HORACE MANN MUTUAL FUNDS, 485BPOS, 1999-04-29

HORACE MANN MUTUAL FUNDS
485BPOS, 1999-04-29

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As filed with the Securities and Exchange Commission on or about April 29, 1999

Registration No. 333-15881 and 811-07917
------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

|_| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
|_| Pre-Effective Amendment No. __
|X| Post-Effective Amendment No.6

and/or

REGISTRATION STATEMENT
|_| UNDER THE INVESTMENT COMPANY ACT OF 1940
|X| Amendment No. 7
(Check appropriate box or boxes)

HORACE MANN MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)

ONE HORACE MANN PLAZA
SPRINGFIELD, ILLINOIS 62715

(Address of Principal Executive Offices, including Zip Code)

ANN M. CAPARROS
ONE HORACE MANN PLAZA
SPRINGFIELD, ILLINOIS 62715
(Name and Address of Agent for Service)

COPY TO:

CATHY G. O'KELLY
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601

It is proposed that this filing will become effective (check appropriate box):

[ ] Immediately upon filing pursuant to paragraph (b)
[x] On (May 1, 1999) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] On (date) pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a) (2)
[ ] On (date) pursuant to paragraph (a) (2) of Rule 485.

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

<PAGE>

PROSPECTUS
MAY 1, 1999
HORACE MANN MUTUAL FUNDS
GROWTH FUND
BALANCED FUND
INCOME FUND
SHORT-TERM INVESTMENT FUND
SMALL CAP GROWTH FUND
INTERNATIONAL EQUITY FUND
SOCIALLY RESPONSIBLE FUND

Shares of the Horace Mann Mutual Funds are sold only as the underlying
investment for variable annuity contracts issued by Horace Mann Life Insurance
Company.

HORACE MANN MUTUAL FUNDS
One Horace Mann Plaza
Springfield, Illinois 62715-0001
1-800-999-1030

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus.
It is a federal offense to suggest otherwise.

<PAGE>

TABLE OF CONTENTS
Page
SUMMARY 3
GROWTH FUND 3
BALANCED FUND 6
INCOME FUND 10
SHORT-TERM INVESTMENT FUND 13
SMALL CAP GROWTH FUND 16
INTERNATIONAL EQUITY FUND 19
SOCIALLY RESPONSIBLE FUND 22
OTHER INVESTMENT POLICIES 25
All Funds 25
Growth Fund 25
Income Fund 25
Short-Term Investment Fund 25
International Equity Fund and Socially Responsible Fund 25
TYPES OF INVESTMENTS AND ASSOCIATED RISKS 25
MANAGEMENT 30
Investment Adviser: Wilshire Associates Incorporated 30
The Subadvisers 32
Growth Fund 32
Balanced Fund 33
Income Fund 33
Short-Term Investment Fund 33
Small Cap Growth Fund 33
International Equity Fund 34
Socially Responsible Fund 34
General 35
Administrator: Horace Mann Investors, Inc. 35
Support Services Agreement 35
Transfer Agent and Dividend Paying Agent 35
Custodian and Fund Accounting Agent 35
Year 2000 Readiness 35
ADDITIONAL PERFORMANCE INFORMATION 35
Other Information on the Performance of Brinson Partners,
Mellon Equity and Wellington Management 35
Other Information on the Performance of BlackRock 36
Other Information on the Performance of Scudder Kemper 37
International Equity Performance 37
Socially Responsible Growth and Income Performance 37
PURCHASES AND REDEMPTIONS 38
Redemption of Growth Fund Shares by Existing Public Shareholders 39
Systematic Cash Withdrawal Plan 39
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 39
OTHER INFORMATION 40
Voting Rights 40
Public Shareholder Communications 40
Statement of Additional Information 40
APPENDIX A 42
Ratings of Debt Obligations 42

<PAGE>

SUMMARY
GROWTH FUND
Investment Objective
The Growth Fund seeks long-term capital growth. As a secondary
objective, the Growth Fund seeks conservation of principal and production of
income.

PRINCIPAL STRATEGIES AND INVESTMENTS
The Growth Fund ordinarily invests substantially all its assets in
common stocks of domestic companies. These companies vary in size and operating
history, they may or may not be listed on a stock exchange, and they may be in
any industry. On average, the Fund will have a value-bias, generally exhibiting
an average price to earnings ratio lower than, and an average dividend yield
higher than, that of the market. The Growth Fund may also invest in preferred
stocks. 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 securities and American Depository Receipts.
Included within the definition of "domestic companies" are companies that are
not incorporated in the U.S. but have one or more of the following attributes:
principal place of business in the U.S., substantial portion of income derived
from activities in the U.S., equity securities traded on a major U.S. stock
exchange or included in a recognized index of U.S. stocks, or complies with U.S.
accounting standards. Thus, securities of such issuers are not subject to the
10% limitation on securities of foreign issuers.

Wilshire Associates Incorporated ("Wilshire") serves as the investment
adviser to the Growth Fund. In its oversight of the investment program of the
Growth Fund, Wilshire selects investment managers as subadvisers to manage the
funds in the portfolio, and determines the allocation of the Growth Fund's
assets among those selected subadvisers. Wilshire has discretion to select,
retain, and discharge the subadvisers for the Growth Fund with approval from the
Fund's Board of Trustees. Wilshire may take these actions at any time without
shareholder approval.

Wilshire has selected subadvisers to manage the assets of the Growth
Fund based upon a due diligence process that focuses on, but is not limited to,
the managers' philosophy and process, people and organization, resources, and
performance. In its judgment, Wilshire has determined that the following three
managers are to be retained: Brinson Partners, Inc. ("Brinson Partners"), Mellon
Equity Associates, LLP ("Mellon Equity") and Wellington Management Company, LLP
("Wellington Management").

Approximately 40% of the Growth Fund currently is invested by Brinson
Partners. The firm believes that investment value is a function of the present
value of a company's future cash flows. Brinson Partners engages in thorough
fundamental research to identify attractively-valued stocks. The firm applies
rigorous top-down risk management techniques to ensure inappropriate risks are
avoided.

Approximately 40% of the Growth Fund currently is invested by Mellon
Equity. The firm believes that stock returns are a function of a security's
exposure to numerous fundamental factors which move in and out of favor over
time. By emphasizing those stocks with favorable attributes and de-emphasizing
those without, Mellon Equity seeks to purchase the better performing stocks
within a sector and attempts to neutralize risk through a well diversified
portfolio construction.

Approximately 20% of the Growth Fund currently is invested by
Wellington Management. Wellington Management employs a conservative, long-term
approach to investing in high quality equity securities. Using a top-down,
bottom-up process, the firm's growth and income style emphasizes fundamental
analysis in security selection, and attempts to identify long lasting broad
themes based on demographic trends, technological changes and political and
social developments.

In normal circumstances, the Growth Fund intends to be fully invested.
However, from time to time the Fund may take temporary defensive positions in
response to adverse market, economic or political conditions. To the extent the
Fund is in a defensive position, its ability to achieve its investment objective
may be limited.

PRINCIPAL RISKS
Fund investments are subject to varying degrees of risk. There can be
no assurance that the Fund will meet its investment objectives or that the net
return on an investment in the Fund will exceed the return of other investment
or savings vehicles. The Fund's returns will vary, and you could lose money.

FINANCIAL RISK. For equity securities held in the portfolio, financial
risk is the possibility that the price of the security will fall because of poor
earnings performance by the issuer.

INVESTMENT STYLE. To the extent that the Fund emphasizes a large
capitalization value style, the Fund may underperform in markets that favor
other styles, particularly more aggressive growth stock styles.

LIQUIDITY RISK. The Fund may invest in certain securities that may be
difficult or impossible to sell at a certain time and at a price that the Fund
finds to be favorable. The Fund may have to accept an unfavorable price, sell
other securities instead, or forego an investment opportunity, any of which
could have a negative effect on fund management or performance.

MARKET RISK. Stock market movements will affect the Fund's share price
on a daily basis. For equity securities held in the portfolio, declines in value
are possible because of declines in the stock market in general or because of a
decline in the specific

<PAGE>

securities held by the Fund.

OPPORTUNITY RISK. Because the Fund is normally fully invested, the Fund
may defer an investment opportunity because the assets that would be necessary
to purchase that security or act on that opportunity are invested in other
securities. At the subadviser's direction, securities may be sold if
opportunities warrant.

PORTFOLIO STRATEGY. The subadvisers' skill in choosing appropriate
investments for the Fund will determine in large part the Fund's ability to
achieve its investment objectives.

VALUATION RISK. The Fund may invest in securities that are difficult to
value and may value certain of its securities at a higher price than it can sell
them for.

The risks associated with those types of investments that are not
discussed as a part of the Fund's principal strategies and investments are
discussed later in this prospectus under the heading "Types of Investments and
Associated Risks."

PAST PERFORMANCE
The information below provides an illustration of how the Growth Fund's
performance has varied over time. The bar chart and table provide some
indication of the risks of investing in the Growth Fund by showing the changes
in the Growth Fund's performance from year-to-year during the periods indicated
and by showing how the Growth Fund's average annual total returns for the
periods indicated compare with a broad-based securities market index. The total
return figures do 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. The information below reflects the performance of
the Growth Fund as managed solely by Wellington Management Company, LLP. Since
March 1, 1999, the Growth Fund is managed by three subadvisers: Brinson
Partners, Mellon Equity and Wellington Management. The Growth Fund's past
performance does not necessarily indicate how it will perform in the future.

ANNUAL RETURNS FOR THE PERIODS ENDED DECEMBER 31
CHART

1990 -5.48
1991 26.50
1992 9.59
1993 19.74
1994 -0.35
1995 33.67
1996 25.28
1997 23.45
1998 7.64
During the period shown in the bar chart, the highest return for a quarter was
13.12% (quarter ended 6/30/97) and the lowest return for a quarter was -11.36%
(quarter ended 9/30/90).

AVERAGE ANNUAL TOTAL RETURNS
(periods ended December 31, 1998)
SINCE
INCEPTION
1 YEAR 5 YEARS (11/1/89*)
------ -------- ----------
Growth Fund 7.64% 17.27% 15.09%
S&P 500** 28.58% 24.08% 18.12%

* The date the Fund was restructured and Wellington Management Company, LLP
became the investment adviser for the Fund.

** The Standard and Poor's 500 Stock Index (the "S&P 500"). The S&P 500 is an
unmanaged index that is generally considered to be representative of the United
States equity market.

<PAGE>

GROWTH FUND FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the
Fund's financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by KPMG LLP, whose report, along with the Fund's
financial statements, are included in the annual report, which is available upon
request.
<TABLE>
<CAPTION>

YEARS ENDED DECEMBER 31
1998 1997 1996 1995 1994
-------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............... $25.66 $23.76 $21.66 $17.64 $19.85
Income From Investment Operations:
Net Investment Income(1).................. .41 0.40 0.43 0.52 0.49
Net Gains or Losses on Securities
(both realized
and unrealized)(1)................... 1.51 5.09 5.08 5.41 (0.57)
-------- ------- ------- -------- --------
Total From Investment Operations................... 1.92 5.49 5.51 5.93 (0.08)
Less Distributions:
Dividends (from net investment income).... .41 0.39 0.40 0.49 0.45
Distributions (from capital gains)........ 2.83 3.20 3.01 1.42 1.68
Returns of Capital........................ 0.00 0.00 0.00 0.00 0.00
-------- ------- ------- -------- --------
Total Distributions................................ 3.24 3.59 3.41 1.91 2.13
-------- ------- ------- -------- --------
Net Asset Value, End of Period..................... $24.34 $25.66 $23.76 $21.66 $17.64
======== ======= ======= ======== ========
Total return (%)(2,3).............................. 7.64% 23.45% 25.28% 33.67% (0.35%)
Ratios/Supplemental Data:
Net Assets, End of Period ($000s).........$670,731 $598,502 $430,556 $297,100 $202,103
Ratio of Expenses to Average Net Assets(4) 0.51% 0.53% 0.59% 0.63% 0.69%
Ratio of Net Income to Average Net Assets 1.57% 1.50% 1.79% 2.50% 2.36%
Portfolio Turnover Rate (%) 59.63% 54.56% 67.63% 64.59% 69.42%

</TABLE>

1. The "Net investment income" per share and the "Net realized and unrealized
gains (losses)" per share represent a proportionate share respective to the
increase in net assets as presented in the Statement of Operations of the Horace
Mann Mutual Funds' Annual Report for the respective year.

2. 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.

3. 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.

4. Ratio of expenses to average net assets do not reflect commission credits.

5
<PAGE>

BALANCED FUND
INVESTMENT OBJECTIVE
The Balanced Fund seeks to realize a high long-term total rate of
return consistent with prudent investment risks. Total rate of return consists
of current income, which includes dividends, interest, discount accruals and
capital appreciation.

PRINCIPAL STRATEGIES AND INVESTMENTS
The Balanced Fund seeks to attain it's objective through a selective
mix of investments, directly or indirectly, in common stocks, bonds and other
debt instruments. The Board of Trustees and shareholders have approved a "fund
of funds" structure for the Balanced Fund, but the Fund will not implement such
structure until necessary regulatory approvals are obtained. Until conversion to
a "fund of funds" structure, the Balanced Fund will hold the same kind of stocks
and bonds held separately by the Growth Fund and Income Fund. The summaries for
the Growth and Income Funds have a description of the types of stocks and bonds
in which the Balanced Fund is permitted to invest. The policies with regard to
credit quality, duration and maturity, as well as the percentage limitations on
investments, associated with the Income Fund apply to the portion of the
Balanced Fund's assets that are invested in fixed-income securities. Once the
"fund of funds" arrangement is implemented, the investment adviser will allocate
the Balanced Fund's assets between the Growth Fund and Income Fund.

The mix of investments in the Balanced Fund is regularly adjusted
between the equity sector and the fixed income sector to capitalize on perceived
variations in return potential produced by the changing financial market and
economic conditions. This mixture of equity investments and fixed income
investments 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 equity assets and 25% to
50% of the value of its assets will be invested in fixed income assets. Major
changes in investment mix may occur several times within a year or over several
years, depending upon market and economic conditions. In general, however, the
investment adviser does not anticipate making frequent changes in asset
allocation and will not attempt to time the market.

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 Fund's net assets may be invested in illiquid securities or
invested in restricted securities, except securities subject to resale under
Rule 144A under the 1933 Act.

Under the "fund of funds" structure, although the Balanced Fund will
invest substantially all of its assets in shares of the Growth Fund and Income
Fund, the Balanced Fund would also be able to invest in certain individual
securities, including money market instruments, U.S. government securities,
financial futures contracts and options on securities indices, to facilitate the
investment and reallocation of the Balanced Fund's assets among various sectors.

An investor in the Balanced Fund under the "fund of funds" arrangement
should understand that alternatively he or she could allocate investments
directly to the Growth Fund and Income Fund. By investing indirectly in these
Funds through the Balanced Fund, an investor bears not only his or her
proportionate share of certain expenses of the Balanced Fund (such as operating
costs), but also, indirectly, similar expense of the underlying Funds. However,
shareholders of the Balanced Fund will not be subject to duplicative advisory of
administrative service fees as a result of the "fund of funds" arrangement as
discussed below in "Management--Investment Adviser: Wilshire Associates
Incorporated."

PRINCIPAL RISKS
By investing in the Balanced Fund, an investor assumes the same types
of risks, either directly or indirectly, as investing in the Growth Fund and
Income Fund, which are described in this prospectus. There can be no assurance
that the Fund will meet its investment objective or that the net return of an
investment in the Fund will exceed the return of other investment or savings
vehicles. The Balanced Fund's returns will vary, and you could lose money.

CREDIT RISK. Certain investments of the Fund are subject to the risk
that the issuer of a security, or the counter party to a contract, will default
or otherwise become unable to honor a financial obligation. 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 risk, all other factors such as maturity being equal.

DERIVATIVES RISK. When the Fund uses derivatives (securities whose
value is based upon the value of another security or an index) to hedge
positives in the portfolio, any loss generated by the derivative security should
be substantially offset by gains on the hedged investment, and vice versa. While
hedging can reduce or eliminate losses, it can also reduce or eliminate gains.
To the extent that a derivative is not used as a hedge (i.e. for speculation),
the Fund is directly exposed to the potential gains and losses of that
derivative. Gains and losses from non-hedging derivative positions may be
substantially greater than the derivative's original cost.

FINANCIAL RISK. For equity securities held in the portfolio, financial
risk is the possibility that the price of the security will fall because of poor
earnings performance by the issuer.

HIGH YIELD SECURITIES RISK. The Fund may invest in fixed income or
convertible securities rated lower than "Baa" by Moody's or "BBB" by S&P, or
unrated securities of comparable

<PAGE>

quality, which are commonly referred to as "junk bonds" or "high yield/high
risk" securities. These securities are considered speculative and generally
involve a higher risk of loss of principal and income than higher-rated,
investment grade securities. The value of these securities generally fluctuate
more than those of higher-rated securities. The value of high-yield, high-risk
securities may also be influenced by the bond market's perception of an issuer's
credit quality or its outlook for economic growth. In times where economic
conditions appear to be deteriorating, lower-rated securities may decline in
market value primarily due to investors' heightened concern over an issuer's
credit quality and its ability to make timely interest and principal payments.
In such periods of real or perceived economic downturn the secondary market for
high-yield, high-risk securities may become thin and liquidity may be
significantly reduced. This may lead to increased volatility and sudden price
movements in the secondary market.

INTEREST RATE RISK. For debt securities, interest rate 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.

INVESTMENT STYLE. During certain market conditions, the Fund may
perform less well than asset allocation funds that allow greater flexibility in
the allocation of assets to sectors or that more actively manage the allocation
of assets among sectors.

PORTFOLIO STRATEGY. The performance of the Balanced Fund is in part
dependent upon the investment adviser's skill in making appropriate allocations
among sectors of investments.

PREPAYMENT RISK. A GNMA or other mortgage-backed security is subject to
the risk of unanticipated prepayments of principal with respect to mortgages in
the security's underlying pool of assets. While principal pre-payments are
passed through to the holders of GNMA securities, pre-payments also reduce the
future payments on such securities and may reduce their value. The Fund may
invest in mortgage-backed securities subject to the risk that an unexpected rise
in interest rates will extend the life of a mortgage-backed security beyond the
expected prepayment time, typically reducing the security's value.
Mortgage-backed securities are subject to the risk that an unexpected decline in
interest rates will contract the life of a mortgage-backed risk, thereby
affecting its prepayment schedule, which may affect the value of the security.

REINVESTMENT RISK. During periods of falling interest rates, a debt
security with a high stated interest rate may 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, 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.

VALUATION RISK. The Fund may invest in securities that are difficult to
value and may value certain of its securities at a higher price than it can sell
them for.

