control Persons and Principal Holders of Securities.............. 14
Financial Statements............................................. 15
Appendix A - Description of Commercial Paper and Bond Ratings.... A-1
Appendix B - Description of Securities........................... B-1
</TABLE>
To receive, without charge, a copy of the 1995 Annual Report of the Horace Mann
Family of Funds and/or a copy of the Statement of Additional Information for the
Horace Mann Family of Funds, please complete the following request form and mail
it to the address indicated below, or send it by telefacsimile (FAX)
transmission to (217) 527-2307 or telephone (217) 789-2500 or (800)999-1030
(toll-free).
Horace Mann Funds
P.O. Box 4657
Springfield, Illinois 62708-4657
- --------------------------------------------------------------------------------
Please provide free of charge the following information:
1995 Annual Report of the Horace Mann Family of Funds
- ------
Statement of Additional Information dated May 1, 1996 for the Horace Mann
- ------ Family of Funds.
Please mail the above documents to:
------------------------------------------------
(Name)
------------------------------------------------
(Address)
------------------------------------------------
(City/State/Zip)
9
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
HORACE MANN GROWTH FUND, INC.
HORACE MANN INCOME FUND, INC.
HORACE MANN BALANCED FUND, INC.
HORACE MANN SHORT-TERM INVESTMENT FUND, INC.
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the current Prospectus, dated May 1, 1996, for the Horace
Mann Growth Fund, Inc. ("Growth Fund"), Horace Mann Income Fund, Inc. ("Income
Fund"), Horace Mann Balanced Fund, Inc. ("Balanced Fund"), and Horace Mann
Short-Term Investment Fund, Inc. ("Short-Term Fund"). These funds are referred
to collectively as the "Funds." A copy of the Prospectus may be obtained by
writing to the Horace Mann Funds, P.O. Box 4657, Springfield, Illinois 62708-
4657, by sending a telefacsimile (FAX) transmission to (217) 527-2307, or by
telephoning (217) 789-2500 or (800) 999-1030 (toll-free).
May 1, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Topic Page
- ----- ----
<S> <C>
Investment Policies.......................................... 2
Growth Fund............................................... 2
Income Fund............................................... 3
Balanced Fund............................................. 3
Short-Term Fund........................................... 3
Investment Restrictions...................................... 3
Management of the Funds...................................... 5
Board of Directors........................................ 5
Officers.................................................. 7
Investment Advisory Agreements............................... 8
Brokerage Allocation......................................... 9
Business Management Agreements
and Other Services........................................ 10
Purchase, Redemption and Pricing of Fund Shares.............. 11
Tax Status................................................... 12
Control Persons and Principal Holders of Securities.......... 14
Financial Statements......................................... 15
Appendix A - Description of Commercial Paper
and Bond Ratings.......................................... A-1
Appendix B - Description of Securities....................... B-1
</TABLE>
INVESTMENT POLICIES
The Prospectus defines the basic investment objectives, which are fundamental
policies, for each Fund. Other policies are described below.
GROWTH FUND
The portfolio investments of the Growth Fund are not concentrated in any one
industry or group of industries but are varied according to what is judged
advantageous under varying economic conditions. While the portfolio is
diversified by investment in a cross-section of businesses and industries, the
Growth Fund follows a policy of flexibility. The Growth Fund does not invest in
companies for the purpose of exercising control of management. Moreover, the
Growth Fund purchases only marketable securities.
It is the policy of the Growth Fund to purchase and hold securities believed to
have potential for long-term capital growth. Investment income is a secondary
consideration in the selection of portfolio securities. The Growth Fund does
not buy and sell for short-term trading profits. Therefore, portfolio changes
usually are accomplished gradually. However, Fund management is not restricted
and may effect short-term transactions when subsequent events make an investment
undesirable for long-term holding.
For 1994 and 1995, the Growth Fund's portfolio turnover rates were 69.42% and
64.59, respectively. Although it is impossible to predict with certainty the
Growth Fund's ongoing portfolio turnover rate, the investment adviser expects
that under normal circumstances it will be less than 100% each year.
2
<PAGE>
INCOME FUND
During 1994 and 1995, the Income Fund's portfolio turnover rates were 205.35%
and 74.53%, respectively. Most of the increase in the Fund's turnover during
1994 resulted from identifying undervalued or overvalued mortgage-backed
securities during this period of fluctuating perceptions. Although it is
impossible to predict with certainty the Income Fund's ongoing portfolio
turnover rate, the investment adviser expects that under normal circumstances it
will be less than 100% each year. During periods of rapidly changing interest
rates, however, the turnover rate may be greater than 100%. This results from
the investment adviser's desire to optimize rates of return during such periods.
BALANCED FUND
During 1994 and 1995, the Balanced Fund's portfolio turnover rates were 121.82%
and 64.80%, respectively. The annual turnover rates of the common stock portion
of the Balanced Fund's portfolio for 1994 and 1995 were 68.53% and 64.27%,
respectively, and for the bond portion for 1994 and 1995 were 220.87% and
65.81%, respectively. Although it is impossible to predict with certainty the
Balanced Fund's ongoing portfolio turnover rate, the investment adviser expects
that under normal circumstances it will be less than 100% each year. During
periods of rapidly changing interest rates, however, the turnover rate may be
greater than 100%. This results from the investment adviser's desire to optimize
rates of return during such periods.
SHORT-TERM FUND
There is no turnover information for the Short-Term Fund as it holds its
securities for less than one year.
INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental policies of each Fund. A
Fund may not change its investment restrictions without approval of the holders
of a majority of the outstanding shares of that Fund or of 67% of the shares
represented at a meeting of shareholders at which the holders of 50% or more of
the outstanding shares are represented. A Fund may not under any circumstances:
(1) purchase securities other than the securities in which a Fund is authorized
to invest;
(2) issue senior securities except that a Fund may borrow money or enter into
reverse repurchase agreements in an amount not to exceed 15% of its total assets
taken at market value and then only for short-term credits as may be necessary
for the clearance of transactions and from banks as a temporary measure for
extraordinary or emergency purposes (moreover, in the
3
<PAGE>
event that the asset coverage for such borrowings may fall below 300%, the Fund
will reduce, within three days, the amount of its borrowings in order to provide
for 300% asset coverage); a Fund will not borrow to increase income (leveraging)
but only to facilitate redemption requests that might otherwise require untimely
dispositions of the Fund's portfolio securities; a Fund will repay all
borrowings before making additional investments, and interest paid on borrowings
will reduce net income;
(3) make loans to other persons (except by the purchase of obligations in which
the Fund is authorized to invest); provided, however, that the Fund will not
enter into repurchase agreements if, as a result thereof, more than 10% of the
total assets of the Fund (taken at current value) would be subject to repurchase
agreements maturing in more than seven (7) days;
(4) purchase the securities of any issuer (other than obligations issued or
guaranteed as to principal and interest by the Government of the United States,
its agencies or instrumentalities) if, as a result, (a) more than 5% of the
Fund's total assets (taken at current value) would be invested in the securities
of that issuer, or (b) a Fund would hold more than 10% of any class of
securities of that issuer (for this purpose, all debt obligations of an issuer
maturing in less than one year are treated as a single class of securities);
(5) write, or invest in, straddle or spread options or invest in interests in
oil, gas or other mineral exploration or development programs;
(6) purchase securities on margin or sell any securities short;
(7) invest in the securities of any issuer, any of whose officers, directors or
security holders is an officer or director of a Fund if at the time of or after
such purchase any officer or director of that Fund would own more than 1/2 of 1%
of the securities of that issuer or if that Fund's officers and directors
together would own more than 5% of the securities of that issuer;
(8) purchase any securities that would cause more than 25% of the value of a
Fund's total net assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that there is no limitation with respect to investments
in U.S. Treasury Bills, other obligations issued or guaranteed by the federal
government, its agencies and instrumentalities, certificates of deposit,
commercial paper and bankers' acceptances, or any obligations of U.S. branches
of foreign banks and foreign branches of U.S. banks, except as these investments
may be limited by the Treasury regulations under section 817(h) of the Internal
Revenue Code;
(9) invest more than 5% of the value of the Fund's total assets at the time of
investment in the securities of any issuer or issuers which have records of less
than three years continuous operation, including the operation of any
predecessor, but this limitation does not apply to securities issued or
guaranteed as to interest and principal by the United States Government or its
agencies or instrumentalities;
4
<PAGE>
(10) mortgage, pledge or hypothecate its assets except in an amount up to 15%
(10% as long as the Fund's shares are registered for sale in certain states) of
the value of the Fund's total assets but only to secure borrowings for temporary
or emergency purposes;
(11) 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;
(12) purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts;
(13) invest in companies for the purpose of exercising control; or
(14) invest in securities of other investment companies, except as they may be
acquired as part of a merger, consolidation or acquisition of assets.
In addition to these investment restrictions, from time to time the Board of
Directors may establish investment guidelines to be followed by the investment
adviser in connection with the investment of Fund assets. These guidelines are
not fundamental policies and may be changed at any time without shareholder
vote. Currently, the Board has adopted guidelines regarding investment in
derivatives (such as CMOs), which among other things, establish certain minimum
criteria for the types of derivative securities that may be purchased. Under
such guidelines, fixed income derivatives purchased for the Funds must have low
to moderate volatility and must perform consistently across a wide range of
interest rate scenarios. They also must exhibit little excess interest rate
risk relative to Treasuries of comparable duration. Derivative securities may
not exceed 20% of the total assets of the Horace Mann Income Fund or 20% of the
fixed portion of the total assets of the Horace Mann Balanced Fund.
MANAGEMENT OF THE FUNDS
A listing of the Directors and Officers of each Fund, their age, their principal
occupations for the past five years and their affiliation with other companies
affiliated with Horace Mann Life Insurance Company is presented below.
Correspondence with any Director or Officer may be addressed to the offices of
the Funds at P.O. Box 4657, Springfield, Illinois 62708-4657.
BOARD OF DIRECTORS
*A. THOMAS ARISMAN (1, 2, 3), 49, Director; Senior Vice President, Allegiance
Life Insurance Company, Educators Life Insurance Company of America, Horace Mann
Life Insurance Company, and Horace Mann Service Corporation; Director and
President, Horace Mann Investors, Inc.; formerly held other officer and Director
positions of various subsidiaries of Horace Mann Educators Corporation.
5
<PAGE>
*LARRY K. BECKER (1, 3, 4), 47, Director and Chairman of the Board; Director,
Executive Vice President, and Chief Financial Officer, AIC Acquisition
Corporation, Allegiance Insurance Company, Allegiance Life Insurance Company,
Association & Consumer Marketing Services Corp., Educators Life Insurance
Company of America, Horace Mann Insurance Company, Horace Mann Life Insurance
Company, Horace Mann Service Corporation, Insuror Management Company, Senior
Marketing Insurance Service Corporation, Teachers Insurance Company, and Well-
Care, Inc.; Executive Vice President and Chief Financial Officer, Horace Mann
Educators Corporation; Director, Horace Mann Investors, Inc.; formerly held
other officer and Director positions of various subsidiaries of Horace Mann
Educators Corporation.
A. L. GALLOP (2), 70, Director; Executive Director (Retired), Minnesota
Education Association; formerly Director, Horace Mann Educators Corporation
(1968-1983).
HARRIET A. RUSSELL (4), 53, Director; member, Cincinnati Board of Education;
Director and Vice President, Greater Cincinnati School Employer Credit Union;
teacher (Retired), Walnut Hills High School; former Director, Horace Mann Growth
Fund, 1974 to 1983.
*GEORGE J. ZOCK (1, 2, 3), 45, Director and President; Director, Senior Vice
President and Treasurer, AIC Acquisition Corporation, Allegiance Insurance
Company, Allegiance Life Insurance Company, Association & Consumer Marketing
Services Corp., Educators Life Insurance Company of America, Horace Mann
Insurance Company, Horace Mann Life Insurance Company, Horace Mann Service
Corporation, Senior Marketing Insurance Service Corporation, Teachers Insurance
Company and Well-Care, Inc.; Senior Vice President and Treasurer, Horace Mann
Educators Corporation and Insuror Management Company; formerly held other
officer and Director positions of various subsidiaries of Horace Mann Educators
Corporation.
- ---------------------
*Director is considered an "interested person" as that term is defined in the
Investment Company Act of 1940.
(1) Member of Executive Committee - Unless otherwise provided by resolution of
the Board, this committee may exercise all of the powers of the Board when the
Board is not in session, except as otherwise stated in the Funds' By-Laws.
(2) Member of Audit/Insurance Committee - This committee serves as the Board's
liaison with the Funds' independent auditors, reviews the financial operation of
the Funds, and makes periodic reports of these reviews to the Board, along with
appropriate recommendations regarding the proper and efficient financial
operation of the Funds. Additional responsibilities
6
<PAGE>
include the review and assurance of the adequacy of insurance coverage for the
Funds.
(3) Member of Securities Committee - This committee coordinates and
communicates with the Funds' investment adviser on behalf of the Board, reviews
and oversees investment management activities, makes recommendations to the
Board on changes in the investment guidelines, recommends changes or adjustments
to the investment advisory agreement, creates and revises standards of
investment performance, and advises the Board on investment issues.
(4) Member of Nominating Committee - This committee is responsible for the
selection of appropriate, qualified persons as director nominees to be presented
to Fund shareholders for their consideration. The committee has no formal
policy with respect to prospective director nominees recommended by
shareholders, but shareholders are free to make recommendations.
OFFICERS
ANN M. CAPARROS, 43, Secretary and Ethics Compliance Officer; Director, Vice
President, General Counsel and Corporate Secretary, AIC Acquisition Corporation,
Allegiance Insurance Company, Allegiance Life Insurance Company, Association &
Consumer Marketing Services Corp., Educators Life Insurance Company of America,
Horace Mann Insurance Company, Horace Mann Life Insurance Company, Horace Mann
Service Corporation, Senior Marketing Insurance Service Corporation, Teachers
Insurance Company, and Well-Care, Inc.; Vice President, General Counsel and
Corporate Secretary, Horace Mann Educators Corporation and Insuror Management
Company; Secretary, Horace Mann Investors; prior to March 1994, was associated
with John Deere Insurance Group and Affiliates serving as Assistant Vice
President, Vice President, General Counsel, Corporate Secretary and Claims
Manager.
ROGER W. FISHER, 43, Controller; Vice President and Controller, AIC Acquisition
Corporation, Allegiance Insurance Company, Allegiance Life Insurance Company,
Association & Consumer Marketing Services Corp., Educators Life Insurance
Company of America, Horace Mann Educators Corporation, Horace Mann Insurance
Company, Horace Mann Service Corporation, Horace Mann Life Insurance Company,
Insuror Management Company, Senior Marketing Insurance Service Corporation,
Teachers Insurance Company, and Well-Care, Inc.; Controller, Horace Mann
Investors, Inc.
7
<PAGE>
WILLIAM J. KELLY, 49, Treasurer and Regulatory Compliance Officer; Treasurer,
Horace Mann Investors, Inc.; Vice President, Horace Mann Life Insurance Company;
Vice President-Transfer Agent, Horace Mann Service Corporation; formerly held
other officer and Director positions of various subsidiaries of Horace Mann
Educators Corporation.
The Officers of the Funds receive remuneration from Horace Mann Service
Corporation. The Funds do not pay any remuneration to their officers.
Independent Directors are paid a $150 per diem fee by each Fund for attendance
at Board meetings and receive reimbursement for travel expenses. For the fiscal
year ended December 31, 1995, the Independent Directors' per diem fees totaled
$1,500 for each Fund.
8
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
Total
Pension or Compensation
Aggregate Retirement Benefits From the
Name of Person, Compensation Accrued as Part Funds Paid
Position From Each Fund of Fund Expenses to Directors
- -------------------- ------------------- ---------------- ------------
<S> <C> <C> <C>
A. L. Gallop $750.00 -0- $3,000.00
Harriet A. Russell $750.00 -0- $3,000.00
</TABLE>
As of the date of this Statement of Additional Information, the Directors and
Officers of the Growth Fund held in the aggregate directly and beneficially less
than 1% of the outstanding shares of Growth Fund. Directors and Officers do not
directly own any shares of Income Fund, Balanced Fund or Short-Term Fund;
however, they may invest indirectly in the Growth Fund, Income Fund, Balanced
Fund and/or Short-Term Fund through annuity contracts issued by Horace Mann Life
Insurance Company and the 401(k) plan of Horace Mann Service Corporation.
INVESTMENT ADVISORY AGREEMENTS
Pursuant to Investment Advisory Agreements with Wellington Management Company
("Wellington Management"), Wellington Management manages the investment and
reinvestment of the assets of the Funds and continuously reviews, supervises and
administers the Funds' investment programs. Wellington Management discharges
its responsibilities with oversight by the Directors of the Funds.
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. As of December
31, 1995, Wellington Management had discretionary management authority with
respect to approximately $109.2 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.
Wellington Management is a Massachusetts general partnership of which the
following persons are managing partners: Robert W. Doran, Duncan M. McFarland
and John R. Ryan.
Under these Agreements, the Growth Fund paid Wellington Management advisory fees
of $584,033, $685,599 and $817,246 for the fiscal years ended December 31, 1993,
1994, and 1995, respectively. The Income Fund paid Wellington Management
advisory fees of $21,637, $23,460 and $24,703 for the fiscal years ended
December 31, 1993, 1994 and 1995, respectively. The Balanced Fund paid
Wellington Management advisory fees of $384,398, $465,385 and $579,308 for the
fiscal years ended December 31, 1993, 1994, and 1995, respectively. The Short-
Term Fund's advisory fees of $1,465, $1,289 and $1,444 for the fiscal years
ended December 31, 1993, 1994, and 1995, respectively, were paid to Wellington
Management by Horace Mann Investors, Inc.
9
<PAGE>
BROKERAGE ALLOCATION
The 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 direct Wellington Management to use its best efforts to obtain
the best available price and most favorable execution. Subject to policies
established by the Directors of the Funds, Wellington Management may also be
authorized to effect individual securities transactions at commission rates in
excess of the minimum commission rates available, if Wellington Management
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 Wellington Management's overall
responsibilities with respect to the Funds and other clients.
In placing portfolio transactions, Wellington Management 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. Wellington
Management 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. See, "Business Management Agreements and other Services -
Fund Pricing Agreements and Custodial Agreement."
Some securities considered for investment by the Funds may also be appropriate
for other funds and/or clients served by Wellington Management. To assure fair
treatment of each fund and all clients of Wellington Management 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 Wellington Management.
The Growth Fund paid brokerage fees of $303,053, $458,195 and $522,990 in the
fiscal years ended December 31, 1993, 1994 and 1995, respectively; the Balanced
Fund paid brokerage fees of $146,119, $237,952 and $269,217 for those same
respective periods. The Income Fund and Short-Term Fund paid no brokerage fees.
Substantially all of the brokerage fees were allocated to brokers who provided
research, statistical or other services. Total brokerage fees paid during a year
will vary with turnover rates.