PAST PERFORMANCE

The information below provides an illustration of how the Balanced
Fund's performance has varied over time. The bar chart and table provide some
indication of the risks of investing in the Balanced Fund by showing the changes
in the Balanced Fund's performance from year to year during the periods
indicated and by showing how the Balanced Fund's average annual total returns
for the periods indicated compare with a broad-based securities market index.
The total return figures do 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. The information below reflects the
performance of the Balanced Fund as managed solely by Wellington Management
Company, LLP. On March 1, 1999, the subadvisers for the equity portion of the
Balanced Fund changed from Wellington Management Company, LLP to three
subadvisers: Brinson Partners, Inc., Mellon Equity Associates, LLP and
Wellington Management Company, LLP. The subadviser for management of the fixed
income portion of the Balanced Fund is Wellington Management Company, LLP. The
Balanced Fund's past performance does not necessarily indicate how it will
perform in the future.
7

<PAGE>

ANNUAL RETURNS FOR THE PERIODS ENDED DECEMBER 31
CHART
1990 -0.41
1991 21.57
1992 8.37
1993 15.46
1994 -1.12
1995 27.12
1996 18.27
1997 19.04
1998 7.68

During the period shown in the bar chart, the highest return for a quarter was
9.82% (quarter ended 6/30/97) and the lowest return for a quarter was -6.23%
(quarter ended 9/30/90).

AVERAGE ANNUAL TOTAL RETURNS
(periods ended December 31, 1998)
SINCE
INCEPTION
1 YEAR 5 YEARS (11/1/89*)
-------- -------- -----------

Balanced Fund. 7.68% 13.75% 12.68%
S&P 500** 28.58% 24.08% 18.12%
Lehman Intermediate/
Aggregate*** 8.67% 7.25% 8.43%
Stock/Bond Composite**** 21.33% 17.23% 14.30%
</TABLE>

* The date the Fund was restructured and Wellington Management Company, LLP
became the investment adviser for the Fund.

** The Standard and Poor's 500 Stock Index (the "S&P 500"). The S&P 500 is an
unmanaged index that is generally considered to be representative of the United
States equity market.

*** Lehman Brothers Intermediate Government/Corporate Bond
Index through April 30, 1997, Lehman Brothers Aggregate Bond Index thereafter.

**** Sixty percent S&P 500, forty percent Lehman Brothers Intermediate
Government/Corporate Bond Index through April 10, 1997, Lehman Brothers
Aggregate Bond Index thereafter.
8

<PAGE>

BALANCED FUND FINANCIAL HIGHLIGHTS

YEARS ENDED DECEMBER 31
1998 1997 1996 1995 1994
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $19.82 $18.94 $18.00 $15.26 $16.72
Income From Investment Operations:
Net Investment Income(1).................. 0.73 0.65 0.60 0.67 0.62
Net Gains or Losses on Securities
(both realized and unrealized)(1) 0.77 2.92 2.70 3.46 (0.81)
------- ------- -------- -------- --------
Total From Investment Operations................... 1.50 3.57 3.30 4.13 (0.19)
Less Distributions:
Dividends (from net investment income).... .74 0.62 0.57 0.61 0.55
Distributions (from capital gains)........ 1.68 2.07 1.79 0.78 0.72
Returns of Capital........................ 0.00 0.00 0.00 0.00 0.00
------- ------- -------- -------- --------
Total Distributions................................ 2.42 2.69 2.36 1.39 1.27
------- ------- -------- -------- --------
Net Asset Value, End of Period..................... $18.90 $19.82 $18.94 $18.00 $15.26
======= ======= ======== ======== ========
Total Return (%)(2,3).............................. 7.68% 19.04% 18.27% 27.12% (1.12%)
Ratios/Supplemental Data:
Net Assets, End of Period ($000s)......... $427,920 $387,110 $300,551 $228,193 $160,815
Ratio of Expenses to Average Net Assets(4) 0.50% 0.51% 0.56% 0.59% 0.63%
Ratio of Net Income to Average Net Assets 3.60% 3.12% 3.12% 3.79% 3.59%
Portfolio Turnover Rate (%)............... 63.69% 77.54% 72.10% 64.80% 121.82%
</TABLE>

4. Ratio of expenses to average net assets do not reflect
commission credits.
9

<PAGE>

INCOME FUND
INVESTMENT OBJECTIVE
The Income Fund seeks to achieve a long-term total rate of return in
excess of the U.S. bond market over a full market cycle.

PRINCIPAL STRATEGIES AND INVESTMENTS
The Income Fund invests primarily in U.S. investment grade fixed income
securities, including government and corporate securities, agency mortgage
pass-through securities and asset-backed securities.

The Income Fund invests at least 75% of its total assets in:

o investment grade publicly offered debt securities,
including mortgage-backed and other asset-backed
securities (within the four highest ratings as determined
by Moody's or by S&P).

o securities issued or guaranteed by the U.S. Government
or its agencies.

o high quality commercial paper (within the two highest grades
as determined by both Moody's and S&P), repurchase and
reverse repurchase agreements, time deposits with maturities
less than seven days, and cash or cash equivalents.

Generally, the average duration of the U.S. portion of the portfolio
will range between +/-25% of the Lehman Brothers Aggregate Bond Index's
duration. There are no maximum maturity limits on individual securities. For
defensive purposes, the duration and maturity of the Fund may be shortened. The
Fund will maintain a high grade average quality for the portfolio (third highest
rating as determined by Moody's or S&P).

Up to 25% of the Income Fund's total assets may be invested in
securities not described above, including preferred stock, convertible
securities, securities carrying warrants to purchase equity securities, U.S.
dollar-denominated non-investment grade debt obligations of U.S. and non-U.S.
issuers (commonly referred to as "junk bonds") and derivatives.

The subadviser will emphasize sector analysis, which focuses on
relative value and yield spreads among security types and among quality, issuer
and industry sectors, as well as credit research and call protection. Credit
research on corporate bonds is based on both quantitative and qualitative
criteria established by the subadviser, such as an issuer's industry, operating
and financial profiles, business strategy, management quality, and projected
financial and business conditions.

In normal circumstances, the Income Fund intends to be fully invested.
However, from time to time the Fund may take temporary defensive positions in
response to adverse market, economic or political conditions. To the extent the
Fund is in a defensive position, its ability to achieve its investment objective
may be limited.

PRINCIPAL RISKS
Investments are subject to varying degrees of risk. There can be no
assurance that the Fund will meet its investment objective or that the net
return of an investment in the Fund will exceed the return of other investment
or savings vehicles. The Income Fund's returns will vary, and you could lose
money.

DERIVATIVES RISK. When the Fund use derivatives (securities whose value
is based upon the value of another security or an index) to hedge positions in
the portfolio, any loss generated by the derivative security should be
substantially offset by gains on the hedged investment, and vice versa. While
hedging can reduce or eliminate losses, it can also reduce or eliminate gains.
To the extent that a derivative is not used as a hedge (i.e. for speculation),
the Fund is directly exposed to the potential gains and losses of that
derivative. Gains and losses from non-hedging derivative positions may be
substantially greater than the derivative's original cost.

HIGH YIELD SECURITIES RISK. The Fund may invest in fixed income or
convertible securities rated lower than "Baa" by Moody's or "BBB" by S&P, or
unrated securities of comparable quality, which are commonly referred to as
"junk bonds" or "high yield/high risk" securities. These securities are
considered speculative and generally involve a higher risk of loss of principal
and income than higher-rated, investment grade securities. The value of these
securities generally fluctuate more than those of higher-rated securities. The
value of high-yield, high-risk securities may also be influenced by the bond
market's perception of an issuer's credit quality or its outlook for economic
growth. In times where economic conditions appear to be deteriorating,
lower-rated securities may decline in market value primarily due to investors'
heightened concern over an issuer's credit quality and its ability to make
timely interest and principal payments. In such periods of real or perceived
economic downturn the secondary market for high-yield, high-risk securities may
become thin and liquidity may be significantly reduced. This may lead to
increased volatility and sudden price movements in the secondary market.

LIQUIDITY RISK. The Fund may invest in certain securities that may be
difficult or impossible to sell at a certain time and at

<PAGE>

a price that the Fund finds to be favorable. The Fund may have to accept an
unfavorable price, sell other securities instead, or forego an investment
opportunity, any of which could have a negative effect on fund management or
performance.

MARKET RISK. The market value of a security may move up and down
sometimes rapidly and unpredictably. Market risk may affect a single issuer, an
industry, a sector or the bond market as a whole.

PREPAYMENT RISK. A GNMA or other mortgage-backed security is subject to
the risk of unanticipated prepayments of principal with respect to mortgages in
the security's underlying pool of assets. While principal pre-payments are
passed through to the holders of GNMA securities, pre-payments also reduce the
future payments on such securities and may reduce their value. The Fund may
invest in mortgage-backed securities subject to the risk that an unexpected rise
in interest rates will extend the life of a mortgage-backed security beyond the
expected prepayment time, typically reducing the security's value.
Mortgage-backed securities are subject to the risk that an unexpected decline in
interest rates will contract the life of a mortgage-backed security, thereby
affecting its prepayment schedule, which may affect the value of the security.

VALUATION RISK. The Fund may invest in securities that are difficult to
value and may value certain of its securities at a higher price than it can sell
them for.

The risks associated with these types of investments that are not
discussed as a part of the Fund's principal strategies and investments are
discussed later in this prospectus under the heading "Types of Investments and
Associated Risks."

PAST PERFORMANCE
The information below provides an illustration of how the Income Fund's
performance has varied over time. The bar chart and table provide some
indication of the risks of investing in the Income Fund by showing the changes
in the Income Fund's performance from year-to-year during the periods indicated
and by showing how the Income Fund's average annual total returns for the
periods indicated compare with a broad-based securities market index. The total
return figures do 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. The Income Fund's past performance does not
necessarily indicate how it will perform in the future.

ANNUAL RETURNS FOR THE PERIODS ENDED DECEMBER 31
CHART
1990 7.58
1991 14.93
1992 7.20
1993 8.07
1994 -2.21
1995 14.93
1996 3.50
1997 9.42
1998 8.09

During the period shown in the bar chart, the highest return for a quarter was
4.90% (quarter ended 12/31/91) and the lowest return for a quarter was -2.30%
(quarter ended 3/31/94).

AVERAGE ANNUAL TOTAL RETURNS
(periods ended December 31, 1998)

SINCE
INCEPTION
1 YEAR 5 YEARS (11/1/89*)
-------- -------- ----------
Income Fund 8.09% 6.57% 7.80%
Lehman Intermediate/
Aggregate** 8.67% 7.25% 8.43%

* The date the Fund was restructured and Wellington Management Company, LLP
became the investment adviser for the Fund.

** Lehman Brothers Intermediate Government/Corporate Bond Index through
April 30, 1997, Lehman Brothers Aggregate Bond Index thereafter.

<PAGE>

INCOME FUND FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by KPMG LLP, whose report, along with the Fund's
financial statements, are included in the annual report, which is available upon
request.
<TABLE>
<CAPTION>

YEARS ENDED DECEMBER 31
1998 1997 1996 1995 1994
------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period...................... $13.00 $12.69 $13.03 $12.02 $13.06
Income From Investment Operations:
Net Investment Income(1)................................. 0.78 0.81 0.76 0.80 0.75
Net Gains or Losses on Securities (both realized
and unrealized)(1)...................... 0.27 0.39 (0.31) 0.99 (1.04)
-------- ------- -------- ------- -------
Total From Investment Operations.......................... 1.05 1.20 0.45 1.79 (0.29)
Less Distributions:
Dividends (from net investment income)........... 0.69 0.85 0.79 0.78 0.75
Distributions (from capital gains)............... 0.12 0.04 -- -- --
Returns of Capital............................... 0.00 0.00 0.00 0.00 0.00
-------- ------- -------- ------- -------
Total Distributions....................................... 0.81 0.89 0.79 0.78 0.75
-------- ------- -------- ------- -------
Net Asset Value, End of Period............................ $13.24 $13.00 $12.69 $13.03 $12.02
======== ======= ======== ======= =======
Total Return (%)(2,3)..................................... 8.09% 9.42% 3.50% 14.93% (2.21%)
Ratios/Supplemental Data:
Net Assets, End of Period ($000s)................ $13,959 $9,658 $10,848 $10,532 $9,259
Ratio of Expenses to Average Net Assets(4)....... 0.88% 0.92% 0.70% 0.62% 0.61%
Ratio of Net Income to Average Net Assets........ 5.85% 6.09% 5.88% 6.16% 5.85%
Portfolio Turnover Rate (%)...................... 46.60% 96.80% 112.60% 74.53% 205.35%
Ratio of Expenses to Average Net Assets (before
waived and reimbursed expenses................. -- -- 0.91% 0.88% 0.92%
Ratio of Net Income to Average Net Assets (before
waived and reimbursed expenses)................ -- -- 5.67% 5.89% 5.54%

</TABLE>

1. The "Net investment income" per share and the "Net realized and unrealized
gains (losses)" per share represent a proportionate share respective to the
increase in net assets as presented in the Statement of Operations of the
Horace Mann Mutual Funds' Annual Report for the respective year.

3. 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.

4. Certain expenses for the Income Fund were assumed or waived by Horace Mann
Investors, Inc. through December 31, 1996.

12
<PAGE>

SHORT-TERM INVESTMENT FUND
INVESTMENT OBJECTIVE
The Short-Term Investment Fund seeks to realize maximum current income
to the extent consistent with liquidity. Preservation of principal is a
secondary objective. The Short-Term Investment Fund is not a money market fund
and does not maintain a stable net asset value per share.

Principal Strategies and Investments
The Short-Term Investment Fund invests in the following types of
short-term debt instruments with maturities generally not exceeding one year:

o U.S. Treasury Bills and other obligations of or guaranteed by the
U.S. Government or its agencies.

o commercial paper (within the two highest ratings as determined
by Moody's or S&P).

o 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 or S&P and to 10% of the Short-Term Investment Fund's
total assets).

o publicly traded bonds, debentures and notes (with a rating within
the four highest ratings as determined by Moody's or S&P).

o repurchase and reverse repurchase agreements.

o cash or cash equivalents.

In seeking to achieve the Short-Term Investment Fund's investment
objective, the subadviser uses a multi-stage process. In the first stage, the
subadviser analyzes general economic and market factors, such as interest rate
forecasts and anticipated interest rate spreads among various sectors of money
market instruments, and sets broad strategies for the Fund. In the second
stage,the subadviser evaluates individual securities. The subadviser uses
proprietary quantitative and qualitative techniques to create and maintain a
list of issuers whose securities are approved for purchase. In the third stage,
the subadviser determines the structure and composition of the portfolio. In
doing so, the subadviser seeks to minimize exposure to credit risk and market
risk. Market risk is measured by the price volatility of securities. The
Short-Term Investment Fund attempts to maximize return to take advantage of
changing money market conditions and trends. The Short-Term Investment Fund also
trades to take advantage of disparities in yield relationships between money
market instruments.

In normal circumstances, the Short-Term Investment Fund intends to be
fully invested. However, from time to time the Fund may take temporary defensive
positions in response to adverse market, economic or political conditions. To
the extent the Fund is in a defensive position, its ability to achieve its
investment objective may be limited.

PRINCIPAL RISKS
Investments are subject to varying degrees of risk. There can be no
assurance that the Fund will meet its investment objectives or that the net
return of an investment in the Fund will exceed the return of other investment
or savings vehicles. The Short-Term Investment Fund's returns will vary, and you
could lose money.

FINANCIAL RISK. 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 risk, all other factors such as maturity being
equal.

MARKET RISK. The market value of a security may move up and down
sometimes rapidly and unpredictably. Market risk may affect a single issuer, an
industry, a sector or the bond market as a whole.

PORTFOLIO STRATEGY. The subadvisers' skill in choosing appropriate
investments for the Fund will determine in large part the Fund's ability to
achieve its investment objectives. The Short-Term Investment Fund's strategy of
trading to take advantage of disparities in yield relationships between money
market instruments may increase or decrease the portfolio yield depending on the
subadviser's ability to correctly time and execute these transactions.

<PAGE>

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.

PAST PERFORMANCE

The information below provides an illustration of how the Short-Term
Investment Fund's performance has varied over time. The bar chart and table
provide some indication of the risks of investing the Short-Term Investment Fund
by showing the changes in the Short-Term Investment Fund's performance from
year-to-year during the periods indicated and by showing how the Short-Term
Investment Fund's average annual total returns for the periods indicated compare
with a broad-based securities market index. The Short-Term Investment Fund's
past performance does not necessarily indicate how it will perform in the
future.

ANNUAL RETURNS FOR THE PERIODS ENDED DECEMBER 31
CHART
1990 7.98
1991 5.93
1992 3.30
1993 2.53
1994 3.89
1995 5.25
1996 5.02
1997 5.09
1998 4.97

During the period shown in the bar chart, the highest return for a quarter was
1.97% (quarter ended 9/30/90) and the lowest return for a quarter was 0.60%
(quarter ended 9/30/93).

AVERAGE ANNUAL TOTAL RETURNS
(periods ended December 31, 1998)
SINCE
INCEPTION
1 YEAR 5 YEARS (11/1/89*)
------ -------- -----------
Short-Term
Investment Fund 4.97% 4.82% 4.92%
90-Day Treasury Bills 5.35% 5.31% 5.42%

* The date the Fund was restructured and Wellington Management Company, LLP
became the investment adviser for the Fund.

<PAGE>

SHORT-TERM INVESTMENT FUND FINANCIAL HIGHLIGHTS

Years Ended December 31
1998 1997 1996 1995 1994
------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............................ $9.99 $10.03 $10.00 $10.08 $10.07
Income From Investment Operations:
Net Investment Income(1)............................... 0.49 0.51 0.50 0.53 0.39
Net Gains or Losses on Securities
(both realized and unrealized)(1)............. 0.01 -- (0.01) -- --
------- ------ ------ ------- ------
Total From Investment Operations................................ 0.50 0.51 0.49 0.53 0.39
Less Distributions:
Dividends (from net investment income)................. 0.51 0.55 0.46 0.61 0.38
Distributions (from capital gains)..................... -- -- -- -- --
Returns of Capital..................................... 0.00 0.00 0.00 0.00 0.00
------- ------ ------ ------- ------
Total Distributions............................................. 0.51 0.55 0.46 0.61 0.38
------- ------ ------ ------- ------
Net Asset Value, End of Period.................................. $9.98 $9.99 $10.0 $10.00 $10.08
======= ====== ====== ======= =======
Total Return (%)(2,3)........................................... 4.97% 5.09 5.02 5.25 3.89%
Ratios/Supplemental Data:
Net Assets, End of Period ($000s)...................... $1,331 $1,151 $1,229 $1,006 $1,114
Ratio of Expenses to Average Net Assets(4)............. 0.69% 0.50 0.53% 0.84% 0.49%
Ratio of Net Income to Average Net Assets.............. 4.78% 4.98% 4.93% 5.11% 3.78%
Portfolio Turnover Rate (%)............................ 0.00% 0.00 0.00% 0.00% 0.00%
Ratio of Expenses to Average Net Assets (before
waived and reimbursed expenses)...................... 2.59% 2.52 2.44% 2.35% 2.36%
Ratio of Net Income to Average Net Assets (before
waived and reimbursed expenses)...................... 2.88% 2.96 3.02% 3.60% 1.91%

</TABLE>

1. The "Net investment income" per share and the "Net realized and unrealized
gains (losses)" per share represent a proportionate share respective to the
increase in net assets as presented in the Statement of Operations of the
Horace Mann Mutual Funds' Annual Report for the respective year.