10
<PAGE>
BUSINESS MANAGEMENT AGREEMENTS AND OTHER SERVICES
BUSINESS MANAGEMENT AGREEMENTS - As described in the Prospectus, "Management-
Business Manager," Horace Mann Investors, Inc. ("Investors") serves as the
business manager of each Fund. For providing these management services, each
Fund pays Investors a pro rata fee computed on the aggregate total net assets of
all Funds managed by Investors and sponsored by HMLIC equal to 0.25% of the
aggregate total net assets of all Funds up to $100,000,000; and 0.20% of
aggregate total net assets exceeding that amount. The management fee is accrued
daily and paid monthly and is based upon the average daily net assets.
Investors' management fee is reduced by the amount, if any, that total operating
expenses, including the Fund Pricing Agreement which follows, of each Fund
(exclusive of taxes, interest, extraordinary items and brokerage commissions and
other charges related to the purchase and sale of portfolio securities), exceed
0.50% of the first $30 million of average daily net assets, and 1% of the
average daily net assets in excess of that amount. The Growth Fund paid
Investors management fees in the amount of $351,071, $418,112 and $521,885 for
the fiscal years ended December 31, 1993, 1994, and 1995, respectively. The
Balanced Fund paid Investors management fees in the amount of $246,624, $323,198
and $408,591 for the fiscal years ended December 31, 1993, 1994 and 1995,
respectively. Investors waived the Income Fund's management fees of $18,834,
$20,029 and $20,885 and the Short-Term Fund's management fees of $2,538, $2,400
and $2,440 for the fiscal years ended December 31, 1993, 1994, and 1995,
respectively.
FUND PRICING AGREEMENTS - Effective July 1, 1994, the Funds entered into an
agreement with the First National Bank of Boston ("Bank of Boston"), a national
banking association located at 150 Royall Street, Canton, Massachusetts 02021,
to calculate the daily net asset value per share for each Fund and to maintain
certain required accounting records. The Funds pay the Bank of Boston $60,000
annually for these services as follows: Each Fund is charged a flat fee of
$5,000 with the remaining $40,000 allocated among the four Funds based upon the
average daily net assets of each Fund. This fee accrues daily and is paid
monthly to the Bank of Boston.
The Growth and Balanced Funds may compensate the Bank of Boston for these
services directly or through a commission credit arrangement with Frank Russell
Securities, Inc. Wellington Management places trades for the Growth and Balanced
Funds with Frank Russell Securities, Inc., subject to its obligation to obtain
best available price and most favorable execution. Investors directly
compensates Bank of Boston for pricing and accounting services provided to the
Income and Short-Term Funds. For the period July 1, 1994 to December 31, 1994,
fees charged to each Fund by the Bank of Boston for provision of these services
were as follows: $13,520, Growth Fund; $4,896, Income Fund; $11,110, Balanced
Fund; and $2,141, Short-Term Fund. The Bank of Boston charged the Growth Fund
$26,846, Balanced Fund $22,050, Income Fund $5,664 and the Short-Term Fund
$4,845 for 1995.
Prior to July 1, 1994, Investors provided these pricing and accounting services
to the Funds in exchange for an annual per Fund base fee of $6,000 and an asset
based charge of 0.02% of the first $50 million of net assets and
11
<PAGE>
0.01% of net assets in excess of $50 million. Investors fees for these services
for the Growth Fund were $27,134 in 1993 and $14,905 for the first six months
of 1994; for the Income Fund $7,731 in 1993, and $3,935 for the
first six months of 1994; for the Balanced Fund were $22,337 in 1993, and
$12,636 for the first six months of 1994; and for the Short-Term Fund $6,233
in 1993, and $3,110 for the first six months of 1994. Investors waived these
fees during these periods for the Income and Short-Term Funds.
CUSTODIAL AGREEMENT - Bank of Boston also serves as custodian of the assets of
each Fund, including foreign securities through a sub-custodian relationship.
Under the Custodial Agreement, the Bank of Boston maintains the Funds' portfolio
securities, administers the purchases and sales of portfolio securities,
collects interest and dividends and other distributions made on portfolio
securities, and performs such other ministerial duties outlined in the Custodial
Agreement.
The Bank of Boston charges each Fund an annual minimum administrative fee of
$3,000 for serving as custodian. The administrative fee is calculated according
to the following schedule: 1/66 of 1% for the first $100 million of assets,
1/80 of 1% for the next $100 million of assets; 1/200 of 1% for the next 800
million of assets, and 1/300 of 1% for assets in excess of $1 billion. In
addition, depending on the type of transaction, a charge ranging from $7.50 to
$12.00 is assessed for each individual portfolio transaction.
The Growth and Balanced Funds may compensate the Bank of Boston for these
services directly or through a commission credit arrangement with Frank Russell
Securities, Inc. Wellington Management places trades for the Growth and
Balanced Funds with Frank Russell Securities, Inc., subject to its obligation to
obtain best available price and most favorable execution.
TRANSFER AND DIVIDEND PAYING AGENT - Horace Mann Service Corporation ("HMSC"),
One Horace Mann Plaza, Springfield, Illinois 62715-0001, acts as the transfer
agent and dividend disbursing agent for each Fund and is paid a fee based on the
number of accounts outstanding. HMSC is a wholly-owned subsidiary of Horace
Mann Educators Corporation ("HMEC"). "Horace Mann" is a registered service mark
of HMEC. The Funds have been given limited permission to use that service mark
in their names, subject to HMEC's right to revoke that permission.
INDEPENDENT AUDITORS - KPMG Peat Marwick LLP, 303 East Wacker Drive, Chicago,
Illinois 60601, serves as the Funds' independent auditors. KPMG Peat Marwick
LLP performs an annual audit of the financial statements of the Funds and
provides accounting advice and services related to Securities and Exchange
Commission filings throughout the year.
PURCHASE, REDEMPTION AND PRICING OF FUND SHARES
Each Fund sells and redeems its shares at net asset value per share, without a
sales or redemption charge. No minimum purchase or redemption amounts
12
<PAGE>
apply. The daily net asset value of each Fund's shares is determined by
dividing the net assets by the number of outstanding shares. Net assets are
equal to the total assets of the Fund less its liabilities. The price at which
a purchase is effected is based on the next calculated net asset value after the
order is received at the home office, One Horace Mann Plaza, Springfield,
Illinois 62715-0001. A security listed or traded on an exchange is valued at
its last sales price on the exchange where it is principally traded. In the
absence of a current quotation, the security is valued at the mean between the
last bid and asked prices on the exchange. Securities traded over-the-counter
are valued at the last current bid price. Debt securities that have a remaining
maturity of 60 days or less are valued at cost, plus or minus any amortized
discount or premium. Under the amortized cost method of valuation, the security
is initially valued at cost. Then, the Fund assumes a constant proportionate
amortization in value until maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the security.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price that would be received upon the sale of the security. When market
quotations are not available, securities are valued at fair value as determined
in good faith by the Board of Directors.
TAX STATUS
It is intended that the Funds will continue to qualify as regulated investment
companies under the Internal Revenue Code ("IRC"). In order to qualify as a
regulated investment company under the IRC, a Fund must, among other things, (a)
derive at least 90% of its gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stocks,
securities, or foreign currencies, or other income (including but not limited to
gains from options, futures or forward contracts) derived with respect to its
business of investing in these stocks, securities or foreign currencies; (b)
derive less than 30% of its gross income from the sale or other disposition of
stocks, securities or certain options, futures, or forward contracts held less
than three months, (c) distributes at least 90% of its net investment income
which includes short-term capital gains and (d) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the Fund's assets is represented by cash and cash items,
Government securities, the securities of other regulated investment companies,
and other securities limited in respect of any one issuer to 5% of the Fund's
total assets and to not more than 10% of the voting securities of that
issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than Government securities
or the securities of other regulated investment companies).
As a regulated investment company, a Fund is not subject to federal income tax
on its net investment income, (including short-term capital gains), if it
distributes all its net investment income to its shareholders. The Fund will not
be subject to federal income tax on any net capital gains (the excess of net
long-term capital gains or net short-term
13
<PAGE>
capital losses) that are distributed as capital gain dividends. The IRC
imposes a 4% nondeductible excise tax on a publicly-held mutual fund to the
extent such mutual fund does not distribute at least 98% of its ordinary income
and 98% of its capital gains (both long-term and short-term) each year by the
end of such year. Since shares of the Growth Fund are held in part by the
public, the Growth Fund intends to comply with these distribution requirements.
For the purpose of the 4% excise tax, any income or gain retained by the Growth
Fund subject to tax will be considered to have been distributed by year-end.
Dividends and distributions will be treated as paid when actually distributed,
except that dividends declared in December payable to shareholders of record on
a specified date in December, and paid before February 1 of the following year,
will be treated as having been (i) paid on December 31 of the current year in
which declared and (ii) received by each shareholder on that date.
The Funds are investment vehicles for the variable contracts of Horace Mann Life
Insurance Company. The separate accounts which maintain the variable contracts
must satisfy quarterly diversification requirements under IRC 817(h). These
diversification requirements, which apply in addition to the diversification
requirements imposed on the Fund by the Investment Company Act of 1940, place
limitations on the investments of each Fund that can be made in the securities
of certain issuers. If Fund investments are not adequately diversified under
section 817(h), the earnings of all variable contracts invested, in whole or
part, in that Fund will be currently taxable to the variable contract owners.
The above discussion is only an abbreviated summary of the applicable provisions
of the IRC and is not intended as tax advice.
14
<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth, as of April 1, 1996, the holdings of the capital
stock of each of the Funds known by the respective Fund to own, control or hold
with power to vote 5% or more of its outstanding securities. Since the listed
insurance company registered separate accounts' voting rights are passed through
to contract owners, the insurance companies themselves do not exercise voting
control over the shares held in those accounts.
<TABLE>
<CAPTION>
Growth Fund: Type of Shares % of Shares
- ------------ Ownership Owned Outstanding
----------- ---------- -----------
<S> <C> <C> <C>
Horace Mann Life Insurance Company
One Horace Mann Plaza
Springfield, Illinois 62715
(a) Horace Mann Life Insurance Company
Separate Account......................... Record 10,085,036 70.67
(b) Horace Mann Life Insurance Company
Separate Account B....................... Record 1,007,638 7.06
Income Fund:
- -----------
Horace Mann Life Insurance Company
One Horace Mann Plaza
Springfield, Illinois 62715
(a) Horace Mann Life Insurance Company
Separate Account........................... Record 803,272 96.04
Balanced Fund:
- --------------
Horace Mann Life Insurance Company
One Horace Mann Plaza
Springfield, Illinois 62715
(a) Horace Mann Life Insurance
Company Separate Account................... Record 12,528,253 95.43
Short-Term Fund:
- ----------------
Horace Mann Life Insurance Company
One Horace Mann Plaza
Springfield, Illinois 62715
(a) Horace Mann Life Insurance Company
Separate Account......... Record 85,888 84.16
(b) Horace Mann Life Insurance Company
(depositor)................................ Record 10,000 9.80
</TABLE>
15
<PAGE>
Horace Mann Life Insurance Company is organized under the laws of the State of
Illinois and is a wholly-owned subsidiary of Allegiance Life Insurance Company,
an Illinois-domiciled life insurance company. One hundred percent of the stock
of Allegiance Life Insurance Company is held by Horace Mann Educators
Corporation, an insurance holding company incorporated in Delaware.
FINANCIAL STATEMENTS
The Funds audited financial statements for the year ended December 31, 1995, and
the Report of Independent Auditors thereon, are incorporated herein by reference
from the Funds' Annual Report dated December 31, 1995. The Report of Independent
Auditors for the eight years ended December 31, 1993 is included in the
Registration Statement. A copy of the Annual Report must be accompanied by or
preceded by the prospectus. Additional copies of the Annual Report and/or the
Reports of Independent Auditors may be obtained, upon request and without
charge, by contacting the offices of the Funds at P.O. Box 4657, Springfield,
Illinois 62708-4657, by sending a telefacsimile (FAX) transmission to
(217) 527-2307, or by telephoning (217) 789-2500 or (800) 999-1030 (toll-free).
16
<PAGE>
APPENDIX A
DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
COMMERCIAL PAPER RATINGS - Moody's Investors Service, Inc., employs the
designations "Prime-1", "Prime-2" and "Prime-3" to indicate commercial paper
having the highest capacity for timely repayment. Issuers rated PRIME-1 have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
Issues rated PRIME-2 have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics cited above, but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Standard & Poor's Corporation's ratings of commercial paper are graded into four
categories ranging from "A" for the highest quality obligations to "D" for the
lowest. A - Issues assigned its highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with numbers 1, 2 and 3 to indicate the relative degree of safety. A-1 - This
designation indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics will be denoted with a plus (+) sign
designation. A-2 - Capacity for timely payments on issues with this designation
is strong. However, the relative degree of safety is not as high as for issues
designated "A-1."
CORPORATE DEBT SECURITIES - Moody's Investors Service, Inc., rates the long-term
debt securities issued by various entities from "Aaa " to "D." AAA -Best
quality. These securities carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a
large, or by an exceptionally stable, margin and principal is secure. While the
various protective elements are likely to change, these changes are most
unlikely to impair the fundamentally strong position of such issues. AA - High
quality by all standards. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities, fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present that make the long-term risks appear somewhat greater. A - Upper medium
grade obligations. These bonds possess many favorable investment attributes.
Factors giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in
the future. BAA - Medium grade obligations. Interest payments and principal
security appear adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well.
A-1
<PAGE>
Standard & Poor's Corporation also rates the long-term securities debt of
various entities in categories ranging from "AAA" to "D" according to quality.
AAA - Highest grade. They possess the ultimate degree of protection as to
principal and interest. Marketwise, they move with interest rates and provide
the maximum safety on all counts. AA - High grade. Generally, these bonds differ
from AAA issues only in a small degree. Here, too, prices move with the long-
term money market. A - Have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions. BBB - Regarded as having
adequate capacity to pay interest and repay principal. These bonds normally
exhibit adequate protection parameters, but adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal than for debt in higher rated categories.
A-2
<PAGE>
APPENDIX B
DESCRIPTION OF SECURITIES
REPURCHASE AGREEMENTS - Repurchase agreements are agreements under which the
purchaser (i.e., a Fund) acquires ownership of an obligation (debt instrument or
time deposit) and the seller agrees, at the time of the sale, to repurchase the
obligation at a mutually agreed upon time and price, thereby determining the
yield during the purchaser's holding period. This results in a fixed rate of
return insulated from market fluctuations during such period. If the seller of a
repurchase agreement fails to repurchase this obligation in accordance with the
terms of the agreement, the investing Fund will incur a loss to the extent that
the proceeds on the sale are less than the repurchase price. Repurchase
agreements usually involve United States Government or federal agency securities
and, as utilized by the Funds, include only those securities in which the Funds
may otherwise invest. Repurchase agreements are for short periods, most often
less than 30 days and usually less than one week. The Funds intend to enter into
repurchase agreements only with domestic commercial and savings banks and
savings and loan associations with total assets of at least one billion dollars,
or with primary dealers in United States Government securities. In addition, the
Funds will not enter into repurchase agreements unless (a) the agreement
specifies that the securities purchased, and interest accrued thereon, will have
an aggregate value in excess of the price paid; and (b) the Funds take delivery
of the underlying instruments pending repurchase. In entering into a repurchase
agreement, a Fund is exposed to the risk that the other party to the agreement
may be unable to keep its commitment to repurchase. In that event, the Fund may
incur disposition costs in connection with liquidating the collateral (i.e., the
underlying security). Moreover, if bankruptcy proceedings are commenced with
respect to the selling party, receipt of the value of the collateral may be
delayed or substantially limited. The Funds believe that these risks are not
material inasmuch as the Funds will evaluate the credit worthiness of all
entities with which it proposes to enter into repurchase agreements, and will
seek to assure that each such arrangement is adequately collateralized.
REVERSE REPURCHASE AGREEMENTS - Reverse repurchase agreements involve the sale
of money market securities held by a Fund, with an agreement to repurchase the
securities at an agreed upon price, date and interest payment. If it employs
reverse repurchase agreements, a Fund will use the proceeds to purchase other
money market securities and instruments eligible for purchase by that Fund
either maturing, or under an agreement to resell, at a date simultaneous with or
prior to the expiration of the reverse repurchase agreement. At the time it
enters into a reverse repurchase agreement, a Fund will place in a segregated
custodial account securities having a value equal to the repurchase price. A
Fund will generally utilize reverse repurchase agreements when the interest
income to be earned from the investment of the proceeds of the transactions is
greater than the interest expense incurred as a result of the reverse repurchase
transactions. Reverse repurchase agreements involve the risk that the market
value of securities purchased by the Fund with the proceeds of the transaction
may decline below the repurchase price of the securities by the Fund which it is
obligated to
B-1
<PAGE>
repurchase. As a matter of operating policy, the aggregate amount of illiquid
repurchase and reverse repurchase agreements will not exceed 10% of any of the
Funds' total net assets at the time of initiation.
WARRANTS - Warrants are instruments that provide the owner with the right to
purchase a specified security, usually an equity security such as common stock,
at a specified price (usually representing a premium over the applicable market
value of the underlying equity security at the time of the warrant's issuance)
and usually during a specified period of time. Moreover, they are usually issued
by the issuer of the security to which they relate. While warrants may be
traded, there is often no secondary market for them. The Funds will invest in
publicly traded warrants only. Warrants do not have any inherent value. To the
extent that the market value of the security that may be purchased upon exercise
of the warrant rises above the exercise price, the value of the warrant will
tend to rise. To the extent that the exercise price equals or exceeds the market
value of such security the warrants will have little or no market value. If
warrants remain unexercised at the end of the specified exercise period, they
lapse and the investing Fund's investment in them will be lost. In view of the
highly speculative nature of warrants, as a matter of operating policy, no Fund
will invest more than 5% of its total net assets in warrants.
CONVERTIBLE PREFERRED STOCKS AND DEBT SECURITIES - Certain preferred stocks and
debt securities include conversion features allowing the holder to convert
securities into another specified security (usually common stock) of the same
issuer at a specified conversion ratio (e.g., two shares of preferred for one
share of common stock) at some specified future date or period. The market value
of convertible securities generally includes a premium that reflects the
conversion right. That premium may be negligible or substantial. To the extent
that any preferred stock or debt security remains unconverted after the
expiration of the conversion period, the market value will fall to the extent
represented by that premium.
PREFERRED EQUITY REDEMPTION CUMULATIVE STOCK - Preferred Equity Redemption
Cumulative Stock (PERCS) are a form of convertible preferred stock which
automatically convert into shares of common stock on a predetermined conversion
date. PERCS pay a fixed annual dividend rate which is higher than the annual
dividend rate of the issuing company's common stock. However, the terms of
PERCS limit an investor's ability to participate in the appreciation of the
common stock (usually capped at approximately 40%). Predetermined redemption
dates and prices set by the company upon the issuance of the securities provide
the mechanism for limiting the price appreciation of PERCS.
ADJUSTABLE RATE MORTGAGE SECURITIES - Adjustable rate mortgage securities
(ARMs), are pass-through mortgage securities collateralized by mortgages with
adjustable rather than fixed rates. ARMs eligible for inclusion in a mortgage
pool generally provide for a fixed initial mortgage interest rate for either the
first three, six, twelve, thirteen, thirty-six or sixty scheduled monthly
payments. Thereafter, the interest rates are subject to periodic adjustment
based on changes to a designated benchmark index.
ARMs contain maximum and minimum rates beyond which the mortgage interest
B-2
<PAGE>
rate may not vary over the lifetime of the security. In addition, certain ARMs
provide for limitations on the maximum amount by which the mortgage interest
rate may adjust for any single adjustment period. Alternatively, certain ARMs
contain limitations on changes in the required monthly payment. In the event
that a monthly payment is not sufficient to pay the interest accruing on an ARM,
any such excess interest is added to the principal balance of the mortgage loan,
which is repaid through future monthly payments. If the monthly payment for
such an instrument exceeds the sum of the interest accrued at the applicable
mortgage interest rate and the principal payment required at such point to
amortize the outstanding principal balance over the remaining term of the loan,
the excess is utilized to reduce the then outstanding principal balance of the
ARM.
TYPES OF CREDIT ENHANCEMENT - Mortgage backed securities and asset-backed
securities are often backed by a pool of assets representing the obligations of
a number of different parties. To lessen the effect of failures by obligors on
underlying assets to make payments, these securities may contain elements of
credit support which fall into two categories: (i) liquidity protection and
(ii) protection against losses resulting from ultimate default by an obligor on
the underlying assets. Liquidity protection refers to the provision of
advances, generally by the entity administering the pool of assets, to seek to
ensure that the receipt of payments on the underlying pool occurs in a timely
fashion. Protection against losses resulting from default seeks to ensure
ultimate payment of the obligations on at least a portion of the assets in the
pool. This protection may be provided through guarantees, insurance policies,
or letters of credit obtained by the issuer or sponsor from third parties,
through various means of structuring the transaction or through a combination of
such approaches. The degree of credit support provided for each issue is
generally based on historical information respecting the level of credit risk
associated with the underlying assets. Delinquencies or losses in excess of
those anticipated could adversely affect the return on an investment in a
security. A Fund will not pay any additional fees for credit support, although
the existence of credit support may increase the price of a security.
B-3
<PAGE>
HORACE MANN FAMILY OF FUNDS
[PHOTO APPEARS HERE]
ANNUAL REPORT, DECEMBER 31, 1995
<PAGE>
[PHOTO APPEARS HERE] MAP OUT YOUR FUTURE
You can never start making your future plans too soon. The earlier you begin
building a retirement nest egg, the more time you'll have to set aside the
income you'll need. By following a well-developed plan, your lifestyle can
remain as it is today.
At Horace Mann, we offer a variety of retirement planning products designed to
meet your needs now and in the future. Together, we can design a retirement
strategy that will help you attain your financial goals.
<PAGE>
HORACE MANN FAMILY OF FUNDS
HORACE MANN GROWTH FUND, INC.
HORACE MANN INCOME FUND, INC.
HORACE MANN BALANCED FUND, INC.
HORACE MANN SHORT-TERM INVESTMENT FUND, INC.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Letter from the Chairman of the Board and the President.......... 2
Letters from the Investment Adviser with
Fund Performance Graphs........................................ 4
Average Annual Total Return
Horace Mann Family of Funds.................................... 14
Audited Financial Statements..................................... 16
</TABLE>
1
<PAGE>
DEAR SHAREHOLDER,
1995 was an exceptional year for investment in the U.S. stock and bond markets.
We are pleased to report that the Horace Mann Funds participated in this rally.
The exhibit below shows that the Growth Fund produced a return of 33.7%. This
return, which was just below the return of the S&P 500 Stock Index, is
consistent with the conservative nature of the management of the Fund. The
Income Fund also posted a solid return of 14.9%. The Balanced Fund, which
combines the investment disciplines of the Growth and Income Funds, produced a
return of 27.1%, falling right between these two components.
12 month period ended 12/31/95
[GRAPH APPEARS HERE]
Growth Fund 33.7%
Stock Index/1/ 37.6%
Income Fund 14.9%
Bond Index/2/ 15.3%
Balanced Fund 27.1%
Stock/Bond Index/3/ 28.3%
Short-Term Fund 5.3%
Treasury Bill Index/4/ 5.5%
Past performance does not assure future results.
The degree of successful performance of your Horace Mann Funds are consistently
judged in relation to comparative market benchmarks. While the Funds' 1995
results fall short of the one-year performance of market benchmarks, longer-term
performance remains in line with market indices. The total rate of return of
each Horace Mann Fund relative to its period ended December 31, 1995, is
discussed in the Letters from the Investment Advisers, pages 4 - 11, and shown
along with annualized long-term performance in the Table found on page 14.
REVIEWING THE YEAR
1995 was a refreshing change compared to 1994. While 1994 was not the worst year
in the stock market, it was a year when several changes in direction made it
particularly difficult to consistently stay ahead in the market. Happily, this
trend did not continue into 1995. Investors seemed to have made up their minds
in 1995 that the economic growth was indeed back and that inflation was under
control. The Federal Reserve was quite active in trying to manage economic
activity through interest rate changes in 1994 and 1995. Fortunately, investors
seem to believe that the Fed's management of the economy is working.
Specifically, interest rates fell, which fueled both positive corporate
activity, leading to stock market gains, and increased returns on bond
investments. Jack Ryan, portfolio manager for the Funds' stock investments, and
John Keogh, portfolio manager for the Funds' bond investments, describe these
activities in their letters that follow.
MARKET AND POLITICAL ISSUES
One single factor that exerted a dominant influence on how both the stock and
bond markets acted in 1995, was falling interest rates. As mentioned above, the
Federal Reserve lowered rates during the year. In 1994, rates were raised in an
effort to slow economic growth and to control inflation. This seemed to have
worked. Later in 1995, the Fed was able to lower interest rates, which tends to
increase economic activity through lower capital costs for corporations. This
translates to better corporate earnings which results in increased stock prices.
Individuals benefit too. For example, lower interest rates often lead more
people to purchase homes, which is beneficial to them and a boost to home
builders and other service providers in this area.
/1/Stock Index: S&P 500, Standard and Poor's 500 Composite Index, an unmanaged
index consisting of 500 stocks.
/2/Bond Index: Lehman Bros. Intermediate Government/Corporate Bond Index, an
unmanaged index consisting of U.S. Treasury Bonds, U.S. agency bonds and
investment grade corporate bonds with intermediate maturities.
/3/Stock/Bond Index: Weighted 60% S&P 500 and 40% Lehman Bros. Intermediate
Government/Corporate Bond Index, rebalanced monthly.
/4/Treasury Bill Index: An unmanaged index consisting of U.S. Treasury bills
with 90-day maturities.
2
<PAGE>
Lower rates also benefit the bond market. As a direct result of lower rates, the
prices of bonds increased in 1995 so that returns exceeded the level earned
through interest income alone. However, like the housing activity mentioned
above, many mortgage borrowers decided to refinance their loans in 1995, which
requires them to pay off their existing loans. These early repayments, known as
"prepayments" in the investing world, have a negative impact on securities
backed by these mortgages. Thus, these mortgage-backed securities underperformed
the general bond market in 1995. The Funds' fixed income investments reflect
conservative levels of these securities, so that performance was not too
significantly impacted by this prepayment activity.
1995 proved to be a pre-cursor to a likely politically charged 1996 campaign
year. The markets were most cautious about the budget debate between the
Clinton administration and the republican Congress. Late in the year, there was
even some questioning of the Federal government's "creditworthiness." However,
the relative stability of the stock and bond markets during this period is an
indication that investors generally believe that the situation will be resolved
without impacting the holders of treasury securities. The Funds' Investment
Advisor employs experts in political and economic research, and shareholders can
be assured that they are following the situation closely.
PERSPECTIVE
Even after such a good year in the markets, it is still important to remember
that investment market returns should be viewed over longer time periods to help
shareholders accumulate assets in excess of inflation. At the Horace Mann Family
of Funds, we recognize your commitment to long-term investing to accumulate
assets for your retirement, and we take a conservative approach to managing your
money. Although 1994 was a year of lower market returns, 1995 showed us that the
markets tend to bounce back from these tougher periods to produce good long term
returns. The same basic tenants apply to solid investing:
. Save for your retirement.
. Invest carefully in a conservative way.
. Invest for the long term.
We appreciate your continuing confidence in the Horace Mann Family of Funds.
Sincerely,
/s/ George J. Zock
George Zock
President
Horace Mann Family of Funds
/s/ Larry K. Becker
Larry Becker
Chairman
Horace Mann Family of Funds
3
<PAGE>
LETTER FROM THE INVESTMENT ADVISER
HORACE MANN GROWTH FUND
PERFORMANCE
Strong corporate earnings and a favorable interest rate environment helped the
U.S. stock market and the Horace Mann Growth Fund post robust returns for the
twelve months ended December 31, 1995. The Growth Fund provided a solid 1995
return to shareholders of 33.7%.
To put in perspective the relative strength of this year's U.S. stock market,
the S&P 500 Stock Index return of 37.6% for 1995 was its best year since the
43.4% return of 1958. The historical average for the S&P 500 Stock Index is
roughly 12% measured over the period 1970-1995. 1958 was also a year marked by
large cash flows into stocks, low inflation, and declining short-term rates much
like 1995. For the stock market, it seemed to be a case of everything that
needed to go right did. The Federal Reserve seems to have managed to engineer a
"soft landing" in which overall economic growth slowed, but corporate earnings
continued to increase, albeit at a lower pace.
PORTFOLIO REVIEW
Over the year, we have reduced our weighting in the finance sector as these
stocks soared in reaction to declining interest rates and hit the price targets
we had set for them. While we have reduced our overall weighting in the banking
sector this year, the portfolio continues to maintain a material weighting in
this sector. Citicorp, BankAmerica Corp., and First Chicago NBD represent
several banks that we believe will maintain positive earnings momentum heading
into the new year. Despite the strong relative performance of banks throughout
the year, their balance sheets and earnings power should allow robust dividend
growth going forward. We have also selectively added several insurance company
positions to the portfolio on the belief that the fundamental valuations in the
insurance industry are strong and will continue to improve in the future.
We added to our energy position in the second half of the year, anticipating
that a return to a more normal winter versus an unusually warm winter last year
would reveal that natural gas markets are tightly balanced and that buyers are
complacent about reliance on the spot market. The colder than average winter
this year has already pushed natural gas prices up sharply, with near-term
natural gas futures trading at their highest levels since they began trading in
1990.
We continue to be opportunistic in our purchases within out-of-favor industries.
For example, although the portfolio remains underweighted in Health Care, we
were able to sell US Healthcare at a good profit and reinvest the sales proceeds
in Value Health, another well-managed health care provider, under a temporary
cloud.
The deterioration of the global grain markets due to adverse weather in South
American grain belts has led to price appreciation in our fertilizer and farm
equipment holdings. We believe that, given the rapid growth in many developing
economies, the era of tame food and energy prices, which has lasted about 10
years, could be drawing to a close.
At current price levels, we are not adding to our positions in economically
sensitive commodity stocks, but are changing the composition of our holdings in
response to relative price moves in some of these securities. Paper stocks sold
off sharply on negative short-term developments, but we believe that the
industry's favorable long-term fundamentals remain in place. Accordingly, we
have taken profits in some of our better performing aluminum holdings and have
reinvested the proceeds in well-positioned paper companies.
The stock market rally continues, certain segments of the market are frothy, and
stock market valuations are above historical norms on an earnings basis.
Although the breadth of the rally has left few sectors of the market
undervalued, we continue to find investment opportunities on the basis of
company-specific considerations as opposed to broader themes.
ECONOMIC OUTLOOK
We believe that the U.S. economy is in the latter stages of a soft landing, and
the probability of a major recession next year is low. In the absence of any
external shocks that destroy business and consumer confidence, we believe that
the economy should grow by 2.5% in 1996, that is, near its long-term sustainable
growth rate.
Admittedly, economic signals are mixed. Recessionary concerns seem centered on
relatively slow job creation and weakness in retail. Job growth has slowed as
manufacturers and retailers, faced with lower than expected sales, are reducing
inventories. We believe that this process of inventory correction,
4
<PAGE>
which started in the first half of 1995, is almost over, and in 1996, production
and job creation should grow in line with underlying demand. Demand for housing
already has picked up in response to lower interest rates, and the Federal
Reserve is poised to cut interest rates more vigorously if a balanced budget
deal is signed into law. A middle-income tax cut, likely to be enacted during
the coming election year, would further enhance consumer confidence and spending
power. As for the perceived weakness in retailing, we believe it represents the
inevitable winnowing out of the weaker companies in an overcrowded industry.
While a resurgence in inflation has thus far been avoided, upward price
pressures remain on the horizon, particularly in agricultural commodities and
energy. For 1996, we expect consumer price inflation of 3%, versus slightly less
than 3% in 1995. Given that long-term interest rates have declined nearly 2% in
1995, and bond market expectations are optimistic, long-term rates are likely
near a bottom. Short-term rates, however, will likely move lower.
Corporate profits will continue to grow in 1996, but at a slower, probably
single-digit pace. Companies continue to use the significant increases in cash
flows being generated by improved profits to fund acquisitions and capital
investments, stock repurchases, debt reduction, and, to a lesser extent,
dividend increases. Productivity improvements from capital investments and
corporate restructurings will continue to contribute significantly to profit
growth.
The Fund's shareholders have benefited from the rising market in 1995 to achieve
strong absolute performance for the year. We are obliged, however, to point out
that 1995 was an exceptional year for the stock market and, as such, it is
unlikely to be repeated. We will continue to manage the Growth Fund with the
consistent strategy that we have employed in the past -- with an eye toward
purchasing stocks that, in aggregate, have an above average yield, strong
earnings prospects, and are priced at attractive valuations.
Respectfully,
WELLINGTON MANAGEMENT COMPANY
/s/ John R. Ryan
John R. Ryan
Senior Vice President
Stock Portfolio Manager
Horace Mann Growth Fund, Inc.
5
<PAGE>
LETTER FROM THE INVESTMENT ADVISER
HORACE MANN INCOME FUND
PERFORMANCE
For the twelve months ended December 31, 1995, the Horace Mann Income Fund
provided shareholders with a return of 14.9%, a considerable contrast to last
year's return to shareholders of -2.2%. The Lehman Brothers Intermediate
Government/Corporate Bond Index returned 15.3% during 1995.
After raising rates to combat inflation six times in 1994 and again in early
February, the Federal Reserve lowered short-term interest rates in July and
December by 0.25% each time. This reversed the 0.50% increase in early
February. The easing move came in response to continued slow economic growth
with a favorable inflation backdrop. This environment provided an ample cushion
in real interest rates for the central bank to stimulate growth modestly.
Market psychology was also supported by progress made toward a budget resolution
and long-term deficit reduction.
Throughout 1995 the maturity (or duration) of an investor's bonds was a primary
contributor to performance. Yields on longer-term bonds declined more than
yields on shorter-term securities, reflecting the fact that the markets
anticipated additional easing by the Fed in the months ahead. Positions in
corporate securities were beneficial to returns, as corporate bonds outperformed
Treasury bonds. Broadly speaking, mortgage securities underperformed as lower
rates increased mortgage prepayments and refinancing activity.
In recent months, the government has avoided defaulting on its debt as Congress
and the Administration played "chicken" during budget negotiations. A default,
while not ultimately a matter of creditworthiness, would have created
significant problems for investors who had maturities and coupon payments due,
for investors who used Treasuries as collateral for loans and repurchase
agreements, and for investors with strict guidelines regarding the use of non-
accruing securities. In the long run the budget impasse will get resolved, but
in the short run the political posturing in Washington creates investor
nervousness and to a lessor degree, market volatility.
PORTFOLIO REVIEW
The primary objective of the Horace Mann Income Fund remains to maximize current
income consistent with prudent investment risk. A secondary objective is the
preservation of capital. In investing the assets of the Fund, we emphasize
high-quality intermediate bonds and apply intensive credit analysis and, in the
case of mortgage securities, prepayment analysis.
Individual bonds are selected from an approved universe of issues and are
purchased for their contribution to the Fund's total return. We avoid
securities that we determine to be excessively risky, although other investors
might be tempted by yields on these securities. Despite the fact that
preservation of capital is secondary to the income objective, we take it very
seriously.
In a declining interest rate environment such as 1995, the maturity and duration
of the portfolio become the primary drivers of performance. In general, the
longer the term-to-maturity of a bond, the better the performance as rates
decline. We lengthened the maturity of the Fund during the year from 4.3 years
to 5.0 years. The maturity of the Lehman Intermediate Government/Corporate Bond
Index remained relatively steady, lengthening from 4.1 years to 4.3 years.
In terms of sector allocation, by the end of 1995, we had reduced the Fund's
exposure to corporates and, to a lesser extent, asset-backed securities versus a
year earlier and added to the Fund's government and mortgage commitment. Within
the Treasury sector, we sold short-maturity Treasuries and added longer-maturity
Treasuries in order to offset the decline in maturity caused by mortgage
holdings which naturally shorten as interest rates decline.
ECONOMIC OUTLOOK
We expect that the Fed will continue to lower short-term interest rates over the
next few months, but that the moves will be in small increments and will be
infrequent. The central bank's actions will follow continued slow domestic
growth and a continued decline in long-term inflation expectations. While the
Fed works at the short end of the yield curve, we do not envision yield declines
on bonds comparable to the 1995 experience which brought, for example, a 2.25%
decline in the yield on the ten-year Treasury note.
As market prices have already anticipated additional Fed easing, this leads us
to believe that maturity may not be the primary contributor to enhanced returns
in upcoming quarters. The best opportunities to enhance returns will be through
the incremental yield offered by mortgages, corporates, asset-backed securities,
and
6
<PAGE>
other relevant sectors. Within the mortgage sector, we continue to favor
discounted securities. Within the corporate sector, we are biased toward the
high end of the quality spectrum. Therefore, we are likely to increase the
Fund's exposure to these sectors of the market as we try to enhance shareholder
returns in 1996. In short, sector allocation will play a more important role in
1996 as the Fund's ability to add incremental return vis a vis a bullish
maturity stance becomes more difficult with short-term interest rates as low as
they are today. As always, we will examine the variety of alternative
structures in the marketplace, including mortgages and corporates, for selective
opportunities to add yield in conjunction with prudent investment risk.
The greatest risk to our outlook is our optimistic inflation forecast. Recent
commodity pricing pressures, notably metals, natural gas, and food, suggest that
near-term inflation will actually be above trend and may give the markets reason
to pause. Longer-term, we continue to believe inflation will be tame.
The Fund's shareholders have benefited from the rising market in 1995 to achieve
strong absolute performance for the year. We are obliged, however, to point out
that 1995 was an exceptional year for the bond market and, as such, it is
unlikely to be repeated. We will continue to manage the Income Fund with the
consistent strategy that we have employed in the past - by maximizing current
income consistent with prudent investment risk.