3. 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.

4. Certain expenses for the Short-Term Investment Fund were assumed or waived by
Horace Mann Investors, Inc. through December 31, 1998.

15
<PAGE>

SMALL CAP GROWTH FUND
INVESTMENT OBJECTIVE
The Small Cap Growth Fund seeks long-term capital appreciation.

PRINCIPAL STRATEGIES AND INVESTMENTS
The Fund ordinarily invests substantially all of its assets in small
cap equity securities (less than $2 billion at the time of investment) with
earnings growth potential. Such securities would be considered by the subadviser
to have favorable and above-average earnings growth prospects, that is,
securities with growth rate estimates in excess of the average for the Fund's
benchmark, the Russell 2000 Growth Index. The Russell 2000 Growth Index is
composed of those Russell 2000 securities with a greater-than-average growth
orientation. Securities in this index generally have higher price-to-book and
price-earnings ratios than those in the Russell 2000 Value Index. Under normal
market conditions, the Fund will invest at least 80% of its assets in equity
securities of smaller-capitalization organizations.

The investment subadviser uses proprietary screens to identify growth
stocks with market capitalizations under $2 billion. The investment subadviser
conducts fundamental research on a company and technical analysis on a company's
stock before making purchase decisions.

The Fund generally will sell a stock when, in the investment
subadviser's opinion, the fundamentals deteriorate, when the stock's relative
price momentum declines, or upon an earnings disappointment.

It is possible that in extreme market conditions the Fund may invest
some or all of its assets in high quality money market securities. The reason
for acquiring money market securities would be to avoid market losses. However,
if market conditions improve, this strategy could result in reducing the
potential gains from market upswing, thus reducing the Fund's opportunity to
achieve its investment objective. The Fund may also hold these securities
pending investments or when it expects to need cash to pay redeeming
shareholders.

PRINCIPAL RISKS
Investments are subject to varying degrees of risk. There can be no
assurance that the Fund will meet its investment objectives or that the net
return of an investment in the Fund will exceed the return of other investment
or savings vehicles. The Small Cap Growth Fund's returns will vary, and you
could lose money.

FINANCIAL RISK. For equity securities, financial risk is the
possibility that the price of the security will fall because of poor earnings
performance by the issuer.

INVESTMENT STYLE. To the extent that the Fund emphasizes a small
capitalization growth style, the Fund may underperform in markets that favor
other styles, particularly small capitalization value stock styles.

MARKET RISK. Stock market movements will affect the Fund's share prices
on a daily basis. For equity securities held in the portfolio, declines in value
are possible because of declines in the stock market in general or because of a
decline in the specific securities held by the Fund.

PORTFOLIO STRATEGY. The subadvisers' skill in choosing appropriate
investments for the Fund will determine in large part the Fund's ability to
achieve its investment objectives.

SMALL COMPANY RISK. Investments in securities of companies with small
market capitalization generally involve greater risk than investment in larger,
more established companies. This is because small companies may be in an earlier
stage of development, may be dependent on a small number of products or
services, may lack substantial capital reserves and/or do not have proven track
records. Smaller companies may be more adversely affected by poor economic or
market conditions. In addition, small companies may be traded in low volumes,
which can increase volatility and liquidity risks.

VALUATION RISK. The Fund may invest in securities that are difficult to
value and may value certain of its securities at a higher price than it can sell
them for.

PAST PERFORMANCE
The information below provides an illustration of how the Small Cap
Growth Fund's performance has varied over time. The bar chart depicts the Small
Cap Growth Fund's performance during the period indicated. The table provides
some indication of the risks of an investment in the Small Cap Growth Fund by
comparing the Small Cap Growth Fund's average annual total returns for the
periods indicated to a broad-based securities market index. The total return
figures do 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. The Small Cap Growth Fund's past performance does not
necessarily indicate how it will perform in the future.

<PAGE>

ANNUAL RETURNS FOR THE PERIODS ENDED DECEMBER 31
CHART
1998 5.81

Since inception of the Small Cap Growth Fund, the highest return for a quarter
was 23.31% (quarter ended 12/31/98) and the lowest return for a quarter was
- -18.77% (quarter ended 9/30/98).

AVERAGE ANNUAL TOTAL RETURNS
(periods ended December 31, 1998)
SINCE
INCEPTION
1 YEAR (3/10/97)
------- -----------
Small Cap Growth Fund 5.81% 12.35%
Russell 2000 Growth* 1.23% 9.81%

* The Russell 2000 Growth Index (the "Russell 2000 Growth") is an unmanaged
securities index composed of those Russell 2000 securities with a greater than
average growth orientation.

<PAGE>

SMALL CAP GROWTH FUND FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance since inception. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by KPMG LLP, whose report, along with the Fund's
financial statements, are included in the annual report, which is available upon
request.

PERIODS ENDED DECEMBER 31,
1998 1997
------- -------

Net Asset Value, Beginning of Period................ $11.70 $10.00
Income From Investment Operations:
Net Investment Income(1)................... (0.07) (0.02)
Net Gains or Losses on Securities
(both realized and unrealized)(1)......... 0.75 1.72
------- -------
Total From Investment Operations.................... 0.68 1.70
Less Distributions
Dividends from (net investment income)..... -- --
Distributions from (capital gains)......... -- --
Returns of Capital......................... 0.00 0.00
------- -------
Total Distributions................................. -- --
------- -------
Net Asset Value, End of Period...................... $12.38 $11.70
======= =======
Total Return (%)(2,3,4)............................. 5.81% 17.01%
Ratios/Supplemental Data:
Net Assets, End of Period ($000s).......... $28,655 $16,525
Ratio of Expenses to Average Net Assets(5). 1.11% 0.78%
Ratio of Net Income to Average Net Assets.. (0.59%) (0.19%)
Portfolio Turnover Rate (%)................ 168.31% 91.49%
Ratio of Expenses to Average Net Assets
(before waived and reimbursed expenses).... 1.75% 1.44%
Ratio of Net Income to Average Net Assets
(before waived and reimbursed expenses..... (1.23%) (0.85%)

</TABLE>

1. The "Net investment income" per share and the "Net realized and unrealized
gains (losses)" per share represent a proportionate share respective to the
increase in net assets as presented in the Statement of Operations of the
Horace Mann Mutual Funds' Annual Report for the respective year.

3. 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.

4. The return for 1997 is not annualized.

5. Certain expenses for the Fund were assumed and/or waived by Horace Mann
Investors, Inc. since its inception of investment operations, March 10, 1997.

<PAGE>

INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE
The International Equity Fund seeks long-term growth of capital
primarily through diversified holdings of marketable foreign equity investments.

PRINCIPAL STRATEGIES AND INVESTMENTS
The Fund invests in companies, wherever organized, which do business
primarily outside the United States. The Fund intends to diversify investments
among several countries and to have represented in its holdings business
activities in not less than three different countries. The Fund does not intend
to concentrate investments in any particular industry.

The International Equity Fund invests primarily in equity securities of
established companies that the subadviser believes have favorable
characteristics and that are listed on foreign exchanges. It may also invest in
fixed-income securities of foreign governments and companies. However,
management intends to maintain a portfolio consisting primarily of equity
securities.

The International Equity Fund has no present intention of altering its
general policy of being primarily invested under normal conditions in foreign
securities. However, in the event of exceptional conditions abroad, the Fund may
temporarily invest all or a portion of its assets in Canadian or U.S. Government
obligations or currencies, or securities of companies incorporated in and having
their principal activities in Canada or the United States.

The International Equity Fund may, for hedging purposes, purchase
forward foreign currency exchange contracts, foreign currency options and
futures contracts and foreign currencies in the form of bank deposits. The Fund
may also purchase other foreign money market instruments, including, but not
limited to, bankers' acceptances, certificates of deposit, commercial paper,
short-term government and corporate obligations and repurchase agreements.

PRINCIPAL RISKS
Investments are subject to varying degrees of risk. There can be no
assurance that the Fund will meet its investment objective or that the net
return of an investment in the Fund will exceed the return of other investment
or savings vehicles. The International Equity Fund's returns will vary, and you
could lose money.

ADRS, EDRS AND GDRS RISK. The International Equity Fund may invest in
both sponsored and unsponsored American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs") and other
similar global instruments. ADRs typically are issued by an American bank or
trust company and evidence ownership of underlying securities issued by a
foreign corporation. EDRs, which are sometimes referred to as Continental
Depository Receipts, are receipts issued in Europe, typically by foreign banks
and trust companies, that evidence ownership of either foreign or domestic
underlying securities. GDRs are depository receipts structured like global debt
issues to facilitate trading on an international basis. Unsponsored ADR, EDR and
GDR programs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information
concerning the issuer may not be as current as for sponsored ADRs, EDRs and
GDRs, and the prices of unsponsored ADRs, EDRs and GDRs may be more volatile
than if such instruments were sponsored by the issuer. Investments in ADRs, EDRs
and GDRs present additional investment considerations as described below under
"Foreign Risk."

CURRENCY RISK. The Fund invests in securities subject to fluctuations
in the exchange rates between the U.S. dollar and foreign currencies which may
negatively affect an investment. Adverse changes in exchange rates may erode or
reverse any gains produced by foreign currency denominated investments, and may
widen any losses.

FINANCIAL RISK. For equity securities financial risk is the possibility
that the price of the security will fall because of poor earnings performance by
the issuer.

FOREIGN RISK. Investing in foreign securities may involve a greater
degree of risk than investing in domestic securities due to the possibility of,
but not limited to, exchange rate fluctuations and exchange controls, less
publicly available information, more volatile markets, less securities
regulation, less favorable tax provisions, war and expropriation. The net asset
value of the shares of the Fund will increase or decrease with changes in the
market price of the Fund's investments and changes in foreign currency exchange
rates.

FORWARD FOREIGN AND CURRENCY EXCHANGE CONTRACTS RISK. The International
Equity Fund may invest in foreign currencies. The Fund may enter into forward
foreign currency exchange contracts ("forward contracts") for hedging purposes
only. A forward contract is a contract individually negotiated and privately
traded by currency traders and their customers. A forward contract involves an
obligation to purchase or sell a specific currency for an agreed price at a
future date, which may be any fixed number of days from the date of the
contract. The agreed price may be fixed or within a specified range of prices.
Unanticipated changes in currency prices may result in poorer overall
performance for the International Equity Fund than if it had not engaged in
forward contracts, foreign currency futures contracts and foreign currency
options.

<PAGE>

PORTFOLIO STRATEGY. The subadvisers' skill in choosing appropriate
investments for the Fund will determine in large part the Fund's ability to
achieve its investment objectives.

VALUATION RISK. The Fund may invest in securities that are difficult to
value and may value certain of its securities at a higher price than it can sell
them for.

PAST PERFORMANCE
The information below provides an illustration of how the International
Equity Fund's performance has varied over time. The bar chart depict the
International Equity Fund's performance during the period indicated. The table
provides some indication of the risks of an investment in the International
Equity Fund by comparing the International Equity Fund's average annual total
returns for the periods indicated to a broad-based securities market index. The
total return figures do 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. The International Equity Fund's past
performance does not necessarily indicate how it will perform in the future.

ANNUAL RETURNS FOR THE PERIODS ENDED DECEMBER 31
CHART

1998 18.95

Since inception of the International Equity Fund, the highest return for a
quarter was 15.04% (quarter ended 12/31/98) and the lowest return for a quarter
was -13.52% (quarter ended 9/30/98).

AVERAGE ANNUAL TOTAL RETURNS
(periods ended December 31, 1998)
SINCE
INCEPTION
1 YEAR (3/10/97)
International Equity Fund 18.95% 11.99%
MSCI EAFE* 19.97% 12.71%

* The Morgan Stanley Capital International Europe, Australia, Far East Index.

<PAGE>

INTERNATIONAL EQUITY FUND FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance since inception. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by KPMG LLP, whose report, along with the Fund's
financial statements, are included in the annual report, which is available upon
request.

PERIODS ENDED DECEMBER 31,
1998 1997
-------- -------

Net Asset Value, Beginning of Period................ $10.27 $10.00
Income From Investment Operations:
Net Investment Income(1)................... 0.11 0.08
Net Gains or Losses on Securities
(both realized and unrealized)(1). 1.84 0.27
-------- -------
Total From Investment Operations.................... 1.95 0.35
Less Distributions:
Dividends (from net investment income)..... 0.09 0.08
Distributions (from capital gains)......... -- --
Return of Capital.......................... 0.00 0.00
-------- -------
Total Distributions................................. 0.09 0.08
-------- -------
Net Asset Value, End of Period...................... $12.13 $10.27
======== ========
Total Return (%)(2,3,4)............................. 18.95% 3.46%
Ratios/Supplemental Data:
Net Assets at End of Period ($000s)........ $10,311 $5,214
Ratio of Expenses to Average Net Assets(5). 1.03% 0.46%
Ratio of Net Income to Average Net Assets.. 0.99% 1.29%
Portfolio Turnover Rate (%)................ 57.71% 31.99%
Ratio of Expenses to Average Net Assets
(before waived and reimbursed expenses..... 2.06% 1.82%
Ratio of Net Income to Average Net Assets
(before waived and reimbursed expenses).... (0.04%) (0.07%)

</TABLE>

1. The "Net investment income" per share and the "Net realized and unrealized
gains (losses)" per share represent a proportionate share respective to the
increase in net assets as presented in the Statement of Operations of the
Horace Mann Mutual Funds' Annual Report for the respective year.

3. 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.

4. The return for 1997 is not annualized.

5. Certain expenses for the Fund were assumed and/or waived by Horace Mann
Investors, Inc. since its inception of investment operations, March 10, 1997.

<PAGE>

SOCIALLY RESPONSIBLE FUND
INVESTMENT OBJECTIVE
The Socially Responsible Fund seeks long-term growth of capital,
current income and growth of income.

PRINCIPAL STRATEGIES AND INVESTMENTS
The Socially Responsible Fund pursues its objectives through a
diversified portfolio composed primarily of marketable equity securities. The
Socially Responsible Fund seeks to achieve its objectives by investing in
socially responsive companies which the subadviser determines:

(a) Do not produce tobacco products;

(b) Do not produce alcoholic beverages;

(d) Do not produce pornographic materials;

(e) Do not produce nuclear weapons or guidance and/or delivery systems
specifically for nuclear weapons;

(f) By popular standards, maintain non-discriminatory employment practices
throughout a company's facilities; and

(g) By popular standards, maintain environmental policies, practices and
procedures which are currently acceptable, or which are exhibiting
improvement.

In addition, except during the initial start-up period or pending the
reinvestment of proceeds from the sale or disposition of the Fund's portfolio
securities or the distribution of assets upon termination of the Fund,
substantially all and at least 85% of the Fund's total assets will, under normal
circumstances, be invested in equity securities of companies which are of at
least average financial quality but which are currently undervalued relative to
either their peer group, the markets or their fundamental outlook, and whose
dividend yields at the time of purchase are at least 20% higher than the
dividend yield of the S&P 500 Index.

While the Fund emphasizes investments in U.S. chartered companies, it
can commit up to 25% of the Fund's total assets to equity securities issued by
non-U.S. chartered companies which meet the criteria applicable to domestic
investments. In addition, from time to time, for temporary defensive purposes,
when the Fund's subadviser determines such a position is advisable in light of
economic or market conditions, the Fund may invest a portion of its assets in
cash and cash equivalents.

Pending investment, to meet anticipated redemption requests, or as a
temporary defensive measure if its subadviser determines that market conditions
warrant, the Fund may also invest, without limitation, in high quality money
market instruments. High quality money market instruments include U.S.
Government obligations; U.S. Government agency obligations; U.S.
dollar-denominated obligations of foreign issuers issued in the U.S.; bank
obligations, including U.S. subsidiaries and branches of foreign banks;
corporate obligations; commercial paper; repurchase agreements and obligations
of supranational organizations. Generally, such obligations will mature within
one year from the date of settlement, but they may mature within two years from
the date of settlement. To the extent the Fund is in a defensive position, its
ability to achieve its investment objective may be limited.

PRINCIPAL RISKS
Investments in any type of security are subject to varying degrees of
market and financial risk. There can be no assurance that the Fund will meet its
investment objective or that the net return of an investment in the Fund will
exceed the return of other investment or savings vehicles. The Socially
Responsible Fund's returns will vary, and you could lose money.

ADRs, EDRs AND GDRs RISK. In addition to domestic equity securities,
the Socially Responsible Fund may invest in both sponsored and unsponsored
American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"),
Global Depository Receipts ("GDRs") and other similar global instruments. ADRs
typically are issued by an American bank or trust company and evidence ownership
of underlying securities issued by a foreign corporation. EDRs, which are
sometimes referred to as Continental Depository Receipts, are receipts issued in
Europe, typically by foreign banks and trust companies, that evidence ownership
of either foreign or domestic underlying securities. GDRs are depository
receipts structured like global debt issues to facilitate trading on an
international basis. Unsponsored ADR, EDR and GDR programs are organized
independently and without the cooperation of the issuer of the underlying
securities. As a result, available information concerning the issuer may not be
as current as for sponsored ADRs, EDRs and GDRs, and the prices of unsponsored
ADRs, EDRs and GDRs may be more volatile than if such instruments were sponsored
by the issuer. Investments in ADRs, EDRs and GDRs present additional investment
considerations as described below under "Foreign Risk."

FINANCIAL RISK. For equity securities, financial risk is the
possibility that the price of the security will fall because of poor earnings
performance by the issuer.

<PAGE>

currency exchange rates.

PORTFOLIO STRATEGY. The subadvisers' skill in choosing appropriate
investments for the Fund will determine in large part the Fund's ability to
achieve its investment objectives.

PAST PERFORMANCE
The information below provides an illustration of how the Socially
Responsible Fund's performance has varied over time. The bar chart and table
depict the Socially Responsible Fund's performance during the period indicated.
The table provides some indication of the risks of an investment in the Socially
Responsible Fund by comparing the Socially Responsible Fund's average annual
total returns for the periods indicated to a broad-based securities market
index. The total return figures do 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. The Socially Responsible
Fund's past performance does not necessarily indicate how it will perform in the
future.

ANNUAL RETURNS FOR THE PERIODS ENDED DECEMBER 31
CHART

1998 9.80

Since inception of the Socially Responsible Fund, the highest return for a
quarter was 16.95% (quarter ended 6/30/97) and the lowest return for a quarter
was -12.06% (quarter ended 9/30/98).

AVERAGE ANNUAL TOTAL RETURNS
(periods ended December 31, 1998)
SINCE
INCEPTION
1 YEAR (3/10/97)
-------- -------------
Socially Responsible Fund 9.80% 17.78%
S&P 500* 28.58% 28.24%

* The Standard and Poor's 500 Stock Index (the "S&P 500"). The S&P 500 is an
unmanaged index that is generally considered to be representative of the United
States equity market.

23
<PAGE>

SOCIALLY RESPONSIBLE FUND FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance since inception. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by KPMG LLP, whose report, along with the Fund's
financial statements, are included in the annual report, which is available upon
request.