RESPECTFULLY,
WELLINGTON MANAGEMENT COMPANY
/s/ JOHN C. KEOGH
JOHN C. KEOGH
SENIOR VICE PRESIDENT,
BOND PORTFOLIO MANAGER
HORACE MANN INCOME FUND, INC.
7
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE HORACE MANN GROWTH FUND AND A STOCK INDEX /1/
[WITH THE FOLLOWING INFORMATION APPEARS HERE]
[GRAPH APPEARS HERE]
HORACE MANN GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------
1 year 5 year Since Inception /2/
-----------------------------------
33.67% 17.20% 13.45%
-----------------------------------
Growth Fund Index
By quarter (solid line) (broken line)
- ---------- ------------ -------------
31-Oct-89 10,000.00 10,000.00
29-Dec-89 10,432.94 10,448.90
30-Mar-90 10,206.62 10,135.17
29-Jun-90 10,543.34 10,773.71
28-Sep-90 9,345.49 9,292.68
28-Dec-90 9,831.25 10,125.28
28-Mar-91 11,082.62 11,595.15
28-Jun-91 11,502.96 11,568.65
30-Sep-91 11,763.45 12,187.71
31-Dec-91 12,461.55 13,209.30
31-Mar-92 12,266.33 12,876.06
30-Jun-92 12,858.49 13,121.10
30-Sep-92 13,001.65 13,534.29
31-Dec-92 13,656.03 14,216.13
31-Mar-93 14,805.12 14,837.10
30-Jun-93 15,246.55 14,907.71
30-Sep-93 15,835.11 15,292.16
31-Dec-93 16,351.28 15,647.50
31-Mar-94 15,972.36 15,054.74
30-Jun-94 16,326.57 15,117.81
30-Sep-94 17,051.46 15,857.24
31-Dec-94 16,293.79 15,855.07
31-Mar-95 17,623.90 17,395.88
30-Jun-95 19,046.37 19,057.19
30-Sep-95 20,228.69 20,572.23
31-Dec-95 21,780.18 21,810.68
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in Growth Fund returns. Returns under
the Annuity Alternatives contracts are shown on page 13.
/1/Stock Index: S&P 500, Standard and Poor's 500 Composite Index, an unmanaged
index consisting of 500 stocks. The rate of return shown above for the unmanaged
index has no expenses.
/2/Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Growth Fund. Previous periods during which the Growth
Fund received investment advice from CIGNA Investments, Inc., are not shown.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE HORACE MANN INCOME FUND AND A BOND INDEX /1/
[GRAPH APPEARS HERE]
HORACE MANN INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------
1 year 5 year Since Inception /2/
-----------------------------------
14.93% 8.40% 8.22%
-----------------------------------
Income Fund Index
By quarter (solid line) (broken line)
- ---------- ------------ -------------
31-Oct-89 10,000.00 10,000.00
29-Dec-89 10,109.78 10,123,27
30-Mar-90 9,970.62 10,108.82
29-Jun-90 10,306.25 10,433.01
28-Sep-90 10,412.67 10,615.77
28-Dec-90 10,846.53 11,051.51
28-Mar-91 11,097.70 11,330.07
28-Jun-91 11,363.83 11,531.50
30-Sep-91 11,913.84 12,087.77
31-Dec-91 12,500.07 12,667.89
31-Mar-92 12,393.64 12,552.43
30-Jun-92 12,858.04 13,049.48
30-Sep-92 13,409.51 13,625.07
31-Dec-92 13,368.89 13,576.36
31-Mar-93 13,886.26 14,114.64
30-Jun-93 14,144.95 14,419.14
30-Sep-93 14,445.03 14,743.76
31-Dec-93 14,481.59 14,768.41
31-Mar-94 14,148.93 14,468.60
30-Jun-94 14,049.14 14,381.71
30-Sep-94 14,160.02 14,499.40
31-Dec-94 14,161.13 14,483.22
31-Mar-95 14,632.38 15,117.59
30-Jun-95 15,433.51 15,873.47
30-Sep-95 15,716.26 16,135.38
31-Dec-95 16,275.88 16,698.45
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in Income Fund returns. Returns under
the Annuity Alternatives contracts are shown on page 13.
/1/Bond Index: Lehman Bros. Intermediate Government/Corporate Bond Index, an
unmanaged index consisting of U.S. Treasury bonds, U.S. agency bonds and
investment grade corporate bonds with intermediate maturities. The rate of
return shown above for the unmanaged index has no expenses.
/2/Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Income Fund. Previous periods during which the Income
Fund received investment advice from CIGNA Investments, Inc., are not shown.
8
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE HORACE MANN BALANCED FUND AND STOCK/BOND INDICES /1/
[GRAPH APPEARS HERE]
HORACE MANN BALANCED FUND
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------
1 year 5 year Since Inception /2/
-----------------------------------
27.12% 13.84% 11.63%
-----------------------------------
Balanced Fund Stock Index Bond Index
By quarter (solid black line) (broken line) (solid grey line)
- ---------- ------------------ ------------- -----------------
31-Oct-89 10,000.00 10,000.00 10,000.00
29-Dec-89 10,357.50 10,448.90 10,123.27
30-Mar-90 10,145.00 10,135.17 10,108.82
29-Jun-90 10,453.46 10,773.71 10,433.01
28-Sep-90 9,802.26 9,292.68 10,615.77
28-Dec-90 10,282.10 10,125.28 11,051.51
28-Mar-91 11,136.13 11,595.15 11,330.07
28-Jun-91 11,477.55 11,568.65 11,531.50
30-Sep-91 11,855.29 12,187.71 12,087.77
31-Dec-91 12,531.33 13,209.30 12,667.89
31-Mar-92 12,389.55 12,876.06 12,552.43
30-Jun-92 12,901.52 13,121.10 13,049.48
30-Sep-92 13,200.82 13,534.29 13,625.07
31-Dec-92 13,580.79 14,216.13 13,576.36
31-Mar-93 14,493.44 14,837.10 14,114.64
30-Jun-93 14,870.21 14,907.71 14,419.14
30-Sep-93 15,339.10 15,292.16 14,743.76
31-Dec-93 15,680.70 15,647.50 14,768.41
31-Mar-94 15,324.32 15,054.74 14,468.60
30-Jun-94 15,493.13 15,117.81 14,381.71
30-Sep-94 15,971.43 15,857.24 14,499.40
31-Dec-94 15,505.11 15,855.07 14,483.22
31-Mar-95 16,561.82 17,395.88 15,117.59
30-Jun-95 17,699.81 19,057.19 15,873.47
30-Sep-95 18,553.30 20,572.23 16,135.38
31-Dec-95 19,709.85 21,810.68 16,698.45
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in Balanced Fund returns. Returns under
the Annuity Alternatives contracts are shown on page 13.
/1/Stock/Bond Indices: S&P 500 Index and Lehman Bros. Intermediate
Government/Corporate Bond Index. Rate of returns shown above for the unmanaged
indices have no expenses.
/2/Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Balanced Fund. Previous periods during which the
Balanced Fund received investment advice from CIGNA Investments, Inc., are not
shown.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE HORACE MANN SHORT-TERM INVESTMENT FUND AND A TREASURY BILL INDEX /1/
[GRAPH APPEARS HERE]
HORACE MANN SHORT-TERM INVESTMENT FUND
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------
1 year 5 year Since Inception /2/
-----------------------------------
5.25% 4.17% 4.89%
-----------------------------------
Short-Term Fund Index
By quarter (solid line) (broken line)
- ---------- --------------- -------------
31-Oct-89 10,000.00 10,000.00
29-Dec-89 10,141.03 10,130.42
30-Mar-90 10,329.87 10,335.41
29-Jun-90 10,528.16 10,543.50
28-Sep-90 10,735.89 10,742.96
28-Dec-90 10,934.18 10,933.15
28-Mar-91 11,120.99 11,100.18
28-Jun-91 11,289.81 11,259.67
30-Sep-91 11,448.07 11,414.63
31-Dec-91 11,590.83 11,540.65
31-Mar-92 11,694.12 11,657.60
30-Jun-92 11,797.40 11,766.36
30-Sep-92 11,889.21 11,857.19
31-Dec-92 11,973.10 11,951.11
31-Mar-93 12,044.30 12,040.96
30-Jun-93 12,127.36 12,131.50
30-Sep-93 12,198.56 12,223.93
31-Dec-93 12,275.81 12,320.75
31-Mar-94 12,373.33 12,414.63
30-Jun-94 12,470.86 12,529.19
30-Sep-94 12,592.76 12,659.95
31-Dec-94 12,753.04 12,797.17
31-Mar-95 12,917.51 12,963.53
30-Jun-95 13,081.99 13,143.72
30-Sep-95 13,246.46 13,323.79
31-Dec-95 13,422.97 13,510.37
Past performance is not predictive of future performance.
Annuity contract fees are not reflected in Short-Term Investment Fund returns.
Returns under the Annuity Alternatives contracts are shown on page 13.
/1/Treasury Bill Index: An unmanaged index consisting of U.S. Treasury bills
with 90-day maturities. The rate of return shown above for the unmanaged
index has no expenses.
/2/Since inception refers to November 1, 1989, the date Wellington Management
Company began advising the Short-Term Investment Fund. Previous periods during
which the Short-Term Investment Fund received investment advice from CIGNA
Investments, Inc., are not shown.
9
<PAGE>
LETTER FROM THE INVESTMENT ADVISER
HORACE MANN BALANCED FUND
PERFORMANCE
The S&P 500 Stock Index registered an impressive 37.6% gain during 1995,
supported by strong earnings gains and an improved interest rate environment.
Bond markets rallied in 1995 as well, with the Lehman Brothers Intermediate
Government/Corporate Bond Index gaining 15.3% for the year. For the twelve
months ended December 31, 1995, the Horace Mann Balanced Fund provided a solid
return to shareholders of 27.1%. The Balanced Fund holds the same kinds of
stocks and bonds held separately by the Growth Fund and the Income Fund. As
expected, then, the Balanced Fund's return to shareholders of 27.1% for 1995 is
between the Growth Fund's 33.7% return and the Income Fund's 14.9% return.
PORTFOLIO REVIEW
Investor sentiment turned sharply positive during 1995, as signals from several
economic indicators suggested a slowing in the pace of GDP growth which dampened
the inflation fears that undermined stock and bond markets in 1994. Supported
by the Federal Reserves "soft landing" scenario of moderate economic growth, low
inflation, declining interest rates, and good corporate profitability, U.S.
equity and fixed income markets rallied throughout the year. The 27.1% total
return provided to shareholders of the Balanced Fund underscores the strength
exhibited by both markets throughout 1995.
ECONOMIC OUTLOOK
We believe that the U.S. economy is in the latter stages of a soft landing, and
the probability of a major recession next year is low. In the absence of any
external shocks that destroy business and consumer confidence, we believe that
the economy should grow by 2.5% in 1996, that is, near its long-term sustainable
growth rate.
Admittedly, economic signals are mixed. Recessionary concerns seem centered on
relatively slow job creation and weakness in retail. Job growth has slowed as
manufacturers and retailers, faced with lower than expected sales, are reducing
inventories. We believe that this process of inventory correction, which
started in the first half of 1995, is almost over, and in 1996, production and
job creation should grow in line with underlying demand. Demand for housing
already has picked up in response to lower interest rates, and the Federal
Reserve is poised to cut interest rates more vigorously if a balanced budget
deal is signed into law. The federal budget deficit is of particular concern to
the Federal Reserve because the government's large borrowing tends to imply
higher future taxes and also creates competition with other borrowers for funds,
conditions that cause upward pressure on interest rates. A balanced budget
agreement would lessen this concern. A middle-income tax cut, likely to be
enacted during the coming election year, would further enhance consumer
confidence and spending power.
For 1996, we expect consumer price inflation of 3%, versus slightly less than 3%
in 1995. Given that long-term interest rates have declined nearly 2% in 1995,
and bond market expectations are optimistic, long-term rates are likely near a
bottom. Short-term rates, however, will likely move lower.
The Fund's shareholders have benefited from the rising U.S. stock and bond
markets in 1995 to achieve strong absolute performance for the year. We are
obliged, however, to point out that 1995 was an exceptional year for both the
stock and bond markets and, as such, it is unlikely to be repeated. We will
continue to manage the Balanced Fund with the consistent strategy that we have
employed in the past - a diversified list of allocating approximately 60% of
assets to a diversified list of stocks with an above-average market yield, and
approximately 40% of assets in high quality intermediate-term bonds.
RESPECTFULLY,
WELLINGTON MANAGEMENT COMPANY
/s/ JOHN R. RYAN
JOHN R. RYAN
SENIOR VICE PRESIDENT,
STOCK PORTFOLIO MANAGER
HORACE MANN BALANCED FUND, INC.
/s/ JOHN C. KEOGH
JOHN C. KEOGH
SENIOR VICE PRESIDENT,
BOND PORTFOLIO MANAGER
HORACE MANN BALANCED FUND, INC.
10
<PAGE>
LETTER FROM THE INVESTMENT ADVISER
HORACE MANN SHORT-TERM
INVESTMENT FUND
PERFORMANCE
The objective of the Short-Term Fund is to realize maximum current income while
maintaining liquidity. Preservation of principal is a secondary objective. For
the twelve months ended December 31, 1995, the Horace Mann Short-Term Investment
Fund provided shareholders with a total return of 5.3%, a positive real return
for investors in a low inflation environment. The IBC/Donoghue's All Taxable
Money Market Average returned 5.5% for the year.
In sharp contrast to 1994, 1995 was a year of declining interest rates. After
the Federal Reserve increased short-term rates six times in 1994, they tightened
just once in 1995, raising key rates in February by 0.50%. A policy reversal
late in the year resulted in two short-term rate cuts by 0.25%, completely off-
setting the February increase. In a declining interest rate environment, such
as 1995, long-term bonds outperform shorter instruments such as money markets.
This is in sharp contrast to last year when returns on intermediate and long-
term bond funds were largely negative and money market instruments outperformed
them.
More importantly, we have continued our policy to avoid the more risky
strategies followed by some short-term funds which produced large negative
returns for investors in 1994. While we strive to achieve high investment
yields, we also remain careful about the risk assumed to obtain those yields.
PORTFOLIO REVIEW
The Horace Mann Short-Term Investment Fund emphasizes safety and liquidity. The
Fund invests in short-term debt instruments issued by the U.S. Government, as
well as high quality commercial paper issued by corporations and high quality
short-term instruments issued by banks. We continue to emphasize government
agency securities due to the high credit quality and comparable yields to other
short-term investments. In addition, the size of the Fund renders agency
securities more cost effective than the corporate short-term alternative,
commercial paper. This results from the fact that agency discount notes can be
purchased in small lots without materially impacting liquidity and transaction
costs. Such lower costs result in more attractive incremental yields over
comparable maturity treasury bills.
The portfolio's average maturity was increased over the course of the year to 48
days at year end versus 33 days one year ago. This longer maturity was
maintained in order to lock in prevailing yields. This is, again, a sharp
contrast to 1994 when we shortened the average maturity so that portfolio
holdings could be more quickly reinvested at higher market yields as the Fed
raised interest rates.
ECONOMIC OUTLOOK
We expect that the Fed will continue to lower short-term interest rates over the
next few months but that the moves will be in small increments and will be
infrequent. The central bank's actions will follow continued slow domestic
growth and continued decline in long-term inflation expectations.
We will continue to emphasize quality and liquidity in the Short-Term Fund, and
the Fund should retain its ability to provide a safe harbor for those assets
that shareholders do not want committed to volatile stock and bond markets.
Shareholders should be aware that the returns on all short-term investments,
including the Horace Mann Short-Term Fund, will be lower over the next few
months than they were over the course of 1995.
RESPECTFULLY,
WELLINGTON MANAGEMENT COMPANY
/s/ JOHN C. KEOGH
JOHN C. KEOGH
SENIOR VICE PRESIDENT,
BOND PORTFOLIO MANAGER
HORACE MANN SHORT-TERM
INVESTMENT FUND, INC.
11
<PAGE>
[LOGO]
AVERAGE ANNUAL TOTAL RETURN
HORACE MANN FAMILY OF FUNDS December 31, 1995
================================================================================
FOR GROWTH FUND PUBLIC SHAREHOLDERS AND PARTICIPANTS IN THE HORACE MANN EMPLOYEE
401(k) PLAN
Total average annualized returns for the period ended December 31, 1995 for the
Horace Mann Funds and their comparable benchmark indices are shown in the
following table:
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION/1/
------- -------- --------- ------------
<S> <C> <C> <C> <C>
Horace Mann Growth Fund..................... 33.67% 17.20% 13.61% 13.45%
S&P 500 Stock Index......................... 37.58 16.59 14.88 13.48
Horace Mann Income Fund..................... 14.93 8.40 8.84 8.22
Lehman Intermediate Gov't/Corp. Bond Index.. 15.31 8.61 8.82 8.67
Horace Mann Balanced Fund................... 27.12 13.84 11.90 11.63
Stock/Bond Composite/2/..................... 28.27 13.44 12.71 11.68
Horace Mann Short-Term Investment Fund...... 5.25 4.17 5.57 4.89
90-day Treasury Bills....................... 5.52 4.32 5.75 5.00
</TABLE>
Returns of the Horace Mann Funds in the above table are shown net of mutual fund
expenses. Certain mutual fund expenses have been subsidized (assumed and/or
waived) since 1983 for the Income and Short-Term Investment Funds. Commission
credits were used to pay certain expenses of the Growth and Balanced Funds
during 1994 and 1995. Certain Balanced Fund expenses were subsidized from 1983
through 1987. Subsidization and use of credits result in higher returns ranging
up to 1%, depending on the period subsidized for each Fund. There is no
guarantee that subsidization and use of credits will continue in the future.
The performance data quoted represents past performance, and does not guarantee
future results. The investment return and principal value of an investment will
fluctuate, and when redeemed, may be worth more or less than its original cost.
The benchmark indices indicated are unmanaged and have no expenses.
/1/Since inception refers to November 1, 1989 the date Wellington Management
Company began advising the Funds./
/2/60% S&P 500, 40% Lehman Brothers Intermediate Government/Corporate Bond
Index, rebalanced monthly.
14
<PAGE>
ANNUAL REPORT
DECEMBER 31, 1995
================================================================================
HORACE MANN FAMILY OF FUNDS
HORACE MANN GROWTH FUND, INC.
HORACE MANN INCOME FUND, INC.
HORACE MANN BALANCED FUND, INC.
HORACE MANN SHORT-TERM INVESTMENT FUND, INC.
DIRECTORS OF THE FUNDS
A. THOMAS ARISMAN LARRY K. BECKER, CHAIRMAN A.L. GALLOP
HARRIET A. RUSSELL GEORGE J. ZOCK
OFFICERS OF THE FUNDS
GEORGE J. ZOCK WILLIAM J. KELLY ROGER FISHER
President Treasurer and Regulatory Controller
Compliance Officer
ANN CAPARROS LINDA L. SACCO DIANE M. BARNETT
Secretary and Assistant Secretary Tax Compliance Officer
Ethics Compliance Officer
Investment Adviser Business Manager
WELLINGTON MANAGEMENT COMPANY HORACE MANN INVESTORS, INC.
75 State Street One Horace Mann Plaza
Boston, MA 02109 Springfield, IL 62715-0001
Custodian
FIRST NATIONAL BANK OF BOSTON
150 Royall Street
Canton, MA 02021
<PAGE>
[LOGO]
STATEMENT OF INVESTMENTS
HORACE MANN GROWTH FUND, INC. December 31, 1995
================================================================================
[PIE CHART APPEARS HERE]
CASH & SHORT-TERM INVESTMENTS 3%
COMMON STOCK 97%
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES (000)
--------- -------
<S> <C> <C>
COMMON STOCKS
AUTO/ACCESSORIES 5.30%
Ford Motor Company................ 98,600 $ 2,859
Goodyear Tire & Rubber Co. (The).. 284,000 12,887
-------
15,746
BANKS/FINANCIAL SERVICES 6.90%
BankAmerica Corp.................. 129,500 8,385
Citicorp.......................... 25,365 1,706
Corestates Financial Corp......... 71,700 2,716
First Chicago NBD Corp............ 70,900 2,801
First Union Corp.................. 45,000 2,503
Morgan Stanley Group.............. 29,700 2,395
-------
20,506
BUILDING & CONSTRUCTION 1.94%
Foster Wheeler Corp............... 109,000 4,633
Ryland Group Inc.................. 81,500 1,141
-------
5,774
CHEMICALS 5.18%
Air Products & Chemicals, Inc..... 65,800 3,471
Betz Laboratories................. 51,600 2,116
Ferro Corp........................ 89,000 2,069
Geon Company...................... 65,100 1,587
IMC Global Inc.................... 32,800 1,341
Vigoro Group...................... 77,600 4,792
-------
15,376
COMMUNICATION 3.40%
AT & T Corp....................... 67,000 4,338
BCE Inc........................... 76,400 2,636
COMSAT Corporation................ 52,200 972
NYNEX Corp........................ 40,000 2,160
-------
10,106
ENTERTAINMENT 0.25%
King World Productions Inc.*...... 19,100 743
FOOD/GROCERY PRODUCTS 1.68%
Flowers Industries, Inc........... 185,100 2,244
Interstate Bakeries Corp.......... 122,500 2,741
-------
4,985
HEALTH CARE 2.65%
Mallinckrodt Group................ 108,600 3,950
Value Health, Inc................. 142,700 3,924
-------
7,874
INSURANCE 6.82%
ACE Limited....................... 137,700 5,474
Allstate Corporation.............. 137,390 5,650
Chubb Corp........................ 63,600 6,153
Integon Corp...................... 113,500 2,341
Old Republic International Corp... 17,900 635
-------
20,253
IRON & STEEL 0.07%
Bethlehem Steel Corp.*............ 16,200 227
MANUFACTURING (DIVERSIFIED) 7.77%
Brunswick Corp.................... 32,700 785
Caterpillar Inc................... 82,000 4,817
Cooper Industries Inc............. 72,900 2,679
Deere & Co........................ 118,800 4,188
Johnson Controls, Inc............. 36,800 2,530
Minnesota Mining & Manufacturing.. 122,100 8,089
-------
23,088
METALS & MINING 5.05%
Alcan Aluminum Ltd................ 94,200 2,932
Aluminum Co. of America........... 180,500 9,544
Reynolds Metals Co................ 44,600 2,525
-------
15,001
OIL/GAS 22.42%
Amerada Hess Corp................. 58,300 3,090
Apache Corp....................... 50,000 1,475
</TABLE>
See notes to the financial statements.
16
<PAGE>
[LOGO]
STATEMENT OF INVESTMENTS (CONCLUDED)
HORACE MANN GROWTH FUND, INC. December 31, 1995
================================================================================
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES (000)
--------- --------
<S> <C> <C>
OIL/GAS (CONTINUED)
Ashland Inc.......................... 87,500 $ 3,073
Burlington Resources Inc............. 55,200 2,167
Camco International Inc.............. 63,200 1,770
Enron Oil & Gas Co................... 121,500 2,916
ENSCO International, Inc.*........... 173,100 3,981
Equitable Resources, Inc............. 148,700 4,647
Noble Affiliates, Inc................ 139,100 4,156
Noble Drilling Corp.*................ 99,200 893
Oryx Energy Co.*..................... 94,600 1,265
Parker & Parsley Petroleum Co........ 151,800 3,340
Seagull Energy Corp.*................ 188,400 4,192
Sonat, Inc........................... 135,300 4,820
Total S.A. ADR....................... 104,100 3,539
Ultramar Corp........................ 70,900 1,826
Union Texas Petroleum Holdings Inc... 170,600 3,305
Unocal Corp.......................... 281,800 8,207
USX-Marathon Group................... 215,200 4,196
Weatherford Enterra, Inc.*........... 129,500 3,739
--------
66,597
PAPER & WOOD PRODUCTS 9.41%
Champion Internation Corp............ 90,100 3,784
Federal Paper Board Co., Inc......... 111,500 5,784
International Paper Co............... 204,600 7,749
Kimberly-Clark Corp.................. 62,400 5,164
Mead Corporation..................... 104,900 5,481
--------
27,962
PHOTOGRAPHY 1.28%
Eastman Kodak Co..................... 56,900 3,812
RETAIL & FOOD STORES 3.61%
May Department Stores Co............. 103,900 4,390
Penney (J.C.) Co., Inc............... 58,800 2,800
Sears Roebuck & Co................... 91,000 3,549
--------
10,739
SERVICES 1.61%
Browning-Ferris Industries, Inc...... 135,000 3,982
Red Lion Hotels*..................... 45,400 795
--------
4,777
TOBACCO 1.25%
Schweitzer-Maudit Int'l.............. 6,240 144
Universal Corp.(Va.)................. 146,300 3,566
--------
3,710
TRANSPORTATION 4.94%
America West Airlines B*............. 92,200 1,567
Canadian National Railway Co.*....... 27,800 417
Conrail Inc.......................... 41,400 2,898
CSX Corporation...................... 66,000 3,011
Pittston Services Group.............. 129,300 4,057
Rollins Truck Leasing Corp........... 65,300 726
Trinity Industries................... 63,400 1,997
--------
14,673
UTILITIES/OTHER 5.47%
General Public Utilities Corp........ 144,400 4,910
New England Electric System.......... 79,500 3,150
New York State Electric & Gas Corp... 107,000 2,769
Pacific Gas & Electric Co............ 150,100 4,259
SCE Corp............................. 65,100 1,156
--------
16,244
TOTAL COMMON STOCKS.............97.00% 288,193
(Cost $245,950,600)
PRINCIPAL
AMOUNT MARKET
(000) (000)
--------- ------
SHORT-TERM INVESTMENTS
REPURCHASE AGREEMENT
Aubrey G. Lanston & Co., Inc.
5.875%, 01/02/96, (secured
by $9,825,315, US Treasury
Bill, 4.97%, 11/14/96)............... $ 9,629 $ 9,629
-------- --------
TOTAL SHORT-TERM
INVESTMENTS.....................3.24% 9,629 9,629
(Cost $9,629,000) --------
TOTAL INVESTMENTS..............100.24% 297,822
(Cost $255,579,600)
LIABILITIES IN EXCESS OF CASH
AND OTHER ASSETS..............(0.24%) (722)
--------
NET ASSETS.....................100.00% $297,100
========
</TABLE>
______________
* Non-income producing during the twelve months ended December 31, 1995.
See notes to the financial statements.
The identified cost of investments owned at December 31, 1995 was the same for
federal income tax and book purposes.
17
<PAGE>
[LOGO] STATEMENT OF INVESTMENTS
HORACE MANN INCOME FUND, INC. December 31, 1995
=======================================================================
[GRAPH APPEARS HERE]
Cash & Short-Term Investments 4%
U.S. & Foreign Government &
Agency Obligations 70%
Corporate Bonds/Notes 26%
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
(000) (000)
--------- ------
<S> <C> <C>
U.S. AND FOREIGN GOVERNMENT
AND AGENCY OBLIGATIONS
TREASURY BONDS/NOTES
7.125%, 02/29/00.................... $2,300 $ 2,449
7.250%, 08/15/04.................... 1,000 1,112
FEDERAL HOME LOAN BANK
(MORTGAGE BACKED SECURITIES)
7.310%, 06/16/04.................... 350 383
FEDERAL HOME LOAN MORTGAGE
CORPORATION (MORTGAGE BACKED
SECURITIES)
9.500%, 03/01/01.................... 54 57
9.500%, 06/01/01.................... 35 36
9.500%, 08/01/01.................... 18 19
9.500%, 10/01/01.................... 20 21
7.000%, 11/01/03.................... 62 62
8.000%, 12/01/11.................... 19 19
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE BACKED
SECURITIES)
8.875%, 07/10/01.................... 100 102
8.000%, 11/01/09.................... 26 27
7.500%, 05/01/25.................... 790 810
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE BACKED
SECURITIES)
11.500%, 03/15/10................... 16 17
12.500%, 06/15/10................... 9 10
12.000%, 03/15/14................... 8 10
12.000%, 04/15/14................... 6 7
12.000%, 12/15/14................... 23 27
12.000%, 02/15/15................... 6 7
12.000%, 03/15/15................... 15 17
12.000%, 04/15/15................... 13 14
12.500%, 04/15/15................... 4 5
12.000%, 06/15/15................... 17 19
12.000%, 07/15/15................... 18 20
12.000%, 11/15/15................... 22 24
9.000%, 11/15/16................... 165 174
9.000%, 07/15/19................... 99 105
8.500%, 09/15/24................... 326 342
9.000%, 01/15/25................... 30 31
9.000%, 03/15/25................... 271 287
9.000%, 05/15/25................... 714 756
COLLATERALIZED MORTGAGE OBLIGATION
(PLANNED AMORTIZATION CLASS) (NOTE 3)
FHLMC 1737-E PAC
6.000%, 12/15/17.................... 220 220
FOREIGN (U.S. DOLLAR DENOMINATED)
Iceland (Rep. of)
6.125%, 02/01/04.................... 200 198
------ -------
TOTAL U.S. AND FOREIGN GOVERNMENT
AND AGENCY OBLIGATIONS........70.14% 6,956 7,387
(Cost $7,084,732)
CORPORATE BONDS/NOTES
BankAmerica Corp.
6.85%, 03/01/03..................... 150 155
Boeing Co.
6.35%, 06/15/03..................... 200 205
BP America Inc. Euro
9.75%, 03/01/99..................... 100 111
Citicorp
6.750%, 08/15/05.................... 200 205
Du Pont (E.I.) de Nemours & Co., Inc.
9.15%, 04/15/00..................... 130 147
Gannett Co.
5.85%, 05/01/00..................... 200 199
Hertz Corp.
7.00%, 04/15/01..................... 200 208
Penney (J.C.) Co., Inc.
5.375%, 11/15/98.................... 200 198
</TABLE>
See notes to the financial statements.
18
<PAGE>
[LOGO] STATEMENT OF INVESTMENTS (CONCLUDED)
HORACE MANN INCOME FUND, INC. December 31, 1995
=======================================================================
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
(000) (000)
--------- ------
<S> <C> <C>
CORPORATE BONDS/NOTES (CONTINUED)
Pacific Gas and Electric Euro
12.00%, 01/09/00.................... $ 100 $ 106
Southwestern Bell Telephone Co.
5.55%, 03/10/98..................... 100 100
ASSET BACKED
Ford Credit Grantor Trust 93-B
4.30%, 07/15/98..................... 50 50
Ford Credit Grantor Trust 95-B
5.90%, 10/15/00..................... 243 244
GMAC Grantor Trust 92-D
5.55%, 05/15/97..................... 5 5
GMAC Grantor Trust 92-E
4.75%, 08/15/97..................... 14 14
Government Backed Trust
9.625%, 05/15/02.................... 125 142
IBM Credit Trust 93-1
4.55%, 11/15/00..................... 68 67
Nations Bank Credit Trust 93-2
6.00%, 12/15/05..................... 200 201
Premier Auto Trust 92-3
5.90%, 11/17/97..................... 11 11
Premier Auto Trust 92-4
5.05%, 01/15/98..................... 15 15
Premier Auto Trust 93-6 A2
4.65%, 11/02/99..................... 104 102
Premier Auto Trust 94-1
4.75%, 02/02/00..................... 189 187
------ -------
TOTAL CORPORATE BONDS/NOTES.......25.37% 2,604 2,672
(Cost $2,602,162)
SHORT-TERM INVESTMENTS
REPURCHASE AGREEMENT
Aubrey G. Lanston & Co., Inc.
5.875%, 01/02/96 (secured
by $430,097 US Treasury
Bill, 4.97%, 11/14/96)................ 422 422
------ -------
TOTAL SHORT-TERM INVESTMENTS.......4.01% 422 422
(Cost $422,000)
TOTAL INVESTMENTS.................99.52% 10,481
(Cost $10,108,894)
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES............0.48% 51
-------
NET ASSETS.......................100.00% $10,532
=======
</TABLE>
See notes to the financial statements.
The identified cost of investments owned at December 31, 1995 was the same for
federal income tax and book purposes.
19
<PAGE>
[LOGO]
STATEMENT OF INVESTMENTS
HORACE MANN BALANCED FUND, INC. December 31, 1995
================================================================================
[GRAPH APPEARS HERE]
U.S. & Foreign Government & Agency Obligations 25%
Corporate Bonds/Notes 7%
Cash & Short-Term Investments 3%
Common Stock 65%
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES (000)
--------- -------
<S> <C> <C>
COMMON STOCKS
AUTO/ACCESSORIES 3.56%
Ford Motor Company............... 51,600 $ 1,496
Goodyear Tire & Rubber Co. (The) 145,900 6,620
------
8,116
BANKS/FINANCIAL SERVICES 4.62%
BankAmerica Corp................. 67,000 4,338
Boatmen's Bancshares, Inc........ 1,000 41
Citicorp......................... 12,659 851
CoreStates Financial Corp........ 36,300 1,375
First Chicago NBD Corp........... 35,900 1,418
First Union Corp................. 23,000 1,279
Morgan Stanley Group, Inc........ 15,300 1,234
-------
10,536
BUILDING & CONSTRUCTION 1.26%
Foster Wheeler Corp.............. 55,000 2,337
Ryland Group Inc................. 38,900 545
------ -------
2,882
CHEMICALS 3.43%
Air Products & Chemicals, Inc.... 32,900 1,735
Betz Laboratories................ 26,600 1,091
Ferro Corp....................... 44,900 1,044
Geon Company..................... 33,700 821
IMC Global Inc................... 17,000 695
Vigoro Group..................... 39,700 2,451
-------
7,837
COMMUNICATION 2.21%
AT & T Corp...................... 33,000 2,137
BCE Inc.......................... 37,800 1,304
COMSAT Corporation............... 27,700 516
NYNEX Corp....................... 20,000 1,080
-------
5,037
ENTERTAINMENT 0.17%
King World Productions Inc.*..... 9,900 385
FOOD/GROCERY PRODUCTS 1.14%
Flowers Industries, Inc.......... 108,000 1,309
Interstate Bakeries Corp......... 58,100 1,300
-------
2,609
HEALTH CARE 1.75%
Mallinckrodt Group............... 56,700 2,062
Value Health, Inc................ 70,400 1,936
-------
3,998
INSURANCE 4.57%
ACE Limited...................... 72,200 2,870
Allstate Corporation............. 71,402 2,936
Chubb Corp....................... 32,400 3,135
Integon Corp..................... 57,900 1,194
Old Republic International Corp.. 8,400 298
-------
10,433
IRON & STEEL 0.06%
Bethlehem Steel Corp.*........... 9,000 126
MANUFACTURING (DIVERSIFIED) 5.20%
Brunswick Corp................... 16,600 398
Caterpillar Inc.................. 42,000 2,468
Cooper Industries Inc............ 37,400 1,374
Deere & Co. (Del)................ 62,400 2,200
Johnson Controls, Inc............ 20,100 1,382
Minnesota Mining & Manufacturing. 61,000 4,041
-------
11,863
METALS & MINING 3.40%
Alcan Aluminum Ltd............... 48,500 1,510
Aluminum Co. of America.......... 93,000 4,917
Reynolds Metals Co............... 23,500 1,331
-------
7,758
OIL/GAS 15.10%
Amerada Hess Corp................ 29,700 1,574
Apache Corp...................... 25,000 737
Ashland Inc...................... 44,700 1,570
Burlington Resources Inc......... 29,900 1,174
Camco International Inc.......... 34,100 955
Enron Oil & Gas Co............... 62,400 1,498
ENSCO International, Inc.*....... 93,500 2,151
Equitable Resources, Inc......... 76,600 2,394
Noble Affiliates, Inc............ 71,400 2,133
Noble Drilling Corp.*............ 48,400 436
Oryx Energy Co.*................. 48,200 645
</TABLE>
See notes to the financial statements.