PERIODS ENDED DECEMBER 31,
1998 1997
------- -------

Net Asset Value, Beginning of Period................. $12.10 $10.00
Income From Investment Operations:
Net Investment Income(1).................... 0.27 0.10
Net Gains or Losses on Securities
(both realized and unrealized)(1)......... 0.91 2.20
------- -------
Total From Investment Operations..................... 1.18 2.30
Less Distributions
Dividends (from net investment income)...... 0.17 0.10
Distributions (from capital gains).......... 0.12 0.10
Returns of Capita........................... 0.00 0.00
------- -------
Total Distributions.................................. 0.29 0.20
------- -------
Net Asset Value, End of Period....................... $12.99 $12.10
====== ========
Total Return (%)(2,3,4).............................. 9.80% 23.04%
Ratios/Supplemental Data:
Net Assets, End of Period ($000s)........... $35,564 $9,213
Ratio of Expenses to Average Net Assets(5).. 0.64% 0.49%
Ratio of Net Income to Average Net Assets... 2.10% 1.65%
Portfolio Turnover Rate (%)................. 41.63% 20.85%
Ratio of Expenses to Average Net Assets
(before waived and reimbursed expenses)..... 1.12% 1.16%
Ratio of Net Income to Average Net Assets
(before waived and reimbursed expenses)..... 1.62% 0.98%

</TABLE>

1. The "Net investment income" per share and the "Net realized and unrealized
gains (losses)" per share represent a proportionate share respective to the
increase in net assets as presented in the Statement of Operations of the
Horace Mann Mutual Funds' Annual Report for the respective year.

3. 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.

4. The return for 1997 is not annualized.

5. Certain expenses for the Fund were assumed and/or waived by Horace Mann
Investors, Inc. since its inception of investment operations, March 10, 1997.

<PAGE>

OTHER INVESTMENT POLICIES
ALL FUNDS
The investment limitations and policies described for each Fund are
applied at the time investment securities are purchased.

GROWTH FUND
The Growth Fund may also invest a portion of its assets in U.S.
dollar-denominated investment grade fixed-income securities. Debt securities
must be rated within the four highest ratings as determined by Moody's Investors
Service, Inc. ("Moody's") or by Standard and Poor's Corporation ("S&P") except
that up to 10% of the Fund's assets may be invested in U.S. dollar-denominated
foreign debt securities within the three highest ratings as determined by
Moody's or S&P.

INCOME FUND
The Income Fund will not invest in common stocks directly, but may
retain up to 25% of its total assets in common stocks acquired upon conversion
of convertible debt securities or preferred stock, or upon exercise of warrants
acquired with debt securities. Currently, the Fund intends to limit its
investment in derivatives pursuant to guidelines adopted by the Fund's Trustees.

The Income Fund may also invest in foreign securities as follows:

o high grade 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 or S&P at the time of purchase and to 15% of the Income
Fund's total assets).

o highest quality non-U.S. dollar-denominated debt obligations of
foreign issuers (limited to the highest rating as determined by Moody's
or S&P at the time of purchase) which are fully hedged back into U.S.
dollars and do not exceed 15% of the Income Fund's total assets.

The Income Fund may invest in repurchase and reverse repurchase
agreements, provided that the market value of the underlying security is at
least 102% of the price of the repurchase agreement.

SHORT-TERM INVESTMENT FUND
The Short-Term Investment 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.

INTERNATIONAL EQUITY FUND AND SOCIALLY RESPONSIBLE FUND
These Funds may also engage in so-called "strategic transactions" as
described in this prospectus under the heading "Types of Investments and
Associated Risks--Strategic Transactions."

TYPES OF INVESTMENTS AND ASSOCIATED RISKS

The following provides additional information on various types of
instruments in which the Funds may invest and their associated risks.

ADRs, EDRs AND GDRs--The Small Cap Growth Fund, International Equity Fund
and Socially Responsible Fund may invest in both sponsored and unsponsored
American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"),
Global Depository Receipts ("GDRs") and other similar global instruments. The
Growth Fund and indirectly the Balanced Fund may invest in ADRs. ADRs typically
are issued by an American bank or trust company and evidence ownership of
underlying securities issued by a foreign corporation. EDRs, which are sometimes
referred to as Continental Depository Receipts, are receipts issued in Europe,
typically by foreign banks and trust companies, that evidence ownership of
either foreign or domestic underlying securities. GDRs are depository receipts
structured like global debt issues to facilitate trading on an international
basis. Unsponsored ADR, EDR and GDR programs are organized independently and
without the cooperation of the issuer of the underlying securities. As a result,
available information concerning the issuer may not be as current as for
sponsored ADRs, EDRs and GDRs, and the prices of unsponsored ADRs, EDRs and GDRs
may be more volatile than if such instruments were sponsored by the issuer.
Investments in ADRs, EDRs and GDRs present additional investment considerations
as described below under "Foreign Securities."

FOREIGN SECURITIES--The Growth Fund, International Equity Fund, Small
Cap Growth Fund, Socially Responsible Fund, Income Fund, Short-Term Investment
Fund and indirectly the Balanced Fund may invest in foreign securities. Global
investing involves economic and political considerations not typically
applicable to U.S. markets. These considerations, which may favorably or
unfavorably affect a Fund's performance, include, but are not limited to,
changes in exchange rates and exchange rate controls (which may include
suspension of the ability to transfer currency from a given country), costs
incurred in conversions between currencies, non-negotiable brokerage
commissions, different accounting standards, lower trading volume and greater
market volatility, the difficulty of enforcing obligations in other countries,
less securities regulation, different tax provisions (including withholding on
interest and dividends paid to the Fund), war, expropriation, political and
social instability, and diplomatic developments. Further, the settlement period
of securities transactions in foreign markets may be longer than in domestic
markets. These considerations generally are heightened in developing countries.
For example, the possibility of political upheaval and the dependence on foreign
economic assistance may be greater in these countries than in developed
countries. The adviser and subadvisers seek to mitigate the risks

<PAGE>

associated with these considerations through diversification and active
professional management. For a more detailed description of foreign securities,
see the Statement of Additional Information--Appendix B.

FORWARD FOREIGN AND CURRENCY EXCHANGE CONTRACTS--The Small Cap Growth
Fund and International Equity Fund may invest in foreign currencies. The Income
Fund and indirectly the Balanced Fund may enter into forward foreign currency
exchange contracts ("forward contracts") up to 15% of the value of its total
assets, for hedging purposes only. A forward contract is a contract individually
negotiated and privately traded by currency traders and their customers. A
forward contract involves an obligation to purchase or sell a specific currency
for an agreed price at a future date, which may be any fixed number of days from
the date of the contract. The agreed price may be fixed or within a specified
range of prices.

The Income Fund also may enter into foreign currency futures contracts
and foreign currency options up to 15% of the value of total assets, for hedging
purposes only. Foreign currency futures contracts are standardized contracts
traded on commodities exchanges which involve an obligation to purchase or sell
a predetermined amount of currency at a predetermined date at a specified price.
The purpose of entering into these contracts is to minimize the risk to a Fund
from adverse changes in the relationship between the U.S. dollar and foreign
currencies. A Fund may purchase and sell options on foreign currencies for
hedging purposes in a manner similar to that of transactions in forward
contracts. Unanticipated changes in currency prices may result in poorer overall
performance for a Fund than if it had not engaged in forward contracts, foreign
currency futures contracts and foreign currency options. For a more detailed
description of foreign currencies, see the Statement of Additional
Information--Appendix B.

HIGH-YIELD (HIGH-RISK) SECURITIES--The Income Fund and indirectly the
Balanced Fund may invest in high-yield (high-risk) debt securities. High-yield
(high-risk) securities, also referred to as "junk bonds," are those securities
that are rated lower than investment-grade and unrated securities of comparable
quality. Although these securities generally offer higher yields than
investment-grade securities with similar maturities, lower-quality securities
involve greater risks, including the possibility of default or bankruptcy. In
general, they are regarded to be predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. Other potential risks
associated with investing in high-yield securities include: substantial
market-price volatility resulting from changes in interest rates, changes in or
uncertainty about economic conditions and changes in the actual or perceived
ability of the issuer to meet its obligations; greater sensitivity of highly
leveraged issuers to adverse economic changes and individual-issuer
developments; subordination to the prior claims of other creditors; and adverse
publicity and changing investor perceptions about these securities.
As with any other asset in a Fund's portfolio, any reduction in the
value of such securities as a result of the factors listed above would be
reflected in the net asset value of a Fund. In addition, a Fund that invests in
lower-quality securities may incur additional expenses to the extent it is
required to seek recovery upon a default in the payment of principal and
interest on its holdings. As a result of the associated risks, successful
investments in high-yield (high-risk) securities will be more dependent on the
adviser's and subadviser's credit analysis than generally would be the case with
investments in investment-grade securities. Lower-quality securities tend to be
less liquid than higher-quality debt securities because the market for them is
not as broad or active. The lack of a liquid secondary market may have an
adverse effect on market price and a Fund's ability to sell particular
securities. For a description of ratings, see Appendix A. For a more detailed
description of high-yield (high-risk) securities, see the Statement of
Additional Information--Appendix B.

ILLIQUID SECURITIES--The Income Fund and indirectly the Balanced Fund
may invest up to 10% of their respective net assets in securities that are
illiquid. Variable and floating rate instruments that cannot be disposed of
within seven days and repurchase agreements and time deposits that do not
provide for payment within seven days after notice, without taking a reduced
price, are subject to these limits. The Small Cap Growth Fund, International
Equity Fund, Socially Responsible Fund, Balanced Fund and Income Fund may
purchase securities which are not registered under the Securities Act of 1933
(the "1933 Act") but which can be sold to "qualified institutional buyers" in
accordance with Rule 144A under the 1933 Act if they are determined to be
liquid. Any such security will be considered liquid so long as it is determined
by the subadviser that an adequate trading market exists for that security. This
investment practice could have the effect of increasing the level of illiquidity
in a Fund during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities. As a matter of operating
policy, each Fund will purchase only Rule 144A securities that carry
registration rights, will invest only in Rule 144A securities that are deemed to
be liquid, and will limit its investment in Rule 144A securities to 20% of each
Fund's net assets. The Growth Fund and Short-Term Investment Fund may not invest
in restricted securities or securities not fully marketable.

INVESTMENT COMPANIES--In connection with the management of its daily
cash position, the Growth Fund and Small Cap Growth Fund may invest in
securities issued by other investment companies which invest in short-term debt
securities and which seek to maintain a $1.00 net asset value per share. The
International Equity Fund may purchase shares of investment companies investing
primarily in foreign securities, including so-called "country funds." Country
funds have portfolios consisting exclusively of securities of issuers located in
one foreign country. As a shareholder of another investment company, a Fund
would bear, along with other shareholders, its pro rata portion of the

<PAGE>

other company's expenses, including advisory fees. These expenses would be in
addition to the expenses each bears directly in connection with its own
operations.

MORTGAGE-BACKED SECURITIES--The Income Fund and indirectly the Balanced
Fund may invest in 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.

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. For a more detailed
description of mortgage-backed securities, see the Statement of Additional
Information--Appendix B.

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 and of 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
accrued 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.

The Income Fund and the Balanced Fund 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--The Income Fund and the Balanced Fund may
invest in asset-backed securities. Asset-backed securities are pooled
pass-through structures similar to the mortgage pass-through structures
described above. Through the use of trusts and special purpose corporations,
various types of assets, primarily automobile and credit card receivables, are
pooled and securitized. 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 security interest in the
underlying automobiles is 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. For a more detailed description of
asset-backed

<PAGE>

securities, see the Statement of Additional Information-- Appendix B.

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 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, are 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 some 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--The Income Fund and the Balanced
Fund may invest in adjustable rate mortgage securities. Adjustable rate mortgage
securities are pass-through mortgage securities collateralized by mortgages with
adjustable rather than fixed rates. For a more detailed description of
adjustable rate mortgage securities, see the Statement of Additional
Information--Appendix B.

OPTIONS AND FUTURES CONTRACTS--To the extent consistent with their
respective investment objectives, the Small Cap Growth Fund, International
Equity Fund and Socially Responsible Fund may write covered call options, buy
put options, buy call options and write secured put options for the purpose of
hedging or earning additional income, which may be deemed speculative or, with
respect to the International Equity Fund, cross-hedging. These options may
relate to particular securities, financial instruments, foreign currencies,
stock or bond indices or the yield differential between two securities, and may
or may not be listed on a securities exchange and may or may not be issued by
the Options Clearing Corporation. Options trading is a highly specialized
activity that entails greater than ordinary investment risks. In addition,
unlisted options are not subject to the protections afforded purchasers of
listed options issued by the Options Clearing Corporation, which performs the
obligations of its members if they default.

Consistent with its respective investment objective, the Growth Fund,
the Small Cap Growth Fund, the International Equity Fund and the Socially
Responsible Fund each may also invest in futures contracts and options on
futures contracts to commit funds awaiting investment in stocks or maintain cash
liquidity or for other risk management purposes. The use of futures is permitted
solely for the purpose of equitizing large cash flows. Such use is temporary and
positions are liquidated as assets are committed to individual securities. The
value of a Fund's contracts may equal or exceed 100% of the Fund's total assets,
although a Fund will not purchase or sell a futures contract unless immediately
afterwards the aggregate amount of margin deposits on its existing futures
positions plus the amount of premiums paid for related futures options entered
into for other than risk management purposes is 5% or less of its net assets.
For a more detailed description of options and futures, see the Statement of
Additional Information--Appendix B.

Futures contracts obligate a Fund, at maturity, to take or make
delivery of securities, the cash value of a securities index or a stated
quantity of a foreign currency. A Fund may sell a futures contract in order to
offset an expected decrease in the value of its portfolio positions that might
otherwise result from a market decline or currency exchange fluctuation. A Fund
may do so either to hedge the value of its securities portfolio as a whole, or
to protect against declines occurring prior to sales of securities in the value
of the securities to be sold. In addition, a Fund may utilize futures contracts
in anticipation of changes in the composition of its holdings or in currency
exchange rates.

The Small Cap Growth Fund, International Equity Fund and Socially
Responsible Fund may purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Fund purchases an option on a
futures contract, it has the right to assume a position as a purchaser or a
seller of a futures contract at a specified exercise price during the option
period. When a Fund sells an option on a futures contract, it becomes obligated
to sell or buy a futures contract if the option is exercised. In connection with
a Fund's position in a futures contract or related option, the Fund will create
a segregated account of liquid high grade assets or will otherwise cover its
position in accordance with applicable SEC requirements.

The primary risks associated with the use of futures contracts and
options are: (a) the imperfect correlation between the change in market value of
the instruments held by a Fund

<PAGE>

and the price of the futures contract or option; (b) possible lack of liquid
secondary market for a futures contract and the resulting inability to close a
futures contract when desired; (c) losses caused by unanticipated market
movements, which are potentially unlimited; and (d) a subadviser's inability to
predict correctly the direction of securities prices, interest rates, currency
exchange rates and other economic factors.

The Funds intend to comply with the regulations of the Commodity
Futures Trading Commission exempting the Funds from registration as a "commodity
pool operator."

PORTFOLIO TURNOVER RATES--Under normal market conditions, it is
expected that the annual portfolio turnover rate for the Small Cap Growth Fund,
International Equity Fund and Socially Responsible Fund will generally not
exceed 150%; and for the Growth Fund, Balanced Fund and Income Fund, the annual
portfolio turnover rate will generally not exceed 100%. A Fund's annual
portfolio turnover rate will not, however, be a factor preventing a sale or
purchase when the adviser or subadviser believes investment considerations
warrant such sale or purchase. A Fund's portfolio turnover may vary greatly from
year to year as well as within a particular year. High portfolio turnover in any
year may make it more difficult to comply with the requirements of Subchapter M
of the Internal Revenue Code, and may generate additional dealer mark-ups or
underwriting commissions as well as other transaction costs, including
correspondingly higher annual brokerage commissions.

REPURCHASE AGREEMENTS--Each Fund may invest in repurchase agreements.
The Growth Fund, Balanced Fund, Income Fund and Short-Term Investment Fund will
not enter into repurchase agreements if, as a result, more than 10% of the
Fund's total assets would be subject to repurchase agreements maturing in more
than seven days. 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 creditworthiness 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.

REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWINGS--Each Fund is
authorized to borrow money. If the securities held by a Fund should decline in
value while borrowings are outstanding, the net asset value of the Fund's
outstanding shares will decline in value by proportionately more than the
decline in value suffered by the Fund's securities. Each Fund may borrow through
reverse repurchase agreements under which a Fund sells portfolio securities to
financial institutions such as banks and broker-dealers and agrees to repurchase
them at a particular date and price. A Fund may use the proceeds of the reverse
repurchase agreements to purchase other securities either maturing or under an
agreement to resell on a date simultaneous with or prior to the expiration of
the reverse repurchase agreement. This use of reverse repurchase agreements may
be regarded as leveraging and, therefore, speculative. Reverse repurchase
agreements involve the risks that the interest income earned on the investment
of the proceeds will be less than the interest expense, that the market value of
the securities sold by a Fund may decline below the price of the securities a
Fund is obligated to repurchase and that the securities may not be returned to a
Fund. During the time a reverse repurchase agreement is outstanding, a Fund will
maintain a segregated account with its custodian containing cash, U.S.
Government or other appropriate liquid high-grade debt securities having a value
at least equal to the repurchase price. For the Small Cap Growth Fund,
International Equity Fund and Socially Responsible Fund, reverse repurchase
agreements, together with any other borrowings, will not exceed, in the
aggregate, 33 1/3 of the value of its total assets. In addition, whenever
borrowings exceed 5% of a Fund's total assets, these Funds will not make any
additional investments. For the Growth Fund, Balanced Fund, Income Fund and
Short-Term Investment Fund, repurchase agreements, together with other
borrowings, will not exceed 15% of a Fund's total assets taken at market value.
If the asset coverage for such borrowings falls below 300%, these Funds will
reduce, within three days, the amount of its borrowings to provide for 300%
asset coverage. The Growth Fund, Balanced Fund, Income Fund and Short-Term
Investment Fund will repay all borrowings before making additional investments.
For a more detailed description of reverse repurchase agreements, see the
Statement of Additional Information--Appendix B.

SECURITIES LENDING--The Small Cap Growth Fund, International Equity
Fund and Socially Responsible Fund may seek additional income by lending
securities on a short-term basis. The securities lending agreements will require
that the loans be secured by collateral in cash, U.S. Government securities or
irrevocable bank letters of credit maintained on a current basis equal in value
to at least the market value of the loaned securities. These Funds may not make
such loans in excess of 33 1/3 of the value of its total assets, including
collateral received. Loaned securities involve risks of delay in receiving
additional collateral or in recovering the loaned securities, or possibly loss
of rights in the collateral if the borrower of the securities becomes insolvent.
The Growth Fund, Balanced Fund, Income Fund and

<PAGE>

Short-Term Investment Fund may not make loans to other persons, except by the
purchase of obligations in which the Fund is authorized to invest.

STRATEGIC TRANSACTIONS--The International Equity Fund and Socially
Responsible Fund may engage in so-called "strategic transactions," and in this
regard, the Funds may purchase and sell exchange-listed and over-the-counter put
and call options on securities, on securities indices and on other financial
instruments, purchase and sell financial futures contracts and options thereon,
enter into various interest rate transactions such as swaps, caps, floors or
collars, enter into various currency transactions such as currency forward
contracts, currency futures contracts, currency swaps or options on currencies
or currency futures, purchase and sell derivatives and other similar
instruments, and engage in other similar or related investment techniques or
strategies. Any or all of these investment techniques or strategies may be used
at any time and there is no particular technique or strategy that dictates the
use of one technique or strategy rather than another, as use of any "strategic
transaction" is a function of numerous variables, including market conditions.

Although certain "strategic transactions" may be used to enhance
potential gain, the Funds will not enter into any "strategic transactions" for
non-hedging purposes if, as a result of entering into any such transactions,
more than 5% of a Fund's total assets would then be committed for non-hedging
purposes. "Strategic transactions" involving financial futures and options
thereon will be purchased, sold or entered into only for bona fide hedging, risk
management or portfolio management purposes and not for speculative purposes,
and with respect to transactions which do not qualify as hedging transactions
within the meaning of applicable regulations of the Commodity Futures Trading
Commission, the Funds will not enter into futures contracts or related options
if, as a result of entering into such futures contracts or related options, the
aggregate initial margin and premiums for establishing all such positions exceed
5% of the fair market value of such Fund's net assets, not including any
in-the-money amount on any such options in computing such 5%. The Funds will
comply with applicable regulatory requirements when implementing these
"strategic transactions." For a more detailed description of strategic
transactions, see the Statement of Additional Information--Appendix B.

U.S. GOVERNMENT OBLIGATIONS--Each Fund may invest in 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. For a more detailed description of U.S. Government
obligations, see the Statement of Additional Information--Appendix B.

WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS--The Small Cap Growth
Fund, International Equity Fund, Socially Responsible Fund, Balanced Fund and
Income Fund each may purchase securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transactions
involve a commitment by a Fund to purchase or sell particular securities with
payment and delivery taking place at a future date (perhaps one or two months
later), and permit a Fund to lock in a price or yield on a security it owns or
intends to purchase, regardless of future changes in interest rates. When-issued
and forward commitment transactions involve the risk, however, that the price or
yield obtained in a transaction may be less favorable than the price or yield
available in the market when the securities delivery takes place. Each Fund's
when-issued purchases and forward commitments are not expected to exceed 25% of
the value of its total assets absent unusual market conditions. The Funds do not
intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of their investment objectives. For
a more detailed description of when-issued purchases and forward commitments,
see the Statement of Additional Information--Appendix B.

MANAGEMENT
The overall responsibility for the supervision of the affairs of the
Funds rests with the Board of Trustees. As described below, the Board has
contracted with others to provide certain services to the Funds.

INVESTMENT ADVISER: WILSHIRE ASSOCIATES INCORPORATED
Since March 1, 1999, the Horace Mann Mutual Funds (the "Trust") employs
Wilshire Associates Incorporated (the "Adviser") to manage the investment and
reinvestment of the assets of the Funds and to continuously review, supervise
and administer the Funds' investment programs under an Investment Advisory
Agreement dated March 1, 1999 (the "Investment Advisory Agreement"). The
Adviser's principal office is located at 1299 Ocean Avenue, Santa Monica,
California 90401-1085.

The Adviser's duties under the Investment Advisory Agreement include
recommending to the Board of Trustees one or more unaffiliated subadvisers to
provide a continuous investment program for each Fund or a portion of such
Fund's assets designated from time to time by the Adviser, including investment,
research, and management with respect to all securities and investments and cash
equivalents for the Fund or a designated portion of such Fund's assets. The
Adviser also reviews, monitors, and reports to the Board of Trustees regarding
the performance and investment procedures of each subadviser and assists and
consults with each subadviser in connection with

<PAGE>

the Fund's continuous investment program. In addition, the Adviser maintains
books and records with respect to its services under the Investment Advisory
Agreement and furnishes the Board of Trustees with such periodic special reports
as the Board may request.

The Adviser selects investment subadvisers based on a continuing
quantitative and qualitative evaluation of their skills and proven abilities in
managing assets pursuant to a particular investment style. Short-Term
performance is not by itself a significant factor in selecting or terminating
investment subadvisers, and therefore the Adviser does not anticipate frequent
changes in the investment subadvisers. Criteria for employment of investment
subadvisers includes, but is not limited to, the managers' philosophy and
process, people and organization, resources and performance. Investment
subadvisers may have different investment styles and security selection
disciplines.

The Adviser monitors the performance of each investment subadviser and
of the Funds and, to the extent it deems appropriate to achieve the Funds'
investment objective, reallocates assets among individual subadvisers or
recommends that the Funds employ or terminate particular investment subadvisers.

Pursuant to an exemptive order from the SEC, the Adviser, without
shareholder approval, as normally would be required under the 1940 Act, may
replace or add subadvisers and enter into sub-advisory agreements with these
subadvisers upon approval of the Board of Trustees. Within sixty days of the
hiring of any new subadviser or the implementation of any proposed material
change to a sub-advisory agreement, shareholders will be furnished with an
information statement that contains all information that would be included in a
proxy statement regarding the new subadviser or sub-advisory agreement, except
as modified by exemptive relief. Moreover, the Adviser will not enter into a
sub-advisory agreement with any subadviser that is an "affiliated person," as
defined in the 1940 Act, of the Trust or the Adviser, other than by reason of
serving as a subadviser to one or more of the Funds, without shareholder
approval. In addition, whenever a subadviser is hired or fired, the Adviser will
provide the Board of Trustees with information showing the expected impact on
the Adviser's profitability and will report such impact quarterly.

Each subadviser's fees will be paid by the Adviser out of the advisory
fees that it receives from each of the Funds. Fees paid to a subadviser of a
Fund with multiple subadvisers will depend upon the fee rate negotiated with the
Adviser and upon the percentage of the Fund's assets allocated to that
subadviser by the Adviser, which may vary from time to time. Thus, the basis for
fees paid to any such subadviser will not be constant, and the relative amounts
of fees paid to the various subadvisers of a Fund will fluctuate. These internal
fluctuations, however, will not affect the total advisory fees paid by a Fund,
which will remain fixed on the terms described above. The Adviser may, however,
determine in its discretion to waive a portion of its fee if internal
fluctuations in the fee to be paid to the subadvisers results in excess profit
to the Adviser. Because the Adviser will pay each subadviser's fees out of its
own fees from the Funds, there will not be any "duplication" of advisory fees
paid by the Funds.

Shareholders should recognize, however, that in engaging new
subadvisers and entering into sub-advisory agreements, the Adviser will
negotiate fees with those subadvisers and, because these fees are paid by the
Adviser and not directly by each Fund, any fee reduction negotiated by the
Adviser may inure to the Adviser's benefit and any increase will inure to its
detriment. The fees paid to the Adviser by the Funds and the fees paid to the
subadvisers by the Adviser are considered by the Board in approving the Funds'
advisory and sub-advisory arrangements. Any change in fees paid by a Fund to the
Adviser would require shareholder approval.

For the services provided and the expenses assumed pursuant to the
Investment Advisory Agreement, the Adviser receives a fee based on each Fund's
average daily net assets, computed daily and payable monthly, at the following
annual rates:

FUND RATE
Growth Fund........................ 0.400%
Balanced Fund...................... 0.400%*
Income Fund........................ 0.400%
Short-Term Investment Fund......... 0.125%
Small Cap Growth Fund.............. 1.150%
International Equity Fund.......... 0.850%
Socially Responsible Fund.......... 0.700%

* As discussed above, upon receipt of regulatory approvals, the Balanced Fund
will operate under a fund of funds structure, primarily investing in shares of
the Growth Fund and the Income Fund. Under the fund of funds arrangement, the
Adviser will only receive directly from the Balanced Fund a fee of 0.400% of the
average daily net assets of the Balanced Fund that are not invested in another
Fund.

The Adviser has previously served in the formal capacity as investment
adviser or subadviser to three registered investment companies, with aggregate
assets of over $1.3 billion as of December 31, 1998. Through consulting
arrangements, the Adviser has also provided the same types of services to
registered investment companies as are provided under the Investment Advisory
Agreement. As of March 31, 1999, the Adviser's consulting division had
approximately 210 clients, with well in excess of $700 billion in assets, for
which the Adviser provides a variety of services, very often including
evaluation, selection, and monitoring of investment advisers, as well as
negotiating investment advisory contracts for the management of clients' assets.

Prior to March 1, 1999, Horace Mann Investors, Inc. ("Investors") was
the Advisor to the Small Cap Growth, International Equity and Socially
Responsible Funds since the beginning of operations of the Trust on March 10,
1997, and the

<PAGE>

Growth, Income, Balanced and Short-Term Investment Funds since the
beginning of their operations as portfolios of the Trust on May 1, 1997.

Under the prior investment management relationship, Investors was
compensated for both investment advisory and administrative services. After
March 1, 1999 Investors continues to be compensated for such administrative
services under and Administration Agreement described below under
"Administration: Horace Mann Investor, Inc." For the investment advisory and
administration services and facilities furnished to the Small Cap Growth Fund,
the International Equity Fund, and the Socially Responsible Fund, Investors
received under the prior Management Agreement with the Trust a monthly
management fee based upon each Fund's average daily net assets. This fee was
equal on an annual basis to 1.40% for the Small Cap Growth Fund, 1.10% for the
International Equity Fund, and 0.95% for the Socially Responsible Fund.

For the investment advisory and administration services and facilities furnished
to the Growth Fund, Balanced Fund, Income Fund, and Short-Term Investment
Fund, Investors received under the prior Management Agreement with the Trust a
two-part fee at the end of each month, as follows:

For part one, each Fund's management fee was accrued daily and calculated on a
pro rata basis by applying the following percentage rates to the aggregate of
all four Funds' daily net assets for the respective month: On the first $100
million of assets, 0.25%; on assets over $100 million, 0.200%.

For part two, each Fund's management fee was accrued daily and calculated by
applying the following annual percentage rates to the average daily net assets
of each Fund for the respective month:

FUND NET ASSETS RATE
- ----- ---------- ------
Growth Fund On initial $100 million 0.400%
On next $100 million 0.300%
Over $200 million 0.250%

Balanced Fund On initial $100 million 0.325%
On next $100 million 0.275%
On next $300 million 0.225%
Over $500 million 0.200%

Income Fund On initial $100 million 0.250%
On next $100 million 0.200%
Over $200 million 0.150%

Short-Term On initial $100 million 0.125%
Investment Fund On next $100 million 0.100%
Over $200 million 0.075%

THE SUBADVISERS
GROWTH FUND. The Adviser uses a "manager of managers" approach for the
Growth Fund by which the Adviser allocates the Growth Fund's assets among one or
more "specialist" investment subadvisers. The assets of the Growth Fund are
managed in part by Brinson Partners, Inc. ("Brinson Partners"), in part by
Mellon Equity Associates, LLP ("Mellon Equity") and in part by Wellington
Management Company, LLP ("Wellington Management"). Each subadviser serves
pursuant to a Sub-advisory Agreement with the Adviser. Currently, approximately
40% of the Growth Fund's assets are managed by Brinson Partners, approximately
40% of the Growth Fund's assets are managed by Mellon Equity, and approximately
20% of the Growth Fund's assets are managed by Wellington Management. These
allocations are as of March 1, 1999, and are expected to deviate occasionally
from these allocation levels, but not significantly.

Brinson Partners. Brinson Partners, which is located at 209 South
LaSalle Street, Chicago, Illinois, is a major global investment management
organization. Brinson Partners is a registered investment adviser and is a
wholly-owned subsidiary of UBS AG, a Swiss banking corporation headquartered in
Zurich, Switzerland. Brinson Partners is a part of the UBS Brinson Division of
UBS AG ("UBS Brinson") which performs institutional asset management operations
worldwide. Brinson Partners was organized in 1989, when it acquired the
institutional asset management business of The First National Bank of Chicago
and First Chicago Investment Advisors, N.A. Brinson Partners and its predecessor
entities have managed both U.S. and non-U.S. investment portfolios since 1974
and global investment portfolios since 1982. As of December 31, 1998, Brinson
Partners was responsible for the active discretionary management of more than
$172 billion in institutional assets, and UBS Brinson was responsible for the
active discretionary management of more than $292 billion worldwide.

The portion of the Growth Fund managed by Brinson Partners is managed
by a team of investment professionals at Brinson Partners. Research, strategy,
portfolio construction and trading are the responsibility of the six teams
comprising Brinson Partners' Global Investment Management & Research. These
teams include: Asset Allocation/Currency, Equities, Fixed Income, Private
Markets, Portfolio Coordination and Structured Investments. The Investment
Strategy Committee, which encompasses Brinson Partners' senior investment
professionals, sets policy and oversees research activity within each of these
teams. Each team operates with an investment committee and related work groups
to fulfill its mission. The investment committees generally meet formally on a
twice-monthly basis and more frequently when circumstances dictate. Discussions
regarding market events and opportunities occur on a day-To-day basis among the
investment specialists within each asset class. Brinson Partners derives
investment value and organizes collective insight from these teams. Brinson
Partners'

<PAGE>

organizational structure and investment discipline encourages the
cross exchange of ideas. Brinson Partners' decision making structure reflect a
belief that the value of collective judgments derived from a broad base of
information exceeds that from the sum of individual capabilities.

Mellon Equity. Mellon Equity is a Pennsylvania limited liability
partnership founded in 1987. Mellon Bank, N.A., is the 99% limited partner and
MMIP, Inc. is the 1% general partner. MMIP, Inc. is a wholly-owned subsidiary of
Mellon Bank, N.A., which itself is a wholly-owned subsidiary of the Mellon Bank
Corporation. Mellon Equity is a professional investment counseling firm that
provides investment management services to the equity and balanced pension,
public fund and profit-sharing investment management markets, and is an
investment adviser registered under the Investment Advisers Act of 1940. Mellon
Equity has discretionary management authority with respect to approximately $30
billion of assets as of December 31, 1998. The business address for Mellon
Equity is 500 Grant Street, Suite 4200, Pittsburgh, Pennsylvania 15258.

Robert A. Wilk, CFA, Senior Vice President and Senior Portfolio Manager
of Mellon Equity, assumed the primary responsibility for the day-to-day
investment management of a portion of the Growth Fund's assets managed by Mellon
Equity on March 1, 1999. Mr. Wilk joined Mellon Equity in 1990 and began his
investment experience in 1971. Prior to joining Mellon Equity, Mr. Wilk founded
and was the Head of Equity Management at Triangle Portfolio Associates, a former
Mellon Bank subsidiary which provided aggressive, quantitatively managed
portfolios. Mr. Wilk earned a B.S. in Management and Electrical Engineering from
M.I.T. and an M.S. in Finance from M.I.T.'s Sloan School of Management. He is a
member of the Association for Investment Management and Research and of the
Pittsburgh Society of Financial Analysts.

Wellington Management. Wellington Management is a registered investment
adviser and has approximately $215 billion under management and manages over 100
investment company portfolios as of March 31, 1999. Wellington Management is
located at 75 State Street, Boston, Massachusetts 02109.

Matthew E. Megargel, CFA and Senior Vice President of Wellington
Management, serves as the portfolio manager for the portion of the Growth Fund's
assets managed by Wellington Management. Mr. Megargel began providing investment
advice to the Growth Fund on March 1, 1999. Mr. Megargel has been a portfolio
manager with Wellington Management since 1991 and has 17 years of professional
experience. He is supported by the U.S. Core Equity team and Wellington
Management's 32 global industry analysts along with specialized fundamental,
quantitative, and technical analysts, macroanalysts and traders.

BALANCED FUND. Prior to the implementation of the fund of fund
structure, the subadvisers for the Growth Fund and Income Fund will provide
investment advisory services directly to the Balanced Fund. Under the fund of
funds structure, the Balanced Fund will invest substantially all its assets in
shares of the Growth Fund and the Income Fund. Please see the descriptions of
the subadvisers for the Growth Fund and Income Fund.

INCOME FUND. Wellington Management, a registered investment adviser,
serves as the investment subadviser of the Income Fund pursuant to a
Sub-advisory Agreement with the Adviser. Wellington Management is responsible
for managing the Fund, subject to the direction of the Board of Trustees and the
Adviser. Wellington Management has approximately $215 billion under management
and manages over 100 investment company portfolios as of March 31, 1999.

Robert D. Payne, CFA and Senior Vice President of Wellington
Management, serves as the portfolio manager of the Income Fund. Mr Payne has
been a portfolio manager with Wellington Management's fixed-income group since
1972 and held the position of Vice President from 1972 until he was promoted to
Senior Vice President of Wellington Management in January 1996.

SHORT-TERM INVESTMENT FUND. Wellington Management, a registered
investment adviser, serves as the investment subadviser of the Short-Term
Investment Fund pursuant to a Sub-advisory Agreement with the Adviser.
Wellington Management is responsible for managing the Fund, subject to the
direction of the Board of Trustees and the Adviser. Wellington Management has
approximately $215 billion under management and manages over 100 investment
companies as of March 31, 1999.

John C. Keogh, Senior Vice President of Wellington Management, serves
as the portfolio manager for the Short-Term Investment Fund. 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.

SMALL CAP GROWTH FUND. BlackRock Financial Management, Inc.
("BlackRock") (formerly PNC Equity Advisors, Company) a registered investment
adviser, serves as the investment subadviser of the Small Cap Growth Fund
pursuant to a Sub-advisory Agreement with the Adviser. BlackRock is responsible
for managing the Fund, subject to the direction of the Board of Trustees and the
Adviser. BlackRock has approximately $140 billion under management as of March
31, 1999.

BlackRock, headquartered at 345 Park Avenue, New York, New York is a
subsidiary of PNC Bank. PNC Bank's principal business activity is commercial and
consumer banking.

The Small Cap Growth Fund is managed by BlackRock's Small Cap Growth
Team. The team is supported by BlackRock's Small Cap Growth research analysts
along with quantitative analysts and traders.

<PAGE>

The Small Cap Growth team includes the following individuals:

William J. Wykle is the Fund's lead portfolio manager. Mr. Wykle, who
has over 32 years of investment experience, has been a portfolio manager at
BlackRock since 1995 and had been a portfolio manager with PNC Asset Management
Group since 1986.

Thomas P. Callan, Portfolio Manager, has been with BlackRock since 1995
and had been with PNC Bank since 1988. Mr. Callan has over 10 years of
investment experience.

INTERNATIONAL EQUITY FUND. Scudder Kemper Investments Inc. ("Scudder
Kemper"), a registered investment adviser, serves as the investment subadviser
of the International Equity Fund pursuant to a Sub-advisory Agreement with the
Adviser. Scudder Kemper is responsible for managing the Fund, subject to the
direction of the Board of Trustees and the Adviser. Scudder Kemper is one of the
largest and most experienced management organizations worldwide, managing in
excess of $280 billion in assets globally as of March 31, 1999.