20
<PAGE>
[LOGO]
STATEMENT OF INVESTMENTS (CONTINUED)
HORACE MANN BALANCED FUND, INC. December 31, 1995
================================================================================
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES (000)
--------- -------
<S> <C> <C>
OIL/GAS (CONTINUED)
Parker & Parsley Petroleum Co........ 80,300 $ 1,767
Seagull Energy Corp.*................ 100,400 2,234
Sonat, Inc........................... 69,500 2,476
Total S.A. ADR....................... 52,600 1,788
Ultramar Corp........................ 36,100 930
Union Texas Petroleum Holdings Inc... 87,700 1,699
Unocal Corp.......................... 143,400 4,177
USX-Marathon Group................... 113,400 2,211
Weatherford Enterra, Inc.*........... 66,000 1,906
-------
34,455
PAPER & WOOD PRODUCTS 6.38%
Champion International Corp.......... 44,500 1,869
Federal Paper Board Co., Inc......... 58,000 3,009
International Paper Co............... 108,100 4,094
Kimberly-Clark Corp.................. 32,500 2,689
Mead Corporation..................... 55,600 2,905
-------
14,566
PHOTOGRAPHY 0.81%
Eastman Kodak Co..................... 27,500 1,842
RETAIL & FOOD STORES 2.45%
May Department Stores Co............. 55,300 2,336
Penney (J.C.) Co. Inc................ 29,600 1,410
Sears Roebuck & Co................... 47,500 1,852
-------
5,598
SERVICES 1.08%
Browning-Ferris Industries, Inc...... 70,000 2,065
Red Lion Hotels*..................... 22,700 397
-------
2,462
TOBACCO 0.78%
Schweitzer-Maudit Int'l.............. 3,250 75
Universal Corp. (Va)................. 70,000 1,706
-------
1,781
TRANSPORTATION 3.33%
America West Airlines B*............. 45,600 775
Canadian National Railway Co......... 14,500 218
Conrail Inc.......................... 22,400 1,568
CSX Corporation...................... 33,000 1,506
Pittston Services Group.............. 67,200 2,108
Rollins Truck Leasing Corp........... 34,400 383
Trinity Industries................... 33,200 1,046
-------
7,604
UTILITIES/OTHER 3.82%
General Public Utilities Corp........ 71,400 2,428
New England Electric System.......... 43,200 1,712
New York State Electric & Gas Corp... 68,700 1,778
Pacific Gas & Electric Co............ 76,500 2,171
SCE Corp............................. 35,300 627
-------
8,716
-------
TOTAL COMMON STOCK..............65.12% 148,604
(Cost $126,854,794)
PRINCIPAL
AMOUNT MARKET
(000) (000)
--------- -------
U.S. AND FOREIGN GOVERNMENT
AND AGENCY OBLIGATIONS
TREASURY BONDS/NOTES
7.875%, 11/15/99.................... $ 500 $ 544
7.125%, 02/29/00.................... 20,250 21,559
7.250%, 08/15/04.................... 7,500 8,342
FEDERAL HOME LOAN BANK
(MORTGAGE BACKED SECURITIES)
6.67%, 04/06/01..................... 1,500 1,574
7.31%, 06/16/04..................... 1,650 1,807
FEDERAL HOME LOAN MORTGAGE
CORPORATION (MORTGAGE BACKED
SECURITIES)
9.500%, 07/01/01.................... 18 19
9.500%, 08/01/01.................... 9 9
9.500%, 09/01/01.................... 26 28
9.500%, 10/01/01.................... 32 33
8.500%, 06/01/02.................... 54 55
9.250%, 11/01/02.................... 72 75
8.250%, 11/01/07.................... 93 96
8.750%, 05/01/08.................... 108 112
8.500%, 08/01/08.................... 128 132
9.000%, 09/01/08.................... 95 99
8.250%, 10/01/08.................... 85 88
8.000%, 09/01/09.................... 72 74
8.000%, 04/01/10.................... 121 125
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE BACKED SECURITIES)
8.000%, 07/01/98.................... 157 161
8.875%, 07/10/01.................... 500 508
8.750%, 02/01/10.................... 430 450
</TABLE>
See notes to the financial statements.
21
<PAGE>
[LOGO]
STATEMENT OF INVESTMENTS (CONTINUED)
HORACE MANN BALANCED FUND, INC. December 31, 1995
================================================================================
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
(000) (000)
--------- -------
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE BACKED
SECURITIES) (CONTINUED)
10.250%, 07/01/13....................... $ 36 $ 39
7.500%, 07/01/23....................... 428 439
7.500%, 04/01/24....................... 663 663
7.500%, 05/01/24....................... 209 214
7.500%, 06/01/24....................... 531 544
7.500%, 08/01/24....................... 673 690
7.500%, 09/01/24....................... 971 996
7.500%, 10/01/24....................... 730 748
7.500%, 02/01/25....................... 184 189
7.500%, 04/01/25....................... 1,364 1,399
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE BACKED
SECURITIES)
11.000%, 12/15/00...................... 60 64
9.500%, 08/20/01...................... 76 80
9.500%, 10/20/01...................... 62 65
9.500%, 07/20/02...................... 94 98
9.500%, 12/20/02...................... 83 87
9.500%, 01/20/03...................... 49 51
9.500%, 02/20/03...................... 55 58
9.500%, 05/20/03...................... 103 108
9.500%, 08/20/03...................... 122 127
9.500%, 09/20/03...................... 141 147
9.500%, 11/20/03...................... 61 63
9.500%, 09/20/04...................... 47 49
8.250%, 05/15/06...................... 159 165
12.000%, 01/15/15..................... 12 13
12.000%, 03/15/15..................... 59 66
9.000%, 04/15/16...................... 83 88
9.000%, 06/15/16...................... 564 595
9.000%, 09/15/16...................... 190 200
9.000%, 01/15/17...................... 39 41
8.500%, 01/15/20...................... 44 46
8.500%, 02/15/21...................... 358 375
8.500%, 06/15/21...................... 217 227
8.500%, 08/15/21...................... 41 42
8.500%, 04/15/23...................... 308 323
9.000%, 07/15/24...................... 847 897
8.500%, 09/15/24...................... 720 755
9.000%, 09/15/24...................... 411 436
9.000%, 10/15/24...................... 577 612
9.000%, 12/15/24...................... 552 584
9.000%, 01/15/25...................... 2,909 3,077
9.000%, 02/15/25...................... 82 87
9.000%, 03/15/25...................... 33 35
9.000%, 04/15/25...................... 208 220
9.000%, 05/15/25...................... 1,520 1,609
COLLATERALIZED MORTGAGE OBLIGATION
(PLANNED AMORTIZATION CLASS) (NOTE 3)
FHLMC G42-D
8.000%, 08/17/17.................... 1,461 1,534
FOREIGN (U.S. DOLLAR DENOMINATED)
Iceland (Rep. of)
6.125%, 02/01/04.................... 1,000 990
------ -------
TOTAL U.S. AND FOREIGN GOVERNMENT
AND AGENCY OBLIGATIONS..........24.46% 52,536 55,825
(Cost $53,559,598)
CORPORATE BONDS/NOTES
Associate Corp. NA
5.25%, 09/01/98....................... 315 312
Associate Corp. NA
6.00%, 06/15/00....................... 500 501
BankAmerica Corp.
6.85%, 03/01/03....................... 500 517
Bankers Trust
8.25%, 05/01/05....................... 1,500 1,680
Beneficial Corp.
12.875%, 08/01/13..................... 261 314
Boeing Co.
6.35%, 06/15/03....................... 750 769
BP America Inc.
9.50%, 01/01/98....................... 500 536
Citicorp
6.75%, 08/15/05....................... 1,000 1,026
Ford Motor Credit Corp.
7.50%, 06/15/04....................... 200 215
Gannett Co.
5.85%, 05/01/00....................... 750 747
Hertz Corp.
7.00%, 04/15/01....................... 1,000 1,041
Pacific Gas and Electric Euro
12.00%, 01/09/00...................... 400 424
</TABLE>
See notes to the financial statements.
22
<PAGE>
[LOGO]
STATEMENT OF INVESTMENTS (CONCLUDED)
HORACE MANN BALANCED FUND, INC. December 31, 1995
================================================================================
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
(000) (000)
--------- ------
<S> <C> <C>
CORPORATE BONDS/NOTES (CONTINUED)
Penney (J.C.) Co., Inc.
5.375%, 11/15/98....................... $1,000 $ 990
Southwestern Bell Telephone Co.
5.550%, 03/10/98....................... 400 399
United Technologies Corp.
9.625%, 05/15/99....................... 400 406
ASSET BACKED
Ford Credit Grantor Trust 93-B
4.30%, 07/15/98........................ 126 125
Ford Credit Grantor Trust 95-B
5.90%, 10/15/00........................ 1,945 1,955
GMAC Grantor Trust 92-D
5.55%, 05/15/97........................ 23 23
GMAC Grantor Trust 92-E
4.75%, 08/15/97........................ 73 73
IBM Credit Trust 93-1
4.55%, 11/15/00........................ 341 336
Nations Bank Credit Trust 93-2
6.00%, 12/15/05........................ 1,000 1,005
Premier Auto Trust 92-3
5.90%, 11/17/97........................ 56 56
Premier Auto Trust 92-4
5.05%, 01/15/98........................ 77 76
Premier Auto Trust 93-6 A2
4.65%, 11/02/99........................ 517 512
Premier Auto Trust 94-1
4.75%, 02/02/00........................ 1,889 1,874
Premier Auto Trust 94-2
6.35%, 05/02/00........................ 1,000 1,013
------- --------
TOTAL CORPORATE BONDS/
NOTES..............................7.42% 16,523 16,925
(Cost $16,462,400)
SHORT-TERM INVESTMENTS
REPURCHASE AGREEMENT
Aubrey G. Lanston & Co., Inc.
5.875%, 01/02/96, (secured
by $7,399,249 US Treasury
Bill, 4.99%, 11/14/96).................. 7,254 7,254
------- --------
TOTAL SHORT-TERM INVESTMENTS........3.18% 7,254 7,254
(Cost $7,254,000) --------
TOTAL INVESTMENTS.................100.18% 228,608
(Cost $204,130,792)
LIABILITIES IN EXCESS OF
CASH AND OTHER ASSETS.............(.18%) (415)
--------
NET ASSETS........................100.00% $228,193
========
</TABLE>
________________
*Non-income producing during the twelve months ended December 31, 1995
See notes to the financial statements.
The identified cost of investments owned at December 31, 1995 was the same for
federal income tax and book purposes.
23
<PAGE>
[LOGO]
STATEMENT OF INVESTMENTS
HORACE MANN SHORT-TERM INVESTMENT FUND, INC. December 31, 1995
================================================================================
<TABLE>
<CAPTION>
[PIE CHART APPEARS HERE]
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 100%
PRINCIPAL
AMOUNT MARKET
(000) (000)
--------- ------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
FEDERAL FARM CREDIT BANK DISCOUNT NOTES
5.50%, 01/03/96......................................... $ 20 $ 20
5.70%, 01/18/96......................................... 50 50
5.70%, 01/23/96......................................... 85 85
5.58%, 02/06/96......................................... 15 15
5.50%, 02/22/96......................................... 20 20
5.55%, 03/20/96......................................... 50 49
5.55%, 03/26/96......................................... 60 59
FEDERAL HOME LOAN MORTGAGE CORP. DISCOUNT NOTES
5.53%, 01/16/96......................................... 55 55
5.62%, 01/22/96......................................... 35 35
5.63%, 01/24/96......................................... 41 41
5.53%, 01/31/96......................................... 45 45
5.52%, 03/06/96......................................... 65 64
5.52%, 03/11/96......................................... 45 44
5.52%, 03/14/96......................................... 41 41
FEDERAL NATIONAL MORTGAGE ASSOCIATION DISCOUNT NOTES
5.79%, 01/19/96......................................... 20 20
5.63%, 01/24/96......................................... 45 45
5.58%, 02/12/96......................................... 70 69
5.74%, 02/16/96......................................... 50 50
5.41%, 02/20/96......................................... 50 49
5.50%, 02/22/96......................................... 30 30
5.44%, 02/28/96......................................... 50 50
5.54%, 03/04/96......................................... 50 49
5.54%, 03/08/96......................................... 35 35
------- ------
TOTAL INVESTMENTS (COST $1,019,857) - 101.39%............. 1,027 1,020
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS - (1.39%).. (14)
------
NET ASSETS.........................................100.00% $1,006
======
</TABLE>
See notes to the financial statements.
The identified cost of investments owned at December 31, 1995 was the same for
federal income tax and book purposes.
24
<PAGE>
[LOGO]
STATEMENTS OF ASSETS AND LIABILITIES
HORACE MANN FAMILY OF FUNDS December 31, 1995
================================================================================
<TABLE>
<CAPTION>
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
ASSETS
Cash..................................................... $ 500 $ 367 $ 296 $ 4,245
Investments at market value*............................. 297,822,235 10,481,283 228,608,282 1,019,700
Dividends and interest receivable........................ 578,414 160,248 1,435,779 -
Accounts receivable-fund shares sold..................... 255,352 13,073 136,131 984
Accounts receivable-investments sold..................... 1,156,629 4,916 590,592 -
Prepaid expenses......................................... 35,270 2,137 27,446 -
------------ ----------- ------------ ----------
TOTAL ASSETS............................................. 299,848,400 10,662,024 230,798,526 1,024,929
------------ ----------- ------------ ----------
LIABILITIES
Accounts payable-fund shares redeemed.................... 43,439 - 3,283 -
Accounts payable-investments purchased................... 280,239 - 134,377 -
Accrued expenses......................................... 160,346 15,274 135,550 3,056
Dividend payable......................................... 2,264,562 115,227 2,332,397 16,094
------------ ----------- ------------ ----------
TOTAL LIABILITIES........................................ 2,748,586 130,501 2,605,607 19,150
------------ ----------- ------------ ----------
NET ASSETS................................................ $297,099,814 $10,531,523 $228,192,919 $1,005,779
============ =========== ============ ==========
NET ASSETS CONSIST OF:
Par value of common shares............................... 13,718,610 80,850 1,267,975 10,062
Paid in surplus.......................................... 241,044,346 10,128,053 202,357,744 995,330
Accumulated undistributed net investment income.......... 48,210 5,639 65,902 543
Accumulated undistributed net realized gain (loss)
on investments.......................................... 46,013 (55,408) 23,808 1
Net unrealized appreciation (depreciation) on
investments............................................. 42,242,635 372,389 24,477,490 (157)
------------ ----------- ------------ ----------
NET ASSETS................................................ $297,099,814 $10,531,523 $228,192,919 $1,005,779
============ =========== ============ ==========
NUMBER OF SHARES OUTSTANDING:
(Authorized 50,000,000 shares each; $1.00 par
value for Growth Fund; $.10 par value capital
stock for Income Fund, Balanced Fund, and
Short-Term Fund)........................................ 13,718,610 808,503 12,679,749 100,622
============ =========== ============ ==========
NET ASSET VALUE PER SHARE................................. $ 21.66 $ 13.03 $ 18.00 $ 10.00
============ =========== ============ ==========
*Cost of investments...................................... $255,579,600 $10,108,894 $204,130,792 $1,019,857
</TABLE>
See notes to the financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
[LOGO]
STATEMENTS OF OPERATIONS For the Year Ended
HORACE MANN FAMILY OF FUNDS December 31, 1995
==========================================================================================================================
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................................... $ 6,899,317 $ -- $ 3,594,644 $ --
Interest & amortization...................................... 821,072 668,528 4,850,307 68,196
------------ ---------- ------------ ----------
Total investment income...................................... 7,720,389 668,528 8,444,951 68,196
EXPENSES:
Investment advisory and related fees......................... 841,937 25,691 599,709 1,568
Management fees.............................................. 521,885 20,885 408,591 2,440
Fund pricing fees............................................ 26,846 5,664 22,050 4,845
Professional fees............................................ 26,765 17,034 26,765 7,404
Custodian fees............................................... 45,019 11,680 49,880 6,022
Transfer agent fee (Note 5).................................. 30,519 24 24 24
Shareholder reports.......................................... 3,498 62 691 --
Directors' fees and expenses................................. 3,468 3,468 3,468 3,468
Other expenses............................................... 25,277 636 15,554 350
Insurance expenses........................................... 24,742 2,127 19,703 799
------------ ---------- ------------ ----------
Total expenses............................................. 1,549,956 87,271 1,146,435 26,920
Less management fees waived (Note 5)......................... -- (20,885) -- (2,440)
Less expenses paid by Horace Mann Investors, Inc. (Note 5)... -- (5,664) -- (14,866)
Less expenses paid by commission credits (Note 3)............ (56,114) -- (14,386) --
------------ ---------- ------------ ----------
Net expenses............................................... 1,493,842 60,722 1,132,049 9,614
------------ ---------- ------------ ----------
NET INVESTMENT INCOME...................................... 6,226,547 607,806 7,312,902 58,582
------------ ---------- ------------ ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain on investments:
Proceeds from sales........................................ 151,321,733 6,432,555 117,675,479 3,305,417
Cost of securities sold.................................... 133,379,836 6,349,567 108,451,982 3,305,357
------------ ---------- ------------ ----------
Net realized gain on investments............................. 17,941,897 82,988 9,223,497 60
Unrealized appreciation (depreciation) on investments:
Beginning of period........................................ (5,276,008) (302,098) (5,263,648) (284)
End of period.............................................. 42,242,635 372,389 24,477,490 (157)
------------ ---------- ------------ ----------
Net unrealized appreciation on investments during the period. 47,518,643 674,487 29,741,138 127
------------ ---------- ------------ ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS.............. 65,460,540 757,475 38,964,635 187
------------ ---------- ------------ ----------
NET INCREASE IN NET ASSETS FROM OPERATIONS..................... $ 71,687,087 $1,365,281 $ 46,277,537 $ 58,769
============ ========== ============ ==========
</TABLE>
See notes to the financial statements.
26
<PAGE>
[LOGO] STATEMENTS OF CHANGES IN NET ASSETS For the Years Ended
HORACE MANN FAMILY OF FUNDS December 1995 and 1994
================================================================================
<TABLE>
<CAPTION>
GROWTH FUND INCOME FUND BALANCED FUND SHORT-TERM FUND
-------------------------- ------------------------ -------------------------- ------------------------
1995 1994 1995 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
FROM OPERATIONS:
Net investment income. $ 6,226,547 $ 4,633,805 $ 607,806 $ 546,558 $ 7,312,902 $ 5,412,433 $ 58,582 $ 42,191
Net realized short-
term gain (loss) on
investments.......... 6,813,495 5,618,163 81,252 (150,531) 3,958,147 1,772,739 60 (19)
Net realized long-term
gain on investments.. 11,128,402 11,667,280 1,736 12,149 5,265,350 5,270,846 -- --
Net increase (decrease)
in unrealized
appreciation......... 47,518,643 (23,106,773) 674,487 (619,886) 29,741,138 (14,444,485) 127 (231)
------------ ------------ ----------- ----------- ------------ ------------ ---------- ------------
CHANGE IN NET ASSETS
FROM OPERATIONS..... 71,687,087 (1,187,525) 1,365,281 (211,710) 46,277,537 (1,988,467) 58,769 41,941
------------ ------------ ----------- ----------- ------------ ------------ ---------- ------------
FROM DISTRIBUTIONS
TO SHAREHOLDERS:
Net investment income. (6,197,557) (4,631,244) (603,044) (550,014) (7,291,835) (5,400,025) (58,578) (41,965)
Net realized short-
term gain from
investment
transactions......... (6,823,150) (5,625,272) -- (293) (3,955,981) (1,781,006) (39) (11)
Net realized long-term
gain from investment
transactions......... (11,159,155) (11,689,359) -- (367) (5,271,078) (5,287,975) -- --
------------ ------------ ----------- ----------- ------------ ------------ ---------- ------------
TOTAL DISTRIBUTIONS
TO SHAREHOLDERS...... (24,179,862) (21,945,875) (603,044) (550,674) (16,518,894) (12,469,006) (58,617) (41,976)
------------ ------------ ----------- ----------- ------------ ------------ ---------- ------------
FROM FUND SHARE
TRANSACTIONS:
Proceeds from shares
sold.................. 45,758,350 40,423,151 2,091,642 2,121,796 40,388,246 42,208,931 7,294,612 4,954,081
Net asset value of
shares issued in
reinvestment of
dividends and capital
gains distributions... 21,915,300 20,210,696 487,817 443,428 14,186,497 10,650,675 42,523 27,818
------------ ------------ ----------- ----------- ------------ ------------ ---------- ------------
67,673,650 60,633,847 2,579,459 2,565,224 54,574,743 52,859,606 7,337,135 4,981,899
Cost of shares
redeemed.............. (20,184,351) (13,776,416) (2,069,527) (1,952,760) (16,955,246) (9,962,967) (7,445,081) (4,978,263)
------------ ------------ ----------- ----------- ------------ ------------ ---------- ------------
NET INCREASE (DECREASE)
IN NET ASSETS FROM
FUND SHARE
TRANSACTIONS.......... 47,489,299 46,857,431 509,932 612,464 37,619,497 42,896,639 (107,946) 3,636
------------ ------------ ----------- ----------- ------------ ------------ ---------- ------------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS................. 94,996,524 23,724,031 1,272,169 (149,920) 67,378,140 28,439,166 (107,794) 3,601
NET ASSETS:
BEGINNING OF PERIOD.... 202,103,290 178,379,259 9,259,354 9,409,274 160,814,779 132,375,613 1,113,573 1,109,972
------------ ------------ ----------- ----------- ------------ ------------ ---------- ------------
END OF PERIOD.......... $297,099,814 $202,103,290 $10,531,523 $ 9,259,354 $228,192,919 $160,814,779 $ 1,005,779 $ 1,113,573
============ ============ =========== =========== ============ ============ =========== ===========
Undistributed net
investment income..... $ 48,210 $ 19,220 $ 5,639 $ 877 $ 65,902 $ 44,835 $ 543 $ 539
============ ============ =========== =========== ============ ============ =========== ===========
</TABLE>
See notes to the financial statements.