Scudder Kemper, located at 345 Park Avenue, New York, New York is one
of the largest investment managers in the country. Zurich Insurance Company, a
leading internationally recognized provider of insurance and financial services
in property/casualty and life insurance, reinsurance and structured financial
solutions, as well as asset management, owns approximately 70% of Scudder Kemper
with the balance owned by Scudder Kemper officers and employees.

The International Equity Fund is managed by a team of Scudder Kemper
investment professionals who each play an important role in the Fund's
management process. Team members work together to develop investment strategies
and select securities for the Fund's portfolio. They are supported by Scudder
Kemper's large staff of economists, research analysts, trader and other
investment specialists who work in Scudder Kemper's offices across the United
States and abroad. Scudder Kemper believes its team approach benefits Fund
investors by bringing together many disciplines and leveraging Scudder Kemper's
extensive resources.

The Scudder Kemper international equity team includes the following
individuals, each of whom has been a member of the team since the International
Equity Fund's inception, unless otherwise noted:

Effective August 1, 1997, Irene Cheng became the team's Lead Portfolio
Manager. Ms. Cheng, who has over 13 years of industry experience and joined
Scudder Kemper in 1993, focuses on portfolio management and equity strategy for
Scudder Kemper's international equity investments.

Nicholas Bratt, Portfolio Manager, leader of the global equity group,
directs Scudder Kemper's overall global equity investment strategies. Mr. Bratt
joined Scudder Kemper and the team in 1976.

Sheridan Reilly, Portfolio Manager, joined Scudder Kemper in 1995 and
is a member of Scudder Kemper's Global Equity Group. Mr. Reilly has over 10
years of industry experience focusing on strategies for global portfolios,
currency hedging and foreign equity markets.

Deborah Chaplin, Portfolio Manager, has focused on stock selection and
investment strategy since joining the portfolio management team in 1997.
Previously, she was a portfolio manager in the Growth and Income Product group
at Scudder Kemper. Ms. Chaplin, who joined Scudder Kemper in 1996, has over four
years of investment experience as a securities analyst and portfolio manager.
Prior to joining Scudder Kemper, Ms. Chaplin was a research fellow in the
Faculty of Letters at Kyoto University, Japan.

Stephen Dexter, Portfolio Manager, is a manager of the Kemper
International Fund, with geographic responsibility for Latin America, Africa,
Canada, Australia and New Zealand. Mr. Dexter joined Kemper as an equity analyst
in 1986.

Carol L. Franklin, Portfolio Manager, a member of the international
equity team, joined Scudder Kemper International Fund's portfolio management
team in 1986. Ms. Franklin, who has over 20 years of experience in finance and
investing, joined Scudder Kemper in 1981.

Joan Gregory, Portfolio Manager, focuses on stock selection, a role she
has played since she joined Scudder Kemper in 1992. Ms. Gregory, who joined the
team in 1994, has been involved with investment in global and international
stocks.

SOCIALLY RESPONSIBLE FUND. Scudder Kemper also serves as the investment
subadviser of the Socially Responsible Fund. Scudder Kemper socially responsible
growth and income team includes the following individuals, each of whom has been
a member of the team since the Socially Responsible Fund's inception:

Lori Ensinger, Lead Portfolio Manager, joined Scudder Kemper and the
portfolio management team in 1993. Ms. Ensinger focuses on stock selection and
investment strategy. She has worked as a portfolio manager since 1983.

Robert T. Hoffman, Portfolio Manager, joined Scudder Kemper in 1990.
Since then he has been involved in all aspects of investment decision-making for
the team and currently directs the investment management of all assets under the
Growth and Income approach. Mr. Hoffman has thirteen years of experience in the
investment industry, including several years of pension fund management
experience.

<PAGE>

Benjamin W. Thorndike, Portfolio Manager, is the Fund's chief analyst
and strategist for convertible securities. Mr. Thorndike, who has 18 years of
investment experience, joined Scudder Kemper in 1983 as a portfolio manager and
the Fund at its inception.

GENERAL. Under the terms of each Sub-advisory Agreement, the subadviser
manages its respective Funds, selects investments and places all orders for
purchases and sales of the Fund's securities, subject to the general supervision
of the Board of Trustees and the Adviser.

ADMINISTRATOR: HORACE MANN INVESTORS, INC.
Investors, a wholly-owned subsidiary of Horace Mann Educators
Corporation which is the indirect owner of Horace Mann Life Insurance Company
("HMLIC"), serves as administrator to the Funds pursuant to an Administration
Agreement dated March 1, 1999 with the Trust (the "Administration Agreement").
Investors provides for the management of the business affairs of each Fund,
including, but not limited to, office space, secretarial and clerical services,
bookkeeping services, wire and telephone communications services, and other
similar services necessary for the proper management of each Fund's business
affairs. Under the current administration agreement, the Funds agree to assume
and pay the charges and expenses of its operations, including, by way of
example, the compensation of Trustees other than those affiliated with
Investors, charges and expenses of independent auditors, of legal counsel, of
any transfer or dividend disbursing agent, of the custodian, all costs of
acquiring and disposing of portfolio securities, interest, if any, on
obligations incurred by the Funds, reports and notices to shareholders, other
like miscellaneous expenses, and all taxes and fees to federal, state, or other
governmental agencies.

For the services and facilities furnished to the Funds, Investors
receives a fee based upon the combined assets of the Funds as follows: 0.25% of
the first $1 billion of assets and 0.20% of assets in excess of $1 billion.
An administration fee is charged directly against all assets in the Balanced
Fund. However, in order to avoid duplication of charges, under the fund of
funds structure, Investors has indicated that it intends upon implementation to
waive the majority of the administrative fees charged to the Balanced Fund
directly. In addition, Balanced Fund shareholders will indirectly pay the
administration fee of the assets invested in the Growth Fund and Income Fund
under the fund of funds structure. Therefore, the aggregate administration fee
directly and indirectly borne by shareholders of the Balanced Fund will be
higher than the fees shareholders would bear if they invested directly in the
Growth and Income Fund.

SUPPORT SERVICES AGREEMENT. The Trust has a support services
agreement(the "Support Services Agreement") with HMLIC under which the Trust has
retained HMLIC to provide certain administrative services to the Trust. As the
Trust's servicer, HMLIC will provide those administrative and support services
reasonably necessary to coordinate the activities of the Funds with those of the
separate account of HMLIC (for which the Funds serve as the underlying
investment medium) other than the administrative services provided by Investors
under the Administration Agreement. As compensation for its services, HMLIC will
receive a fee equal to 0.15% on the first $1 billion in net assets and 0.10% on
all assets over $1 billion.

TRANSFER AGENT AND DIVIDEND PAYING AGENT
Horace Mann Service Corporation
One Horace Mann Plaza
P.O. Box 4657
Springfield, Illinois 62708-4657

CUSTODIAN AND FUND ACCOUNTING AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110

YEAR 2000 READINESS
The Adviser, Investors, Brinson Partners, Mellon Equity, Wellington
Management, BlackRock, Scudder Kemper, Horace Mann Service Corporation, Horace
Mann Life Insurance Company and State Street each rely on computer systems to
manage the Fund's investments, process shareholder transactions and provide
shareholder account maintenance. Because of the way that computers have
historically stored dates, some of these systems currently may not be able to
correctly process activity occurring in the year 2000. Investors and the Adviser
are working with each of the Fund's service providers to adapt their systems to
address this "year 2000 issue." Investors, the Adviser and the Funds expect that
the necessary work will be completed on a timely basis, but there can be no
absolute assurance that there will be no material adverse effect on the Funds.
In addition, there can be no assurances that the year 2000 issue will not have
an adverse effect on the issuers whose securities are held by a fund or on
markets or economies generally.

ADDITIONAL PERFORMANCE INFORMATION

OTHER INFORMATION ON THE PERFORMANCE OF BRINSON PARTNERS, MELLON EQUITY AND
WELLINGTON MANAGEMENT

The table below sets forth information relating to prior performance by
Brinson Partners, Mellon Equity and Wellington Management, each for an AIMR
(Association for Investment Management and Research) compliant composite of
accounts managed in a similar manner as the Growth Fund and the equity portion
of the Balanced Fund. The performance data is included to provide investors
with the performance record for accounts managed by the subadvisers in a
substantially similar manner as the Growth Fund and the equity portion of the
Balanced Fund.

The table below shows its performance record for each subadviser over
the specified time periods. Each of the subadvisers' composites included in
the following performance

<PAGE>

composites have an investment objective and investment policies, strategies and
risks substantially similar to those of the Growth Fund and the equity portion
of the Balanced Fund.

The performance data included for Brinson Partners, Mellon Equity and
Wellington Management does not represent the past, present or future performance
of the Growth Fund or the equity portion of the Balanced Fund. The actual past
performance of the Growth Fund and Balanced Fund is shown on pages 4 and 8,
respectively, of this prospectus, and shows performance for the Funds prior to
the change in advisers, which became effective March 1, 1999. Past performance
is no guarantee of future results. Share prices and investment returns will
fluctuate, reflecting market conditions and cash flows, as well as changes in
company - specific fundamentals of portfolio securities. Consequently,
investments in the Funds may be worth more or less than their original cost at
the time of redemption. The performance presentation is not audited.

In addition, performance information for the Wilshire Large Value Index
and the Lipper Variable Annuity Growth & Income Index has been included for
comparison. All returns presented were calculated on a total return basis and
include all dividends and interest, accrued income and realized and unrealized
gains and losses. All returns also reflect the brokerage costs borne by the
accounts for all periods presented. The use of a different methodology to
calculate performance could result in different performance data.

AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>

LIPPER
VARIABLE
WILSHIRE ANNUITY
MELLON WELLINGTON LARGE GROWTH
YEARS ENDED BRINSON EQUITY MANAGEMENT VALUE INCOME
12/31/98 PARTNERS (1) ASSOCIATES (2) COMPANY (3) INDEX (4) INDEX (5)
- -------------- ------------- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
One Year 22.2% 15.5% 27.8% 14.9% 16.5%
Three Years 26.1 25.6 28.1 23.1 21.3
Five Years 24.6 21.8 23.2 21.2 18.7
</TABLE>

(1) Brinson Partners composite is presented gross of fees for their U.S. Equity
Large Capitalization product.

(2) Mellon Equity Associates composite is presented gross of fees for their
Russell 1000 Value product.

(3) Wellington Management composite is presented gross of fees for their Core
Growth-Income product.

(4) The Wilshire Large Value Index is an unmanaged, capitalization-weighted
index of large-capitalization, value oriented securities. Index returns reflect
dividends reinvested net of withholding tax. Investments cannot be made directly
into the Wilshire Large Value Index.

(5) The Lipper Variable Annuity Growth & Income Index is a representation of
average returns for select growth and income subaccounts in various variable
annuity programs. Index returns reflect dividends reinvested net of withholding
tax. Investments cannot be made directly into the Lipper Variable Annuity
Growth & Income Index.

OTHER INFORMATION ON THE PERFORMANCE OF BLACKROCK
The table below sets forth performance information relating to the
BlackRock Small Cap Growth Equity Portfolio-Investor A Shares ("BlackRock
Portfolio"), which is also managed by BlackRock. The BlackRock Portfolio is a
portfolio of an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), and which has an
investment objective, and investment policies, strategies and risks
substantially similar to those of the Small Cap Growth Fund.

The performance data for the BlackRock Portfolio is included to provide
investors with the performance record for an account substantially similar to
the Small Cap Growth Fund. Although BlackRock manages additional accounts in a
similar fashion, performance for those accounts has not been included because
the gross performance record would not be materially changed by inclusion of
such other accounts. In addition, performance information from the Russell 2000
Growth Index ("Russell 2000 Growth") has been included for comparison. The
actual total operating expenses of the BlackRock Portfolio were 1.35% for the
fiscal year ended September 30, 1998, and vary from year to year. The gross
operating expenses for the Small Cap Growth Fund were 1.76% for the fiscal year
ended December 31, 1998. Investors voluntarily waived fees and reimbursed
certain expenses. For the fiscal year ended December 31, 1998, the net operating
expenses were 1.11%.

The BlackRock Portfolio performance data does not represent the past,
present or future performance of the Small Cap Growth Fund. Past performance is
no guarantee of future results; investors should not consider this performance
data as an indication of future performance of the Small Cap Growth Fund or of
BlackRock. Share prices and investment returns will fluctuate, reflecting market
conditions and cash flows, as well as changes in company-specific fundamentals
of portfolio securities. Consequently, investments in either the BlackRock
Portfolio or the Small Cap Growth Fund may be worth more or less than their
original cost at the time of redemption. The performance presentation is not
audited.

All returns presented were calculated on a total return basis and
include all dividends and interest, accrued income and realized and unrealized
gains and losses. Performance reflects the deduction of a 4.5% front-end sales
charge for the BlackRock Portfolio. The Small Cap Growth Fund does not have a
front-end sales charge. All returns also reflect the brokerage costs borne by
the BlackRock Portfolio for all periods presented. The use of a different
methodology to calculate performance could result in different performance data.

<PAGE>

AVERAGE ANNUAL TOTAL RETURNS(1)

BLACKROCK RUSSELL
PORTFOLIO(2) 2000 GROWTH(3)
----------- ------------
YEAR OR PERIODS ENDED 12/31/98
One Year 2.00% 1.23%
Five Years 17.53 10.22
From Inception (9/14/93) 17.27 N/A

(1) Total Return Calculation--The Fund commenced operations on September 14,
1993. Class A shares were introduced on September 15, 1993. In accordance with
Securities and Exchange Commission policy, performance information presented for
Class A shares prior to their introduction date does not reflect service and
distribution fees and certain other expenses borne by Class A shares which, if
reflected, would reduce the performance quoted. Investors should note that the
information presented for Class A shares prior to their introduction is based
upon historical expenses of the predecessor class, which do not reflect the
actual expenses that an investor would incur as a holder of Class A shares of
the Fund.

(2) Had the sales charge not been reflected, the performance figures
for the one year, five years and since inception periods would have been 6.82%,
18.62% and 18.30%, respectively.

(3) Total return data is presented for each period. The Russell 2000 Growth is
an unmanaged securities index composed of those Russell 2000 Growth securities
with a greater-Than-average growth orientation. The Russell 2000 Growth reflects
the reinvestment of dividends and capital gain distributions, if any, but does
not reflect fees, brokerage commissions or other expenses of investing.
The Russell 2000 Growth is an unmanaged securities index, and an investment
cannot be made directly in the Russell 2000 Growth.

OTHER INFORMATION ON THE PERFORMANCE OF SCUDDER KEMPER

INTERNATIONAL EQUITY PERFORMANCE. The table below sets forth
performance information relating to the International Portfolio of the Scudder
Kemper Variable Life Investment Fund ("Scudder Kemper International Portfolio")
that is also managed by Scudder Kemper. The Scudder Kemper International
Portfolio is a portfolio of an open-end management investment company registered
under the 1940 Act, and is the only other account managed by Scudder Kemper that
has investment objectives, policies, strategies and risks substantially similar
to those of the International Equity Fund.

The performance data for the Scudder Kemper International Portfolio is
included to provide investors with the performance record for an account
substantially similar to the International Equity Fund. In addition, performance
information from the Morgan Stanley Capital International Europe, Australia, Far
East Index ("MSCI EAFE Index") has been included for comparison. The actual
total operating expenses of the Scudder Kemper International Portfolio were
1.05% in 1998, and vary from year to year. The gross operating expenses for the
International Equity Fund were 2.06% for the fiscal year ended December 31,
1998. Investors voluntarily waived fees and reimbursed certain expenses. For the
fiscal year ended December 31, 1998, the net operating expenses were 1.03%.

The Scudder Kemper International Portfolio performance data does not
represent the past, present or future performance of the International Equity
Fund. Past performance is no guarantee of future results; investors should not
consider this performance data as an indication of future performance of the
International Equity Fund or of Scudder Kemper. Share prices and investment
returns will fluctuate reflecting market conditions and cash flows, as well as
changes in company-specific fundamentals of portfolio securities. Consequently,
investments in either the Scudder Kemper International Portfolio or the
International Equity Fund may be worth more or less than their original cost at
the time of redemption. The performance presentation is not audited.

All returns presented were calculated on a total return basis and
include all dividends and interest, accrued income and realized and unrealized
gains and losses. All returns also reflect the brokerage costs borne by the
Scudder Kemper International Portfolio for all periods presented. The use of a
different methodology to calculate performance could result in different
performance data.

AVERAGE ANNUAL TOTAL RETURNS
SCUDDER
KEMPER MSCI
INTERNATIONAL EAFE
PORTFOLIO INDEX (1)
--------- ---------
YEAR OR PERIODS ENDED 12/31/98
One Year 18.49% 19.97%
Five Years 10.32 9.19
Ten Years 11.96 5.54
From Inception (5/1/87) 10.56 6.17

(1) Total return data is presented for each period. The MSCI EAFE Index is an
unmanaged capitalization weighted measure of stock markets in Europe, Australia,
and the Far East. Index returns assume dividends reinvested net of withholding
tax, and unlike Fund returns, do not reflect fees or expenses. Returns reflect
the investment of income dividends and capital gain distributions, if any, but
does not reflect fees, brokerage commissions or other expenses of investing.
Investment cannot be made directly into the MSCI EAFE Index.

SOCIALLY RESPONSIBLE GROWTH AND INCOME PERFORMANCE. The table below
sets forth performance information relating to the Scudder Kemper Socially
Responsive Growth & Income Equity Only Composite ("Scudder Kemper Socially
Responsive Composite"). The performance data for the Scudder Kemper Socially
Responsive Composite is included to provide investors with the performance
record for a composite of accounts managed in a similar manner as the Socially
Responsible Fund. In addition, performance information from the Standard &
Poor's 500 Stock Index ("S&P 500") has been included for comparison. The Scudder
Kemper Socially Responsive Composite currently is a composite of twelve
separately managed accounts that are managed by Scudder

<PAGE>

Kemper. The Scudder Kemper Socially Responsive Composite is not registered under
the 1940 Act, and thus, was not subject to certain investment and operational
restrictions imposed by the 1940 Act. If the product had been registered under
the 1940 Act or subject to certain restrictions imposed by the Internal Revenue
Code, the performance noted below might have been lower. The Scudder Kemper
Socially Responsive Composite is composed of accounts with investment
objectives, policies, strategies and risks substantially similar to those of the
Socially Responsible Fund. However, the Socially Responsible Fund differs from
the accounts in the Scudder Kemper Socially Responsive Composite in certain
ways, none of which Investors or Scudder Kemper believe would cause a material
change in investment results. While the twelve accounts in the composite are
managed following Scudder Kemper's growth and income investment style, each
account has socially responsible screens that are used to exclude certain types
of industries as investment options. Each account uses screens that are somewhat
modified from those used by the Socially Responsible Fund. The performance of
the Scudder Kemper Socially Responsive Composite is presented net of the gross
operating expenses for the Socially Responsible Fund which is 1.12%. Investors
voluntarily waived fees and reimbursed certain expenses. For the fiscal year
ending December 31, 1998, the net operating expenses were .64%.

The Scudder Kemper Socially Responsive Composite performance data does
not represent the past, present or future performance of the Socially
Responsible Fund. Past performance is no guarantee of future results; investors
should not consider this performance data as an indication of future performance
of the Socially Responsible Fund or of Scudder Kemper. Principal value and
investment returns will fluctuate reflecting market conditions and cash flows,
as well as changes in company-specific fundamentals of portfolio securities.
Consequently, the account value of accounts in the Scudder Kemper Socially
Responsive Composite or investments in the Socially Responsible Fund may be
worth more or less than their original cost at the time of redemption.
The performance presentation is not audited.

All returns presented were calculated on a total return basis and
include all dividends and interest, accrued income and realized and unrealized
gains and losses. All returns also reflect the brokerage costs borne by the
accounts within the Scudder Kemper Socially Responsive Composite for all periods
presented. The use of a different methodology to calculate performance could
result in different performance data.

AVERAGE ANNUAL TOTAL RETURNS
SCUDDER KEMPER
SOCIALLY RESPONSIVE S&P
COMPOSITE 500(1)
---------------- ------
YEAR OR PERIODS ENDED 12/31/98
One Year 7.94% 28.58%
Five Years 18.75 24.06
Ten Years N/A 19.21
From Inception (12/31/89) 15.46 17.90

(1) Total return data is presented for each period. The S&P 500 is an unmanaged
index considered to be generally representative of the U.S. stock market. Index
returns assume dividends reinvested net of withholding tax. Investment cannot be
made directly into the S&P 500.

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.

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). No
valuations are made for any day that the NYSE is closed, and for 1999, no
valuations are made for the day after Thanksgiving. 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 Trustees.

Except in extraordinary circumstances and as permissible under the 1940
Act, redemption proceeds are paid on or before the third business day following
the date the request for redemption is received.

<PAGE>

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 or 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, 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 mail 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 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
Each Fund normally follows the practice of declaring and distributing
substantially all its net investment income and any net short-term and long-term
capital gains at least annually. 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.

Under the Internal Revenue Code ("Code"), Horace Mann Life Insurance
Company is taxed as a life insurance company and the operations of its separate
accounts are taxed as part of its total operations. Under current
interpretations of existing federal income tax law, investment income and
capital gains of separate accounts are not subject to federal income tax to the
extent applied to increase the value of variable annuity contracts. Tax
consequences to variable annuity contract holders are described in a separate
prospectus issued by the Horace Mann Life Insurance Company.

Each Fund intends to qualify as a regulated investment company under
subchapter M of the Code. As a result, with respect to any fiscal year in which
a Fund distributes all its net investment income and net realized capital gains,
that Fund will not be subject to federal income tax. Subchapter M includes
requirements relating to the diversification of investments, which are in
addition to the diversification requirements contained in Section 817(h) of the
Code and the 1940 Act. Each applicable law's diversification requirement could
require the sale of assets of a Fund, at a time when it would not otherwise be
advisable to do so.

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 shareholder's 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.

<PAGE>

The preceding is a brief summary of some of the relevant federal income
tax considerations. The Statement of Additional Information includes a more
detailed discussion. This discussion is not intended, even as supplemented by
the Statement of Additional Information, as a complete explanation or a
substitute for careful tax planning and consultation with individual tax
advisers.

OTHER INFORMATION
VOTING RIGHTS
Each Fund is authorized by the Declaration of Trust to issue an
unlimited number of shares. 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
trustees can elect 100% of the trustees 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 January 31, 1999, Horace Mann Life Insurance Company Separate
Account owned approximately 81.5%, 96.3%, 95.0%, 88.3%, 85.0%, 78.4%, and 89.1%
of the outstanding shares of the Growth Fund, Balanced Fund, Income Fund,
Short-Term Investment Fund, Small Cap Growth Fund, International Equity Fund and
Socially Responsible Fund, respectively. Horace Mann Life Insurance Company
Separate Account B held approximately 3.6% of the Growth Fund. Horace Mann Life
Insurance Company Allegiance Separate Account A held approximately 1.0% 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, 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)
535-7123 or by calling (217) 789-2500 or (800) 999-1030 (toll-free).

STATEMENT OF ADDITIONAL INFORMATION
A copy of the Statement of Additional Information
providing more detailed information about the Fund is available, without charge
upon request. The Table of
Contents of this statement follows:

<PAGE>

Topic Page
The Trust and the Funds.................................................... 1

Additional Investment Policies............................................. 1
Growth Fund....................................................... 1
Balanced Fund..................................................... 2
Income Fund....................................................... 2
Short-Term Investment Fund........................................ 2
Small Cap Growth Fund............................................. 2
International Equity Fund......................................... 2
Socially Responsible Fund......................................... 2

Investment Restrictions.................................................... 3

Income Fund - Benchmark.................................................... 5

Management of the Funds.................................................... 6
Board of Trustees................................................. 6
Officers.......................................................... 7
Compensation Table................................................ 7

Investment Advisory Agreements............................................. 8

Brokerage Allocation....................................................... 9

Other Services............................................................. 10

Purchase, Redemption and Pricing of Fund Shares............................ 11

Tax Status................................................................. 11

Control Persons and Principal Holders of Securities........................ 13

General Information........................................................ 15

Financial Statements....................................................... 15

Appendix A: Description of Commercial Paper and Bond Ratings............... A-1
Appendix B: Description of Securities and Risks............................ B-1

<PAGE>

APPENDIX A
Ratings of Debt Obligations:
Standard &
Moody's Investors Poor's Ratings
Definition Service, Inc. Group
- --------------------------------------------------------------------------------
Long-term Aaa AAA
Highest quality

High quality Aa AA

Upper medium grade A A

Medium grade Baa BBB

Low Grade Ba BB

Speculative B B

Submarginal Caa,Ca,C CCC,CC,C

Probably in default D D
- --------------------------------------------------------------------------------
Moody's S&P

Short-term MIG1/VMIG1 Best quality SP-1+ Very strong quality

MIG2/VMIG2 High quality SP-1 Strong quality

MIG3/VMIG3 Favorable SP-2 Satisfactory grade
quality

MIG4/VMIG4 Adequate
quality

SG Speculative grade SP-3 Speculative grade

Commercial Paper P-1 Superior quality A-1+ Extremely strong
quality

A-1 Strong quality

P-2 Strong quality A-2 Satisfactory quality

P-3 Acceptable quality A-3 Adequate quality

B Speculative quality

Not Prime C Doubtful quality

<PAGE>

HORACE MANN LIFE INSURANCE COMPANY
P.O. BOX 4657
SPRINGFIELD IL 62708-4657
(800) 999-1030 (TOLL FREE)

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) 535-7123.

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,
P.O. Box 4657, Springfield, Illinois 62708-4657 or by telefacsimile (FAX)
transmission to (217) 535-7123.

ADDITIONAL INFORMATION

Additional Information about the Fund's investments is available in the
Fund's annual and semi-annual report to Shareholders. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. The shareholder reports are incorporated by reference into this
Prospectus, which means that they are part of this Prospectus for legal
purposes.
The SAI contains more detailed information about the Fund and the
Portfolios. The current SAI has been filed with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus, which means
that it is part of this Prospectus for legal purposes.

To receive, without charge, a copy of the annual and/or semi-annual
reports of the Horace Mann Family of Funds and/or a copy of the Statement of
Additional Information for the Horace Mann Mutual Funds, please complete the
following request form and mail it to the address indicated below, or send it by
telefacsimile (FAX) transmission to (217) 535-7123 or telephone (217) 789-2500
or (800) 999-1030 (toll-free).

Horace Mann Mutual Funds
P.o. Box 4657
Springfield, Illinois 62708-4657
Please provide free of charge the following information:
______ 1998 Annual Report of the Horace Mann Mutual Funds
_____ Statement of Additional Information dated May 1, 1999, as supplemented
from time to time, for the Horace Mann Mutual Funds.

Please mail the above documents to:

___________________________________
(Name)
___________________________________
(Address)
___________________________________

(City/State/Zip)
Information about the Fund (including the SAI) can be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Also, information
on the operation of the public reference room may be obtained by calling the
Commission at 1-800-SEC-0330. Reports and other information about the Fund are
available on the SEC's Internet site at http://www.sec.gov and copies of this
information may be obtained, upon payment of a duplicating fee, by writing the
Public Reference Section of the SEC Washington, D.C. 20549-6009.

No person has been authorized to give any information or to make any
representations not contained in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Fund or its distributor. The Prospectus does not constitute an offering
by the Fund or its distributor in any jurisdiction in which such offering may
not lawfully be made.

Investment Company Act File No.: 811-07917

IA-004389(5/99)

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

HORACE MANN MUTUAL FUNDS

This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the current Prospectus, dated May 1, 1999, as
supplemented from time to time. The financial statements for the Growth Fund,
Balanced Fund, Income Fund, Short-Term Investment Fund, Small Cap Growth Fund,
International Equity Fund and Socially Responsible Fund for the year ended
December 31, 1998, and the Report of Independent Auditors thereon, are
incorporated herein by reference from the Funds' Annual Report dated December
31, 1998. Copies of the Prospectus and the Funds' financial statements may be
obtained by writing to the Horace Mann Mutual Funds, P.O. Box 4657, Springfield,
Illinois 62708-4657, by sending a telefacsimile (FAX) transmission to (217)
535-7123, or by telephoning (217) 789-2500 or (800) 999-1030 (toll-free).

May 1, 1999

<PAGE>

TABLE OF CONTENTS
------------------

TOPIC PAGE

THE TRUST AND THE FUNDS..................................................1

ADDITIONAL INVESTMENT POLICIES...........................................1
Growth Fund.....................................................1
Balanced Fund...................................................2
Income Fund.....................................................2
Short-Term Investment Fund......................................2
Small Cap Growth Fund...........................................2
International Equity Fund.......................................2
Socially Responsible Fund.......................................2

INVESTMENT RESTRICTIONS..................................................3

INCOME FUND - BENCHMARK..................................................5

MANAGEMENT OF THE FUNDS..................................................6
Board of Trustees...............................................6
Officers .......................................................7
Compensation Table..............................................7

INVESTMENT ADVISORY AGREEMENTS...........................................8

BROKERAGE ALLOCATION.....................................................9

OTHER SERVICES..........................................................10

PURCHASE, REDEMPTION AND PRICING OF FUND SHARES.........................11

TAX STATUS..............................................................11

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.....................13

GENERAL INFORMATION.....................................................15

FINANCIAL STATEMENTS....................................................15

Appendix A: Description of Commercial Paper and Bond Ratings ..........A-1
Appendix B: Description of Securities and Risks........................B-1

<PAGE>

THE TRUST AND THE FUNDS

The Trust is an open-end, diversified, management investment company
organized as a Delaware business trust under a Declaration of Trust dated
November 7, 1996. The Declaration of Trust permits the Trust to offer shares of
separate funds. All consideration received by the Trust for shares of any fund
and all assets of such fund belong to that fund and would be subject to
liabilities related thereto. The Trust reserves the right to create and issue
shares of funds in addition to the Funds described herein.

The Trust employs Wilshire Associates Incorporated (the "Adviser") to
manage the investment and reinvestment of the assets of the Funds and to
continuously review, supervise and administer the Funds' investment programs.
The Adviser has entered into agreements with Brinson Partners, Inc., Mellon
Equity Associates, LLP and Wellington Management Company, LLP to act as
subadvisers for the Growth Fund and the equity portion of the Balanced Fund,
with Wellington Management Company, LLP to act as the subadviser for the Income
Fund, the fixed income portion of the Balanced Fund and the Short-Term
Investment Fund, with BlackRock Financial Management, Inc. to act as the
subadviser for the Small Cap Growth Fund and with Scudder Kemper Investments,
Inc. to act as the subadviser for the International Equity Fund and the Socially
Responsible Fund. Upon implementation of the fund of funds structure the Adviser
will allocate the Balanced Fund's assets between the Growth Fund and Income
Fund.

The investment objectives and policies of each Fund are described in the
prospectus. 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.

Each Fund seeks to attain its objective 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.

Each Fund has also adopted certain fundamental investment limitations
that, along with its objective, may be changed only with the approval of a
"majority of the outstanding shares of a Fund" as defined in the Investment
Company Act of 1940 (the "1940 Act").

ADDITIONAL INVESTMENT POLICIES

The following is a discussion of additional investment policies not
discussed in the Trust's Prospectus.

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
Fund will not invest in securities subject to restrictions on disposition under
the Securities Act of 1933 (the "1933 Act") or purchase securities not freely
marketable.

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 1997 and 1998, the Growth Fund's portfolio turnover rates were
54.56% and 59.63%, respectively. Although it is impossible to predict with
certainty the Growth Fund's ongoing portfolio turnover rate, the subadviser
expects that, under normal circumstances, it will be less than 100% each year.

<PAGE>

BALANCED FUND

During 1997 and 1998, the Balanced Fund's portfolio turnover rates were
77.54% and 63.69%, respectively. The annual turnover rates of the common stock
portion of the Balanced Fund's portfolio for 1997 and 1998 were 60.04% and
63.25%, respectively, and for the fixed income portion for 1997 and 1998 were
102.07% and 64.37%, respectively. Although it is impossible to predict with
certainty the Balanced Fund's ongoing portfolio turnover rate, the subadvisers
expect 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 subadvisers' desire to optimize
rates of return during such periods.

INCOME FUND

As a matter of investment policy, the Income Fund will not invest more
than 10% of its net assets in illiquid securities or invest in restricted
securities, except securities eligible for resale under Rule 144A under the 1933
Act.

Instead of holding its entire portfolio to maturity, the Income Fund
will engage in portfolio trading when trading will help achieve its investment
objective. Portfolio turnover is expected to be moderate.

During 1997 and 1998, the Income Fund's portfolio turnover rates were
96.80% and 46.60%, respectively. Although it is impossible to predict with
certainty the Income Fund's ongoing portfolio turnover rate, the subadviser
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 subadviser's desire to optimize
rates of return during such periods.

SHORT-TERM INVESTMENT FUND

The Short-Term Investment Fund will not invest in securities subject to
restriction on disposition under the 1933 Act nor purchase securities not freely
marketable. There is no turnover information for the Short-Term Fund as it holds
its securities for less than one year.

SMALL CAP GROWTH FUND

During 1997, the first year of investment operations, and 1998, the
Small Cap Growth Fund's portfolio turnover rate was 91.49% and 168.31%,
respectively. Although it is impossible to predict with certainty the Small Cap
Growth Fund's turnover rate, the subadviser expects that under normal
circumstances it will be less than 150% each year.

INTERNATIONAL EQUITY FUND

During 1997, the first year of investment operations, and 1998, the
International Equity Fund's portfolio turnover rate was 31.99% and 57.71%,
respectively. Although it is impossible to predict with certainty the
International Equity Fund's ongoing portfolio turnover rate, the subadviser
expects that under normal circumstances it will be less than 150% each year.

SOCIALLY RESPONSIBLE FUND

During 1997, the first year of investment operations, and 1998, the
Socially Responsible Fund's portfolio turnover rate was 20.85% and 41.63%,
respectively. Although it is impossible to predict with certainty the Socially
Responsible Fund's ongoing portfolio turnover rate, the subadviser expects that
under normal circumstances it will be less than 150% each year.

<PAGE>

INVESTMENT RESTRICTIONS

Each Fund operates under its respective fundamental investment
restrictions, set forth below, which, along with each Fund's objective,
cannot be changed without the approval of a "majority of the outstanding voting
securities." A "majority of the outstanding voting securities" of a Fund is
defined in the 1940 Act to mean the lesser of (i) 67% of the Fund's shares
present at a meeting where more than 50% of the outstanding shares are present
in person or by proxy or (ii) more than 50% of the Fund's outstanding shares.

The Growth Fund, Balanced Fund, Income Fund and Short-Term Investment
Fund each may not:

(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 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, or, for the Balanced Fund
only, any security issued by an investment company or series thereof) 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 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

<PAGE>

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;

(10) mortgage, pledge or hypothecate its assets except in an amount up
to 15% (10% so 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) purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts;

(12) invest in companies for the purpose of exercising control; or

(13) invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of assets, and
except that during any period in which the Balanced Fund operates as a "fund of
funds" in accordance with the Prospectus and applicable law, the Balanced Fund
may purchase without limit shares of the Growth Fund, the Income Fund, and any
other mutual fund currently existing or hereafter created whose investment
adviser is the Balanced Fund's adviser or an affiliate thereof, or the
respective successors in interest of any such mutual fund or adviser.

The Growth Fund and Short-Term Investment Fund each may not:

(14) 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.

The Balanced Fund and Income Fund each may not:

(15) Underwrite the securities of other issuers, invest more than 10%
of its net assets in illiquid securities or invest in securities subject to
restriction on disposition under the Securities Act of 1933, except for
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933.

The Small Cap Growth Fund, International Equity Fund and Socially
Responsible Fund each may not:

(1) act as an underwriter of securities, except insofar as it may be
deemed an underwriter for purposes of the Securities Act of 1933 on disposition
of securities acquired subject to legal or contractual restrictions on resale;

(2) purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate or interests therein), commodities, or commodity
contracts, except that it may enter into (a) futures and options on futures and
(b) forward currency contracts;

(3) make loans, but this restriction shall not prevent the Fund from
(a) buying a part of an issue of bonds, debentures, or other obligations, (b)
investing in repurchase agreements, or (c) lending portfolio securities,
provided that it may not lend securities if, as a result, the aggregate value of
all securities loaned would exceed 33 1/3% of its total assets (taken at market
value at the time of such loan);

(4) borrow, except that it may (a) borrow up to 33 1/3% of its total
assets, taken at market value at the time of such borrowing, as a temporary
measure for extraordinary or emergency purposes, but not to increase portfolio
income (the total of reverse repurchase agreements and such borrowings will not
exceed 33 1/3% of its total assets, and the Fund will not purchase additional
securities when its borrowings, less proceeds receivable from sales of portfolio
securities, exceed 5% of its total assets) and (b) enter into transactions in
options, futures, and options on futures;

(5) invest in a security if 25% or more of its total assets (taken at
market value at the time of a particular purchase) would be invested in the
securities of issuers in any particular industry, except that this restriction
does not apply to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; or

<PAGE>

(6) issue any senior security except to the extent permitted under the
Investment Company Act of 1940.

The Small Cap Growth Fund, International Equity Fund and Socially
Responsible Funds are also subject to the following nonfundamental restrictions
and policies, which may be changed by the Board of Trustees. Each Fund may not:

(a) invest in companies for the purpose of exercising control
or management;

(b) purchase, except for securities acquired as part of a
merger, consolidation or acquisition of assets, more than 3% of the stock of
another investment company or purchase stock of other investment companies equal
to more than 5% of the Fund's total assets (valued at time of purchase) in the
case of any one other investment company and 10% of such assets (valued at time
of purchase) in the case of all other investment companies in the aggregate;

(c) mortgage, pledge, or hypothecate its assets, except as
may be necessary in connection with permitted borrowings or in connection with
options, futures, and options on futures;

(d) purchase securities on margin (except for use of
short-term credits as are necessary for the clearance of transactions), or sell
securities short unless (i) the Fund owns or has the right to obtain securities
equivalent in kind and amount to those sold short at no added cost or (ii) the
securities sold are "when issued" or "when distributed" securities which the
Fund expects to receive in a recapitalization, reorganization, or other exchange
for securities the Fund contemporaneously owns or has the right to obtain and
provided that transactions in options, futures, and options on futures are not
treated as short sales;

(e) invest more than 15% of its net assets (taken at market
value at the time of a particular investment) in illiquid securities, including
repurchase agreements maturing in more than seven days; and

(f) hedge by purchasing put and call options, futures
contracts, or derivative instruments on securities, in an aggregate amount
equivalent to more than 10% of its total assets.