27
<PAGE>
HOURGLASS LOGO NOTES TO THE FINANCIAL STATEMENTS
APPEARS HORACE MANN FAMILY OF FUNDS December 31, 1995
HERE ===============================================================
1. BUSINESS ORGANIZATION -- Horace Mann Growth Fund, Inc. ("Growth Fund"),
Horace Mann Income Fund, Inc. ("Income Fund"), Horace Mann Balanced Fund, Inc.
("Balanced Fund"), and Horace Mann Short-Term Investment Fund, Inc. ("Short-Term
Fund") are open-end, diversified, management investment companies registered
under the Investment Company Act of 1940. On January 31, 1983, Income Fund,
Balanced Fund and Short-Term Fund each sold 10,000 shares of $.10 par value
capital stock to Horace Mann Life Insurance Company ("HMLIC") for $100,000. The
funds listed above collectively are referred to as the "Funds".
FUND INVESTMENT OBJECTIVES:
A. GROWTH FUND -- primary, long-term capital growth; secondary,
conservation of principal and production of income.
B. INCOME FUND -- primary, maximization of current income consistent with
prudent investment risks; secondary, preservation of capital.
C. BALANCED FUND -- realization of high long-term total rate of return
consistent with prudent investment risks.
D. SHORT-TERM FUND -- primary, realize maximum current income to the extent
consistent with liquidity; secondary, preservation of principal.
2. SIGNIFICANT ACCOUNTING POLICIES:
A. SECURITY VALUATION -- A security listed or traded on an exchange is
valued at its last sales price on the exchange where it is principally
traded. In the absence of a current quotation, the security is valued at
the mean between the last bid and asked prices on that exchange.
Securities traded over-the-counter are valued at the last current bid
price. Debt securities that have a remaining maturity of 60 days or less
are valued at cost, plus or minus any unamortized premium or discount.
In the event market quotations would not be available, securities would
be valued at fair value as determined in good faith by the Board of
Directors; no such securities were owned by the Funds at December 31,
1995.
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
recorded on the trade date. Dividend income is recorded on the ex-
dividend date. Interest income including level yield, premium and
discount amortization is recorded on the accrual basis. Securities gains
and losses are determined on the basis of identified cost.
C. FEDERAL INCOME TAXES -- Since it is the Funds' policy to comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies and to distribute all taxable income to their
shareholders, no provision has been made for federal income or excise
taxes. Dividends and distributions payable to shareholders are recorded
by the Funds on the record date. The Income Fund intends to utilize
provisions of the federal income tax laws which allow them to carry
realized capital losses forward for eight years following the year of
the loss and offset such losses against any future realized capital
gains. At December 31, 1995, the Income Fund has accumulated capital
loss carry forwards for tax purposes of $55,408 which will expire on
December 31, 2002.
28
<PAGE>
[LOGO] NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
HORACE MANN FAMILY OF FUNDS December 31, 1995
=======================================================================
D. USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of increase and
decrease in net assets from operations during the period. Actual results
could differ from those estimates.
3. OPERATING POLICIES:
A. REPURCHASE AGREEMENTS -- The Funds, through their custodian, receive
delivery of the underlying securities, whose market value is required to
be at least 102% of the resale price at the time of purchase. Wellington
Management Company, the Funds' investment adviser, is responsible for
assuring that the value of these underlying securities remains at least
equal to the resale price.
B. ASSET BACKED SECURITIES -- These securities are secured by installment
loans or leases or by revolving lines of credit. They usually include
credit enhancements that limit investors exposure to the underlying
credit. These securities are valued on the basis of the timing and
certainty of the cash flows compared to investments with similar
durations.
C. COLLATERALIZED MORTGAGE OBLIGATIONS -- (PAC), (PLANNED AMORTIZATION
CLASS) -- These securities have a pre-determined schedule for principal
repayment coupled with an enhanced degree of cash-flow certainty. A PAC
security is a specific class of mortgages which usually carry the most
stable cash flows and the lowest amount of prepayment risk. These
securities are valued on the basis of the timing and certainty of the
cash flows compared to investments with similar durations.
D. COMMISSION CREDITS -- Wellington Management Company, the Funds'
investment adviser, seeks the best price and execution on each
transaction and negotiates commission rates solely on the execution
requirements of each trade. Occasionally, they place, under a directed
brokerage arrangement, common stock trades with a broker/dealer who
credits to the funds part of the commissions paid. The use of these
commission credits is left to the discretion of the Funds' management.
4. FUND SHARE TRANSACTIONS -- The Funds are registered as diversified, open-end
management investment companies under the Investment Company Act of 1940. Shares
are presently offered only to the HMLIC Separate Account and the HMLIC 401K
Separate Account for the Income Fund, Balanced Fund, and Short-Term Fund. The
Growth Fund's shares may be purchased by the separate accounts of HMLIC, by
certain tax-qualified trusteed retirement plans, and by the general public in
the case of reinvestment of dividends and distributions in accordance with
Revenue Ruling 82-55.
29
<PAGE>
[LOGO] NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
HORACE MANN FAMILY OF FUNDS December 31, 1995
=======================================================================
Transactions in capital stock for the years ended December 1995 and 1994 were:
<TABLE>
<CAPTION>
GROWTH FUND INCOME FUND BALANCED FUND SHORT-TERM FUND
--------------------- -------------------- --------------------- -------------------
1995 1994 1995 1994 1995 1994 1995 1994
--------- --------- -------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold.................... 2,225,947 2,003,521 161,927 165,517 2,341,881 2,517,999 709,737 479,077
Shares issued to shareholders
in reinvestment of dividends
and distributions............. 1,019,316 1,150,951 37,525 36,891 792,542 700,242 4,257 2,763
Shares redeemed................ (985,932) (680,037) (161,458) (152,384) (995,005) (593,492) (723,887) (481,511)
--------- --------- -------- -------- --------- --------- -------- --------
Net increase (decrease)........ 2,259,331 2,474,435 37,994 50,024 2,139,418 2,624,749 (9,893) 329
========= ========= ======== ======== ========= ========= ======== ========
</TABLE>
5. TRANSACTIONS WITH AFFILIATES -- Horace Mann Educators Corporation ("HMEC") is
the parent company of Horace Mann Investors, Inc. ("Investors") and Horace Mann
Service Corporation ("HMSC") and indirectly owns HMLIC. Collectively these
companies are referred to as Horace Mann.
Pursuant to management agreements between the Funds and Investors, Investors
receives a monthly management fee based on a pro rata share from each Fund equal
to 0.25% of the aggregate average net assets of the Funds up to $100,000,000 and
0.20% of such assets exceeding that amount. Investors also serves as the
principal underwriter and distributor of the HMLIC Separate Account. Investors'
management fee is reduced by the amount, if any, that the total annual expenses
of any Fund (exclusive of taxes, interest, extraordinary items and brokers'
commissions and other charges related to the purchase and sale of portfolio
securities) exceed 1.5% of the first $30,000,000 of the average daily net assets
and 1% of the average daily net assets in excess of $30,000,000 of that Fund.
The pro rata share is determined by the relative net asset values for each Fund.
For the year ended December 31, 1995, the Growth Fund paid $521,885 and the
Balanced Fund paid $408,591 for management fees to Investors. During the same
period, Investors waived the management fees for the Income Fund and Short-Term
Fund.
Investors paid expenses for advisory fees, professional fees, insurance fees,
and other taxes and fees for the year ended December 31, 1995 of $14,866 for the
Short-Term Fund. Investors paid expenses for pricing of $5,664 for the Income
Fund for the year ended December 31, 1995.
Transfer and dividend disbursing agent services are provided by HMSC on a per
share basis for the Growth Fund and on a per account basis for the Income,
Balanced and Short-Term Funds. The transfer agent fees for the year ended
December 31, 1995 were $30,519 for the Growth Fund and $24 each for the Income,
Balanced and Short-Term Funds.
Outside directors were compensated $150 per diem for each Board meeting
attended. No compensation is paid to interested officers and directors (those
who are also officers and/or directors of Horace Mann). For the year ended
December 31, 1995, the per diem fees, excluding travel expenses, for outside
directors totaled $1,500 for each Fund.
30
<PAGE>
[LOGO] NOTES TO THE FINANCIAL STATEMENTS (CONCLUDED)
HORACE MANN FAMILY OF FUNDS December 31, 1995
=======================================================================
6. TRANSACTIONS WITH INVESTMENT ADVISER -- Pursuant to the investment advisory
agreements with Wellington Management Company (WMC), effective November 1, 1993,
the adviser receives a fee based on the Funds' monthly average net assets as
follows: Growth Fund, 0.400% on the initial $100,000,000, 0.300% on the next
$100,000,000 and 0.250% over $200,000,000; Income Fund, 0.250% on the initial
$100,000,000, 0.200% on the next $100,000,000 and 0.150% over $200,000,000;
Balanced Fund, 0.325% on the initial $100,000,000, 0.275% on the next
$100,000,000, 0.225% on the next $300,000,000 and 0.200% over $500,000,000;
Short-Term Fund, 0.125% on the initial $100,000,000, 0.100% on the next
$100,000,000 and 0.075% over $200,000,000.
7. INVESTMENT TRANSACTIONS -- Investment transactions, excluding short-term
investments, for the year ended December 31, 1995 are:
<TABLE>
<CAPTION>
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Purchases.................................... $177,499,775 $7,964,354 $149,989,796 $ -
============ ========== ============ ======
Proceeds from sales.......................... $151,321,733 $6,432,555 $117,675,479 $ -
============ ========== ============ ======
</TABLE>
The following table is based on the difference between cost and market value of
securities owned by each Fund at December 31, 1995.
<TABLE>
<CAPTION>
GROWTH INCOME BALANCED SHORT-TERM
FUND FUND FUND FUND
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Aggregate gross unrealized appreciation...... $ 44,954,142 $ 381,806 $ 25,965,975 $ 9
Aggregate gross unrealized (depreciation).... (2,711,507) (9,417) (1,488,485) (166)
------------ ---------- ------------ -----
Net unrealized appreciation (depreciation)... $ 42,242,635 $ 372,389 $ 24,477,490 $(157)
============ ========== ============ =====
</TABLE>
31
<PAGE>
[LOGO] GROWTH FUND
FINANCIAL HIGHLIGHTS
=======================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
- --------------
NET ASSET VALUE, BEGINNING
OF PERIOD................. $ 17.64 $ 19.85 $ 19.49 $ 19.15 $ 16.64 $ 18.88 $ 17.30 $ 16.00 $ 21.29 $ 25.85
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income.... 0.52 0.49 0.54 0.53 0.60 0.70 0.56 0.42 0.50 0.49
Net Gains (Losses) on
Securities -- realized
and unrealized.......... 5.41 (0.57) 3.32 1.31 3.76 (1.74) 4.58 1.37 0.74 2.28
-------- -------- -------- -------- -------- ------- -------- ------- ------- -------
Total Income (Loss) From
Investment Operations.. 5.93 (0.08) 3.86 1.84 4.36 (1.04) 5.14 1.79 1.24 2.77
LESS DISTRIBUTIONS:
From net investment
income.................. 0.49 0.45 0.52 0.51 0.60 0.70 0.62 0.40 0.51 1.17
From net realized gains.. 1.42 1.68 2.98 0.99 1.25 0.50 2.94 0.09 6.02 6.16
-------- -------- -------- -------- -------- ------- -------- ------- ------- -------
Total Distributions..... 1.91 2.13 3.50 1.50 1.85 1.20 3.56 0.49 6.53 7.33
NET ASSET VALUE, END OF
PERIOD.................... $ 21.66 $ 17.64 $ 19.85 $ 19.49 $ 19.15 $ 16.64 $ 18.88 $ 17.30 $ 16.00 $ 21.29
======== ======== ======== ======== ======== ======= ======== ======= ======= =======
TOTAL RETURN............... 33.67% (0.35)% 19.74% 9.59% 26.50% (5.48)% 29.88% 11.23% 6.23% 11.68%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets (000's omitted),
End of Period............ $297,100 $202,103 $178,379 $140,257 $124,140 $97,610 $102,956 $86,755 $81,159 $77,630
Ratio of Expenses
to Average Net Assets.... 0.63% 0.69% 0.69% 0.73% 0.76% 0.78% 0.64% 0.64% 0.67% 0.69%
Ratio of Net Investment
Income to Average
Net Assets............... 2.50% 2.36% 2.48% 2.65% 3.13% 3.86% 2.69% 2.41% 2.06% 1.94%
Portfolio Turnover Rate... 64.59% 69.42% 47.39% 31.78% 51.01% 52.97% 71.25% 41.57% 86.50% 52.88%
</TABLE>
The "Net Investment Income" per share and the "Net gains (losses) on Securities-
realized and unrealized" per share represent a proportionate share respective to
the increase in net assets as presented in the Statement of Operations.
The Fund's investment adviser was changed effective November 1, 1989.
The total return is determined by the ratio of ending net asset value to
beginning net asset value, adjusted for reinvestment of dividends from net
investment income and net realized capital gains.
If you are an annuity contract owner, the above total return does not reflect
expenses that apply to the separate account or related policies. The inclusion
of these charges would reduce the total return figures for all periods shown.
Ratios of Expenses and Net Investment Income to Average Net Assets do not
reflect commission credits.
32
<PAGE>
[LOGO] INCOME FUND
FINANCIAL HIGHLIGHTS
=======================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------- ------- ------ ------ ------ ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
- --------------
NET ASSET VALUE, BEGINNING
OF PERIOD........................... $ 12.02 $ 13.06 $12.95 $12.92 $12.26 $12.35 $11.64 $ 11.59 $ 13.96 $13.04
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income.............. 0.80 0.75 0.82 0.94 1.12 1.14 1.04 1.00 1.23 1.44
Net Gains (Losses) on
Securities -- realized and
unrealized........................ 0.99 (1.04) 0.23 (0.01) 0.71 (0.21) 0.75 (0.11) (1.32) 0.71
------- ------- ------ ------ ------ ------ ------ ------- ------- ------
Total Income (Loss) From
Investment Operations............ 1.79 (0.29) 1.05 0.93 1.83 0.93 1.79 0.89 (0.09) 2.15
LESS DISTRIBUTIONS:
From net investment
income............................ 0.78 0.75 0.75 0.87 1.17 1.02 0.96 0.84 2.28 1.21
From net realized gains............ - - 0.19 0.03 - - 0.12 - - 0.02
------- ------- ------ ------ ------ ------ ------ ------- ------- ------
Total Distributions............... 0.78 0.75 0.94 0.90 1.17 1.02 1.08 0.84 2.28 1.23
NET ASSET VALUE, END OF
PERIOD.............................. $ 13.03 $ 12.02 $13.06 $12.95 $12.92 $12.26 $12.35 $ 11.64 $ 11.59 $13.96
======= ======= ====== ====== ====== ====== ====== ======= ======= ======
TOTAL RETURN......................... 14.93% (2.21)% 8.07% 7.20% 14.93% 7.58% 15.43% 7.64% (0.62)% 17.33%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets (000's omitted),
End of Period...................... $10,532 $ 9,259 $9,409 $7,668 $6,396 $5,552 $4,457 $ 3,390 $ 2,567 $1,170
Ratio of Expenses
to Average Net Assets.............. 0.62% 0.61% 0.41% 0.19% 0.17% 0.20% 0.29% 0.24% 0.14% 0.03%
Ratio of Net Investment
Income to Average
Net Assets......................... 6.16% 5.85% 5.92% 6.94% 8.62% 8.86% 8.13% 7.97% 7.96% 7.65%
Portfolio Turnover Rate............. 74.53% 205.35% 74.16% 35.11% 44.82% 62.40% 92.94% 174.32% 53.28% 8.17%
Ratio to Average Net Assets before
waived and reimbursed expenses:
Ratio of Expenses................... 0.88% 0.92% 0.87% 1.21% 1.49% 1.64% 1.52% 0.92% 0.87% 0.60%
Ratio of Net Investment Income...... 5.89% 5.54% 5.46% 5.92% 7.30% 7.42% 6.90% 7.29% 7.23% 7.08%
</TABLE>
Certain expenses for the Income Fund were assumed or waived by Horace Mann
Investors, Inc. through December 31, 1995. The investment advisory expenses for
the Income Fund were waived by CIGNA Investments from January 1, 1984 through
October 31, 1989.
The "Net Investment Income" per share and the "Net gains (losses) on Securities
- - realized and unrealized" per share represent a proportionate share respective
to the increase in net assets as presented in the Statement of Operations.
The Fund's investment adviser was changed effective November 1, 1989.
The total return is determined by the ratio of ending net asset value to
beginning net asset value, adjusted for reinvestment of dividends from net
investment income and net realized capital gains.
If you are an annuity contract owner, the above total return does not reflect
expenses that apply to the separate account or related policies. The inclusion
of these charges would reduce the total return figures for all periods shown.
33
<PAGE>
[HOURGLASS LOGO BALANCED FUND
APPEARS FINANCIAL HIGHLIGHTS
HERE] =============================================================
<TABLE>
CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
- --------------
NET ASSET VALUE, BEGINNING
OF PERIOD........................... $ 15.26 $ 16.72 $ 16.22 $ 15.91 $ 14.19 $ 15.10 $ 13.48 $ 12.71 $ 14.91 $13.71
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income.............. 0.67 0.62 0.65 0.66 0.78 0.86 0.77 0.66 1.05 1.18
Net Gains (Losses) on
Securities -- realized and
unrealized........................ 3.46 (0.81) 1.87 0.68 2.25 (0.92) 2.77 0.72 (1.20) 1.05
-------- -------- -------- ------- ------- ------- ------- ------- ------- ------
Total Income (Loss) From
Investment Operations............ 4.13 (0.19) 2.52 1.34 3.03 (0.06) 3.54 1.38 (0.15) 2.23
LESS DISTRIBUTIONS:
From net investment
income............................ 0.61 0.55 0.56 0.59 0.74 0.74 0.70 0.61 2.05 0.63
From net realized gains............ 0.78 0.72 1.46 0.44 0.57 0.11 1.22 - - 0.40
-------- -------- -------- ------- ------- ------- ------- ------- ------- ------
Total Distributions............... 1.39 1.27 2.02 1.03 1.31 0.85 1.92 0.61 2.05 1.03
NET ASSET VALUE, END OF
PERIOD.............................. $ 18.00 $ 15.26 $ 16.72 $ 16.22 $ 15.91 $ 14.19 $ 15.10 $ 13.48 $ 12.71 $14.91
======== ======== ======== ======= ======= ======= ======= ======= ======= ======
TOTAL RETURN......................... 27.12% (1.12)% 15.46% 8.37% 21.57% (0.41)% 26.31% 10.57% (0.87)% 16.79%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets (000's omitted),
End of Period...................... $228,193 $160,815 $132,376 $92,463 $72,343 $53,289 $42,214 $29,223 $21,493 $6,974
Ratio of Expenses
to Average Net Assets.............. 0.59% 0.63% 0.66% 0.71% 0.75% 0.81% 0.72% 0.76% 0.08% 0.03%
Ratio of Net Investment
Income to Average
Net Assets......................... 3.79% 3.59% 3.54% 3.94% 4.96% 5.59% 4.85% 4.81% 5.56% 5.12%
Portfolio Turnover Rate............. 64.80% 121.82% 52.43% 27.06% 42.09% 47.62% 56.80% 27.68% 84.74% 45.48%
Ratio to Average Net Assets before
waived and reimbursed expenses:
Ratio of Expenses................... 0.59% 0.63% 0.66% 0.71% 0.75% 0.81% 0.72% 0.76% 0.64% 0.61%
Ratio of Net Investment Income...... 3.79% 3.59% 3.54% 3.94% 4.96% 5.59% 4.85% 4.81% 5.00% 4.54%
</TABLE>
Expenses for the Balanced Fund were assumed or waived by Horace Mann Investors,
Inc. and CIGNA Investments through 1987.
The "Net Investment Income" per share and the "Net gains(losses) on Securities-
realized and unrealized" per share represent a proportionate share respective to
the increase in net assets as presented in the Statement of Operations.
The Fund's investment adviser was changed effective November 1, 1989.
The total return is determined by the ratio of ending net asset value to
beginning net asset value, adjusted for reinvestment of dividends from net
investment income and net realized capital gains.
If you are an annuity contract owner, the above total return does not reflect
expenses that apply to the separate account or related policies. The inclusion
of these charges would reduce the total return figures for all periods shown.
Ratios of Expenses and Net Investment Income to Average Net Assets do not
reflect commission credits.
34
<PAGE>
<TABLE>
<CAPTION>
[LOGO]
SHORT-TERM FUND
FINANCIAL HIGHLIGHTS
====================================================================================================================================
Year Ended December 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
- --------------
NET ASSET VALUE, BEGINNING
OF PERIOD........................... $10.08 $10.07 $10.09 $10.10 $10.37 $10.73 $10.49 $10.25 $11.17 $11.44
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income.............. 0.53 0.39 0.26 0.33 0.61 0.85 0.85 0.69 0.65 0.68
Net Gains (Losses) on
Securities -- realized and
unrealized........................ -- -- -- -- -- 0.01 -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Income (Loss) From
Investment Operations............ 0.53 0.39 0.26 0.33 0.61 0.86 0.85 0.69 0.65 0.68
LESS DISTRIBUTIONS:
From net investment
income............................ 0.61 0.38 0.28 0.34 0.88 1.22 0.60 0.45 1.57 0.95
From net realized gains............ -- -- -- -- -- -- 0.01 -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions............... 0.61 0.38 0.28 0.34 0.88 1.22 0.61 0.45 1.57 0.95
NET ASSET VALUE, END OF
PERIOD.............................. $10.00 $10.08 $10.07 $10.09 $10.10 $10.37 $10.73 $10.49 $10.25 $11.17
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN......................... 5.25% 3.89% 2.53% 3.30% 5.93% 7.89% 8.27% 6.74% 5.80% 6.26%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets (000's omitted),
End of Period...................... $1,006 $1,114 $1,110 $1,131 $1,076 $1,195 $1,175 $1,140 $ 852 $ 356
Ratio of Expenses
to Average Net Assets.............. 0.84% 0.49% 0.61% 0.51% 0.43% 0.38% 0.46% 0.37% 0.21% 0.14%
Ratio of Net Investment
Income to Average
Net Assets......................... 5.11% 3.78% 2.56% 3.16% 5.88% 7.57% 7.83% 6.50% 5.68% 5.94%
Portfolio Turnover Rate............. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Ratio to Average Net Assets before
waived and reimbursed expenses:
Ratio of Expenses................... 2.35% 2.36% 2.42% 3.44% 4.45% 4.46% 3.29% 1.48% 1.53% 0.61%
Ratio of Net Investment Income...... 3.60% 1.91% 0.75% 0.23% 1.86% 3.49% 5.00% 5.39% 4.36% 5.47%
</TABLE>
Certain expenses for the Short-Term Fund were assumed or waived by Horace Mann
Investors, Inc. through December 31, 1995. The investment advisory expenses for
the Short-Term Investment Fund were waived by CIGNA Investments from January 1,
1984 through October 31, 1989.
The "Net Investment Income" per share and the "Net gains (losses) on Securities
- -realized and unrealized" per share represent a proportionate share respective
to the increase in net assets as presented in the Statement of Operations.
The Fund's investment adviser was changed effective November 1, 1989.
The total return is determined by the ratio of ending net asset value to
beginning net asset value, adjusted for reinvestment of dividends from net
investment income and net realized capital gains.
If you are an annuity contract owner, the above total return does not reflect
expenses that apply to the separate account or related policies. The
inclusion of these charges would reduce the total return figures for all periods
shown.
35
<PAGE>
INDEPENDENT AUDITORS' REPORT
================================================================================
The Board of Directors and Shareholders of
Horace Mann Growth Fund, Inc.
Horace Mann Income Fund, Inc.
Horace Mann Balanced Fund, Inc.
Horace Mann Short-Term Investment Fund, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the statements of investments, of Horace Mann Growth Fund, Inc., Horace Mann
Income Fund, Inc., Horace Mann Balanced Fund, Inc., and Horace Mann Short-Term
Investment Fund, Inc. (the "Funds") as of December 31, 1995, and the related
statements of operations for the year then ended and the statements of changes
in net assets and the financial highlights for each of the two years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The accompanying financial highlights for the eight years ended December
31, 1993 were audited by other auditors whose report thereon dated January 21,
1994, expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned at
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Funds as of December 31, 1995, the results of their operations for the
year then ended and the changes in their net assets and the financial highlights
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 26, 1996
36
<PAGE>
PART C
OTHER INFORMATION
HORACE MANN SHORT-TERM INVESTMENT FUND, INC.
Item 24. Financial Statements and Exhibits
- -------------------------------------------
(a) Financial Statements
-------------------------
Part A
-Audited condensed financial information for the Growth Fund,
Income Fund, Balanced Fund and Short-Term Investment Fund for the
twelve months ended December 31, 1986 through the twelve months
ended December 31, 1995 (all of which are incorporated by
reference from the Funds' Annual Report dated December 31, 1995)
Part B
-Audited financial statements for the Funds (all of which are
incorporated by reference from the Funds' Annual Report dated
December 31, 1995) including:
-Report of Independent Auditors dated January 26, 1996
-Statements of Investments at December 31, 1995
-Statements of assets and liabilities at
December 31, 1995
-Statements of operations for the year ended
December 31, 1995
-Statements of changes in net assets for the years
ended December 31, 1995 and 1994*
-Notes to financial statements at December 31,
1995
-Financial Highlights for each of the fiscal years since
1986 for the Growth Fund, Income Fund, Balanced
Fund and Short-Term Investment Fund*
*The Report of Independent Auditors with respect to the financial
highlights for each of the eight years in the period ended December 31,
1993 is included in the Registration Statement and is available from the
Funds.
(b) Exhibits Filed
------------- -----
(1) The Charter............................ Previously Filed/1/
(2) The By-Laws............................ Previously Filed/5/
(3) Voting Trust Agreements................ Not Applicable
(4) Copies of Each Security................ Not Applicable
(5) (a)Investment Advisory Contract........ Previously
(b)Management Agreement................ Previously Filed/2/
(6) Distribution Contract and
All Agreements Between Principal
Underwriters and Dealers............... Not Applicable
(7) Bonus, Profit Sharing, Pension or
- A -
<PAGE>
Other Similar Contracts................ Not Applicable
(8) Custodian Agreement, Including
the Schedule of Remuneration........... Previously Filed/5/
(9) (a)Transfer Agent Agreement............ Previously Filed/4/
(b)Fund Accounting Services Agreement.. Previously Filed/5/
(10) Consent of Counsel..................... Not Applicable
(11) (a)Consent of KPMG Peat Marwick LLP.... Herewith
(b)Opinion and Consent of
Ernst & Young LLP................... Herewith
(12) Financial Statements Omitted
From Item 23........................... Not Applicable
(13) Initial Capitalization Agreement....... Previously Filed/1/
(14) Model Plan used in the Establishment
of any Retirement Plan................. Not Applicable
(15) Rule 12b-1 Plan........................ Not Applicable
(16) Performance Quotation Computations..... Previously Filed/4/
(17) Financial Data Schedule................ Herewith
(18) Multiclass Company..................... Not Applicable
(19) Horace Mann Educators Corporation
and its Subsidiaries................... Herewith
/1/Incorporated by reference from the initial Registration Statement of
Horace Mann Short-Term Investment Fund, Inc. (File Nos. 2-81830 and 811-
3666) filed February 14, 1983.
/2/Incorporated by reference from Post-Effective Amendment No. 9 filed
September 1, 1989.
/3/Incorporated by reference from Post-Effective Amendment No. 11 filed
April 30, 1991.
/4/Incorporated by reference from Post-Effective Amendment No. 13 filed
April 29, 1993.
/5/Incorporated by reference from Post-Effective Amendment No. 15 filed
April 26, 1995.
Item 25. Persons Controlled By or Under Common Control with Registrant
- ----------------------------------------------------------------------
No person is directly controlled by Horace Mann Short-Term Investment Fund,
Inc. Companies under common control include Horace Mann Educators Corporation
and its subsidiaries and Horace Mann Growth Fund, Inc., Horace Mann Balanced
Fund, Inc. and Horace Mann Income Fund, Inc. See Exhibit No. 19.
The Registrant is advised by Wellington Management Company and managed by
Horace Mann Investors, Inc. As of April 1, 1996, 84.16% of the Registrant's
outstanding shares are owned by Horace Mann Life Insurance Company Separate
Account and 9.80% are owned by Horace Mann Life Insurance Company
(depositor).
- B -
<PAGE>
Item 26. Number of Holders of Securities
-----------------------------------------
As of April 1, 1996 the number of record holders of Horace Mann
Short-Term Investment Fund, Inc. securities was as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock, 3
Par Value $.10 102,055.425 shares issued and outstanding)
Item 27. Indemnification
- -------------------------
Heretofore filed with the Securities and Exchange Commission as a part of
the Registration Statement of Horace Mann Short-Term Investment Fund, Inc., Pre-
Effective Amendment No. 1, and specifically incorporated herein by reference.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of Investment Adviser
- --------------------------------------------------------------
Wellington Management Company is an investment adviser registered under
the Investment Advisers Act of 1940, as amended (the "Advisers Act").
The list required by this Item 28 of officers and partners of Wellington
Management Company, together with information as to any business profession,
vocation or employment of substantial nature engaged in by such officers and
partners during the past two fiscal years, is incorporated herein by reference
to Schedules B and D of Form ADV filed by Wellington Management Company pursuant
to the Advisers Act (SEC File No. 801-15908).
Item 29. Principal Underwriters
- --------------------------------
Not applicable.
- C -
<PAGE>
Item 30. Location of Accounts and Records
- ------------------------------------------
Wellington Management Company, the Investment Adviser of the Fund, is
located at 75 State Street, Boston, Massachusetts 02109. It will maintain those
accounts and records required to be maintained by it pursuant to Section 31(a)
of the Investment Company Act of 1940 and the rules promulgated thereunder.
Horace Mann Investors, Inc., Business Manager of the Fund, is located at
One Horace Mann Plaza, Springfield, Illinois 62715. It maintains those accounts
and records required to be maintained by it pursuant to Section 31(a) of the
Investment Company Act and the rules promulgated thereunder.
First National Bank of Boston, One Financial Center, Boston, Massachusetts
02111, and Horace Mann Service Corporation, One Horace Mann Plaza, Springfield,
Illinois 62715, also maintain certain books and record in accordance with the
instructions of the Fund.
Item 31. Management Services
- -----------------------------
Registrant asserts that all material management related services contract
provisions have been discussed in Part A or Part B of this Registration
Statement.
Item 32. Undertakings
- ----------------------
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
- D -
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Post-Effective Amendment to the
Registration Statement and has caused this Post-Effective Amendment to its
Registration Statement to be duly signed on its behalf in the City of
Springfield and State of Illinois, on this 24th day of April, 1996.
HORACE MANN SHORT-TERM INVESTMENT FUND, INC.
By: /s/ GEORGE J. ZOCK
-----------------------------------
George J. Zock,
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/LARRY K. BECKER Director, Board Chairman April 24, 1996
- ------------------- --------------
Larry K. Becker
/s/GEORGE J. ZOCK Director, President April 24, 1996
- ------------------- (Principal Executive Officer) ---------------
George J. Zock
/s/A. THOMAS ARISMAN Director April 24, 1996
- ------------------- --------------
A. Thomas Arisman
/s/A. L. GALLOP Director April 24, 1996
- ------------------- --------------
A. L. Gallop
/s/HARRIET A. RUSSELL Director April 24, 1996
- -------------------- --------------
Harriet A. Russell
/s/WILLIAM J. KELLY Treasurer April 24, 1996
- ------------------- (Principal Financial Officer) --------------
William J. Kelly
/s/ROGER W. FISHER Controller April 24, 1996
- ------------------- --------------
Roger W. Fisher
Date: April 24, 1996
---------------
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Title Page (of ____)
- ----------- ----- --------------
<C> <S> <C>
11(a) Consent of KPMG Peat Marwick LLP
(b) Opinion and Consent of
Ernst & Young LLP
17 Financial Data Schedule
19 Horace Mann Educators
Corporation and its
Subsidiaries
</TABLE>
<PAGE>
Exhibit 11(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm as independent auditors under the
captions "Condensed Financial Information" in the Prospectus and "Business
Management Agreements and Other Services-Independent Auditors" and "Financial
Statements" in the Statement of Additional Information of Post Effective
Amendment Number 16 to the Registration Statement for the Horace Mann Short-Term
Investment Fund, Inc. (File Nos. 2-81830 and 811-3666) and to the incorporation
by reference therein of our report dated January 26, 1996, with respect to the
financial statements of Horace Mann Growth Fund, Inc., Horace Mann Balanced
Fund, Inc., Horace Mann Income Fund, Inc. and Horace Mann Short-Term Investment
Fund, Inc. included in their Annual Report for the year ended December 31, 1995.
/S/ KPMG PEAT MARWICK LLP
Chicago, Illinois
April 19, 1996
<PAGE>
EXHIBIT 11(b)
Report of Independent Auditors
To the Shareholders and Board of Directors of
Horace Mann Growth Fund, Inc.
Horace Mann Balanced Fund, Inc.
Horace Mann Income Fund, Inc.
and
Horace Mann Short-Term Investment Fund, Inc.
We have audited the statements of assets and liabilities, including the
statements of investments, of Horace Mann Growth Fund, Inc., Horace Mann Income
Fund, Inc., Horace Mann Balanced Fund, Inc., and Horace Mann Short-Term
Investment Fund, Inc. (the "Funds") and the related statements of operations and
changes in net assets (none of which are presented separately herein) and the
financial highlights for each of the eight years in the period ended December
31, 1993; and we expressed unqualified opinions on those financial statements
and financial highlights. These financial statements and financial highlights
are the responsibility of the Funds' management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial highlights referred to above present fairly, in
all material respects, the financial highlights of each Fund for each of the
eight years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
St. Louis, Missouri
January 21, 1994
<PAGE>
Exhibit 11(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated January 21, 1994 with respect to the
financial highlights for each of the eight years in the period ended December
31, 1993, in the Registration Statement (Form N-1A) and its incorporation by
reference in the related prospectus of Horace Mann Short Term Investment Fund,
Inc. filed with the Securities and Exchange Commission in this Post-Effective
Amendment Number 16 to the Registration Statement for the Horace Mann Short Term
Investment Fund, Inc. (File Nos. 2-81830 and 811-3666).
/s/ ERNST & YOUNG LLP
St. Louis, Missouri
April 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,020
<INVESTMENTS-AT-VALUE> 1,020
<RECEIVABLES> 1
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,025
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19
<TOTAL-LIABILITIES> 19
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10
<SHARES-COMMON-STOCK> 101
<SHARES-COMMON-PRIOR> 111
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,006
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 68
<OTHER-INCOME> 0
<EXPENSES-NET> 9
<NET-INVESTMENT-INCOME> 59
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 59
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 59
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 710
<NUMBER-OF-SHARES-REDEEMED> 724
<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> (108)
<ACCUMULATED-NII-PRIOR> 1
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 27
<AVERAGE-NET-ASSETS> 1,146
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> .61
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .61
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> .84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 19
<TABLE>
<CAPTION>
-----------
HORACE
MANN
EDUCATORS
CORPORATION
Delaware
Corporation
100 %
-----------
|
<S> <C> <C> <C> <C> <C> | <C> <C> <C> <C> <C>
===================================================================================================================================
ALLEGIANCE ALLEGIANCE EDUCATORS ASSOCIATION HORACE WELL-CARE, HORACE HORACE TEACHERS SENIOR AIC
INSURANCE LIFE LIFE & CONSUMER MANN INC. MANN MANN INSURANCE MARKETING ACQUISITION
COMPANY INSURANCE INSURANCE MARKETING SERVICE Illinois INVESTORS, INSURANCE COMPANY INSURANCE CORPORATION
California COMPANY COMPANY SERVICES CORPORATION Corporation INC. COMPANY Illinois SERVICE Delaware
Corporation Illinois OF AMERICA CORP. Illinois Maryland Illinois Corporation CORPORATION Corporation
Corporation Arizona Illinois Corporation Corporation Corporation Delaware
100% Corporation Corporation Corporation
===================================================================================================================================
|
|
----------
HORACE
MANN
LIFE
INSURANCE
COMPANY
Illinois
Corporation
-----------
</TABLE>
As of 31 December 1995