For the Balanced Fund and Income Fund, 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.

INCOME FUND - BENCHMARK

The Lehman Brothers Aggregate Index covers the U.S. investment grade
fixed rate bond market, including government and corporate securities, agency
mortgage pass-through securities, and asset-backed securities. These major
sectors are subdivided into more specific indices that are calculated and
reported on a regular basis.

To qualify for inclusion in the Aggregate Index, a bond or security
must meet certain criteria:

* It must have at least one year to final maturity regardless of call
features. Asset-backed securities must have a remaining average life of at least
one year while mortgages must have a weighted average maturity (WAM) of at least
one year. There is no limit on final maturity; bonds with 50- and 100-year
maturities may be included in the Aggregate Index.

* It must have at least $100 million par amount outstanding. The amount
outstanding may differ from the original issue size due to various factors,
including reopenings, sinking schedules, partial calls, and prepayments.

<PAGE>

* It must be rated investment grade (Baa3 or better) by Moody's
Investors Service (unless it is a U.S. government or agency security, which are
generally not formally rated). If a Moody's rating is unavailable, then the
Standard and Poor's Corporation rating is used. If neither is available, then
the Fitch Investor's Service rating is used. This implies that the index may
include bonds that are split-rated. A bond rated Baa3 by Moody's and BB+ by
S & P would be included; however, if Moody's assigns a rating below investment
grade the bond will be excluded even if the S & P or Fitch rating is BBB-
or better.

* It must be fixed rate, although it can carry a coupon that steps up
or changes according to a predetermined schedule. Adjustable or floating rate
securities with periodic coupon changes based on changes in market rates are
excluded. Stripped securities created from coupon securities are excluded, while
the underlying coupon security is included. Zero coupon bonds may be included.
Medium-term notes are included only if they were underwritten issues and meet
other eligibility criteria.

* It must be dollar-denominated and nonconvertible. All corporate and
asset-backed securities must be registered with the Securities and Exchange
Commission ("SEC").

* It must be publicly issued. Private placement securities including
144A securities are excluded.

Generally speaking, the Aggregate Index does not include securities
with esoteric or one-of-a-kind features such as structured notes or range notes
with coupons that depend on movements in market rates.

MANAGEMENT OF THE FUNDS

A listing of the Trustees and Officers of the Trust, their ages, their
addresses, their principal occupations for the past five years and their
affiliation with other companies affiliated with Horace Mann Life Insurance
Company is presented below.

<TABLE>
<CAPTION>
<S> <C> <C>
NAME, AGE POSITION
AND ADDRESS WITH COMPANY PRINCIPAL OCCUPATIONS

*A. Thomas Arisman (52) (1) Trustee Senior Vice President, Horace Mann
P.O. Box 4657 Life Insurance Company and Horace Mann
Springfield, IL 62708-4657 Service Corporation; Director and President,
Horace Mann Investors, Inc.; positions with
Horace Mann Educators Corporation and its subsidiaries;
former Trustee, Horace Mann Mutual Funds (1996-1997);
and former Director, Horace Mann Growth Fund, Inc.
(1989-1997), Horace Mann Balanced Fund, Inc.
(1989-1997), Horace Mann Income Fund, Inc. (1989-1997)
and Horace Mann Short-Term Investment Fund, Inc.
(1989-1997).

A.L. Gallop (73) Trustee Executive Director (Retired), Minnesota Education
P.O. Box 4657 Association; formerly Director, Horace Mann Educators
Springfield, IL 62708-4657 Corporation (1968-1983); and former Director, Horace
Mann Growth Fund, Inc. (1957-1997), Horace Mann
Balanced Fund, Inc. (1983-1997), Horace Mann Income
Fund, Inc. (1983-1997), and Horace Mann Short-Term
Investment Fund, Inc. (1983-1997).

Richard A. Holt (57) (2) Trustee Senior Relationship Manager (Retired), Scudder
P.O. Box 4657 Insurance Asset Management.
Springfield, IL 62708-4657

Richard D. Lang (67) (3) Trustee Executive Director (Retired), Vermont National
P.O. Box 4657 Education Association; formerly member of Horace Mann
Springfield, IL 62708-4657 Educators Corporation Educator Advisory Board; and
former Director, Horace Mann Growth Fund, Inc. (1997),
Horace Mann Balanced Fund, Inc. (1997), Horace Mann
Income Fund, Inc. (1997) and Horace Mann Short-Term
Investment Fund, Inc. (1997).

Harriet A. Russell (57) Trustee Member, Cincinnati Board of Education; Director and
Vice President, Greater Cincinnati School Employer
Credit Union; teacher (Retired), Walnut Hills High
School; formerly Director, Horace Mann Growth Fund
(1974-1983 and 1992-1997), Horace Mann Balanced Fund,
Inc. (1992-1997), Horace Mann Investment Fund, Inc.
(1992-1997), and Horace Mann Short-Term Investment
Fund, Inc. (1992-1997).

<PAGE>
<CAPTION>
*George J. Zock (48) (1) Trustee and President Director, Executive Vice President, Horace Mann Life
P.O. Box 4657 Insurance Company and Horace Mann Service Corporation;
Springfield, IL 62708-4657 Director, Horace Mann Investors, Inc.; and positions
with Horace Mann Educators Corporation and its
subsidiaries; former Director, Horace Mann Growth Fund,
Inc. (1995-1997), Horace Mann Balanced Fund, Inc.
(1995-1997), Horace Mann Income Fund, Inc. (1995-1997),
and Horace Mann Short-Term Investment Fund, Inc.
(1995-1997).

Ann M. Caparros (46) Secretary and Ethics Director, Vice President, and Corporate Secretary,
P.O. Box 4657 Compliance Officer Horace Mann Life Insurance Company and Horace Mann
Springfield, IL 62708-4657 Service Corporation; Secretary, Horace Mann Investors,
Inc.; and positions with Horace Mann Educators
Corporation and its subsidiaries; prior to March 1994,
was associated with John Deere Insurance Group and
Affiliates serving as Vice President and General
Counsel.

Roger W. Fisher (46) Controller Senior Vice President Financial Information and
P.O. Box 4657 Control, Horace Mann Life Insurance Company and Horace
Springfield, IL 62708-4657 Mann Service Corporation; Controller, Horace Mann
Investors, Inc.; and positions with Horace Mann
Educators Corporation and its subsidiaries.

William J. Kelly (52) Treasurer and Regulatory Treasurer, Horace Mann Investors, Inc.; Vice President,
P.O. Box 4657 Compliance Officer Horace Mann Life Insurance Company; and Vice President-
Springfield, IL 62708-4657 Transfer Agent, Horace Mann Service Corporation.

* Interested person as defined by the 1940 Act by reason of a position as a
director of a broker-dealer or an officer of the Fund.

(1) Messrs. Arisman and Zock are employees and shareholders of an affiliate of
the Administrator of the Trust and, therefore, are considered an affiliate
of the Administrator.

(2) From 1972-1997, Mr. Holt was an employee of Scudder Kemper Investments, Inc.
(and of its predecessor, Scudder, Stevens & Clark, Inc.), the subadviser to
the International Equity Fund and the Socially Responsible Fund. Mr. Holt
and his family participate in Scudder Kemper's medical and benefit plans
available to former employees. Mr. Holt does not have an ongoing
relationship with Scudder Kemper.

(3) Mr. Lang is a shareholder of an affiliate of the Administrator of the Trust.
</TABLE>
The Officers of the Trust receive remuneration from Horace Mann Service
Corporation. The Trust does not pay any remuneration to its officers. The Trust
pays each Independent Trustee who is not an officer, director, employee or
holder of 5 percent or more of the outstanding voting securities of the
Administrator or any of its affiliates a $1,000 annual retainer, $1,000 for each
meeting of the Trust, $200 for each committee meeting and $500 for each
telephonic meeting. For the fiscal year ended December 31, 1998, the Independent
Trustees fees totaled $20,200 for each Fund.

COMPENSATION TABLE

The following table sets forth the compensation earned from the Trust
for the fiscal year ended December 31, 1998 by trustees entitled to receive
compensation from the Trust.

AGGREGATE PENSION RETIREMENT ESTIMATED ANNUAL TOTAL
COMPENSATION BENEFITS ACCRUED AS BENEFITS UPON COMPENSATION
TRUSTEE FROM THE TRUST PART OF FUND EXPENSES RETIREMENT FOR THE COMPLEX
- ------- -------------- --------------------- ---------- ---------------
<S> <C> <C> <C> <C>
A. L. Gallop 5,200 N/A N/A 5,200
Donald G. Heth 2,000 N/A N/A 2,000
Richard A. Holt 3,000 3,000
Richard D. Lang 5,000 N/A N/A 5,000
Harriet A. Russell 5,000 N/A N/A 5,000

</TABLE>

<PAGE>

As of the date of this Statement of Additional Information, the
Trustees and Officers of the Trust held in the aggregate directly and
beneficially less than 1% of the outstanding shares of Growth Fund. Trustees and
Officers do not directly own any shares of Balanced Fund, Income Fund,
Short-Term Fund, Small Cap Growth Fund, International Equity Fund or Socially
Responsible Fund; however, they may invest indirectly in the Growth Fund,
Balanced Fund, Income Fund, Short-Term Fund, Small Cap Growth Fund,
International Equity Fund and/or Socially Responsible Fund through annuity
contracts issued by Horace Mann Life Insurance Company and the 401(k) plan of
Horace Mann Service Corporation of which no one person beneficially owns more
than 1%.

INVESTMENT ADVISORY AGREEMENTS

INVESTMENT ADVISORY AGREEMENT - As stated in the Prospectus, the Trust
employs Wilshire Associates Incorporated (the "Adviser") to manage the
investment and reinvestment of the assets of the Funds and to continuously
review, supervise and administer the Funds' investment programs under an
Investment Advisory Agreement dated March 1, 1999 (the "Investment Advisory
Agreement"). The Adviser is controlled by Dennis A. Tito who beneficially owns
a majority of the outstanding shares of the Adviser. The Adviser's duties under
the Investment Advisory Agreement include recommending to the Board of
Trustees one or more unaffiliated subadvisers to provide a continuous investment
program for each Fund or a portion of such Fund's assets designated from time to
time by the Adviser, including investment, research, and management with respect
to all securities and investments and cash equivalents for the Fund or a
designated portion of such Fund's assets. The Adviser also reviews, monitors,
and reports to the Board of Trustees regarding the performance and investment
procedures of each subadviser and assists and consults with each subadviser in
connection with the Fund's continuous investment program. In addition, the
Adviser maintains books and records with respect to its services under the
Investment Advisory Agreement and furnishes the Board of Trustees with such
periodic special reports as the Board may request.

The Adviser selects investment subadvisers based on a continuing
quantitative and qualitative evaluation of their skills and proven abilities in
managing assets pursuant to a particular investment style. Short-term
performance is not by itself a significant factor in selecting or terminating
investment subadvisers, and therefore the Adviser does not anticipate frequent
changes in the investment subadvisers. These managers have been selected upon
the basis of a due diligence process which focuses upon, but is not limited to,
the managers' philosophy and process, people and organization, resources, and
performance.

The Adviser monitors the performance of each investment subadviser
of the Funds and, to the extent it deems appropriate to achieve the Funds'
investment objective, reallocates assets among individual subadvisers or
recommends that the Funds employ or terminate particular investment subadvisers.

The Investment Advisory Agreement continues in effect for each Fund
from year to year for so long as its continuation is approved at least annually
(a) by a majority of the trustees who are not parties to such agreement or
interested persons of any such party except in their capacity as trustees of the
Fund and (b) by the shareholders of the Fund or the Board of Trustees. The
agreement may be terminated at any time upon 60 days notice by either party; the
Trust may so terminate the agreement either by vote of the Board of Trustees or
by a majority vote of the outstanding

<PAGE>

voting shares of the subject Fund if the Adviser were determined to have
breached the agreement. The agreement would terminate automatically upon
assignment.

For the services provided and the expenses assumed pursuant to the
Investment Advisory Agreement, the Adviser would receive a fee based on each
Fund's average daily net assets, computed daily and payable monthly, at the
following annual rates:

FUND RATE
---- ----
Growth Fund......................... 0.400%
Balanced Fund....................... 0.400%*
Income Fund......................... 0.400%
Short-Term Investment Fund.......... 0.125%
Small Cap Growth Fund............... 1.150%
International Equity Fund........... 0.850%
Socially Responsible Fund........... 0.700%
- -----------

* As discussed in the Prospectus, upon receipt of regulatory approvals
the Balanced Fund will operate under a fund of funds structure,
primarily investing in shares of the Growth Fund and the Income Fund.
The Adviser will only receive directly from the Balanced Fund a fee of
0.400% of the average daily net assets of the Balanced Fund that are
not invested in another Fund.

For the period ended December 31, 1997, the Growth Fund, Balanced Fund,
Income Fund, Short-Term Investment Fund, Small Cap Growth Fund, International
Equity Fund and Socially Responsible Fund paid Horace Mann Investors
("Investors"), the former manager of the Funds, $1,837,353, $1,156,057, $30,515,
$2,783, $81,785, $22,648 and $31,879, respectively, for advisory and
administrative services under a Management Agreement with the Trust. From these
amounts, Investors paid the subadvisers for the subadvisory services provided
to the Funds $1,074,936, $656,088, $16,478, $2,783, $81,785, $22,648, and
$31,879, respectively, and Investors retained $762,417, $499,969, $14,037, $0,
$0, $0 and $0 for the Growth Fund, Balanced Fund, Income Fund, Short-Term
Investment Fund, Small Cap Growth Fund, International Equity Fund and Socially
Responsible Fund, respectively.

For the fiscal year ended December 31, 1998, the Growth Fund, Balanced Fund,
Income Fund, Short-Term Investment Fund, Small Cap Growth Fund, International
Equity Fund and Socially Repsonsible Fund paid Investors $3,119,207, $1,918,958,
$51,426, $4,501, $297,498, $83,098 and $195,348, respectively, for its advisory
and administrative services under a Management Agreement with the Trust. From
these amounts, Investors paid the subadvisers for the subadvisory services
provided to the Funds $1,804,368, $1,076,027, $28,297, $4,501, $297,498,
$83,098, and $195,348 respectively, and Investors retained $1,314,839, $842,931,
$23,129, $0, $0, $0 and $0 for the Growth Fund, Balanced Fund, Income Fund,
Short-Term Investment Fund, Small Cap Growth Fund, International Equity Fund
and Socially Responsible Fund, respectively.

SUBADVISERS - Each of the Investment Subadvisory Agreements provides that
neither the subadviser nor any of its directors, officers, stockholders, agents
or employees shall have any liability to the Fund or any shareholder of the Fund
for any error of judgment, mistake of law, or any loss arising out of any
investment, or for any other act or omission in the performance by the
subadviser of its duties under the Agreement except for liability resulting from
willful misfeasance, bad faith, or negligence on its part in the performance of
its duties or from reckless disregard by it of its obligations and duties under
the Agreement. Each of the Investment Subadvisory Agreements continue for the
same term as the advisory agreement and are subject to the same requirements for
renewal.

BROKERAGE ALLOCATION

The Investment Advisory Agreement and the Investment Subadvisory
Agreements authorize the Adviser and the subadvisers, respectively (collectively
the "Advisers") (subject to the discretion and control of the Trust's Board of
Trustees) to select the brokers or dealers that will execute the purchases and
sales of portfolio securities and direct the Advisers to use their best efforts
to obtain the best available price and most favorable execution. Subject to
policies established by the Trustees of the Trust, the Advisers may also be
authorized to effect individual securities transactions at commission rates in
excess of the minimum commission rates available, if an Adviser determines in
good faith that such amount of commission is reasonable in relation to the value
of the brokerage or research services provided, viewed in terms of either the
particular transaction or the Adviser's overall responsibilities with respect to
the Fund and other clients.

In placing portfolio transactions, each of the Advisers will use its best
judgment to choose the broker most capable of providing the brokerage services
necessary to obtain best available price and most favorable execution. The full
range and quality of brokerage services available will be considered in making
these determinations. In those instances where it is reasonably determined that
more than one broker can offer the brokerage services needed to obtain the best
available price and most favorable execution, consideration may be given to
those brokers which supply investment research and other services in addition to
execution services. Such services may include factual and statistical
information or other

<PAGE>

items of supplementary research assistance. Each of the Advisers considers such
information useful in the performance of its obligations under the advisory
agreements, but is unable to determine the amount by which such services may
reduce its expenses. In addition, within the parameters of achieving best price
and execution, brokerage services may be used to generate commission credits
which are used to pay for pricing agent and custodial services. See, "Other
Services - Fund Pricing Agreements and Custodial Agreement."

Each of the Advisers is authorized to consider for investment by a Fund
securities that may also be appropriate for other funds and/or clients served by
the Advisers. To assure fair treatment of each fund and all clients of the
Advisers in situations in which two or more clients' accounts participate
simultaneously in a buy or sell program involving the same security, such
transactions will be allocated among the Funds and clients in a manner deemed
equitable by the Advisers.

To the extent directed by management of the Funds in writing, the Adviser
will direct one or more Subadvisers to execute purchases and sales of portfolio
securities for a fund through brokers or dealers designated by management of
the Fund to the Adviser for the purpose of providing direct benefits to the
Fund, provided that the Subadviser determines that such brokers or dealers
will provide reasonable execution in view of such other benefits. Brokerage
commissions or transaction costs in such transactions may be higher, and the
Fund may receive less favorable prices, then those which a Subadviser could
obtain from another broker or dealer, in order to obtain such benefits for the
Fund.

The Growth Fund paid brokerage fees of $800,459, $807,563 and
$1,019,513 in the fiscal years ended December 31, 1996, 1997 and 1998,
respectively; the Balanced Fund paid brokerage fees of $379,354, $364,698 and
$398,985 for those same respective periods. The Income Fund and the Short-Term
Fund paid no brokerage fees.

The Small Cap Growth Fund paid brokerage fees of $10,574 and $25,715 in
the fiscal years ended December 31, 1997 and 1998, respectively; The
International Equity Fund paid brokerage fees of $19,510 and $25,907 and the
Socially Responsible Fund paid brokerage fees of $6,429 and $33,889 for the same
periods. The Small Cap Growth Fund, International Equity Fund and Socially
Responsible Fund commenced investment operations on March 10, 1997.

Where multiple brokers are deemed to be able to provide best execution,
brokerage commissions may be allocated to such brokers on the basis of their
ability to provide research. For the fiscal year ended December 31, 1998, the
Growth Fund and Balanced Fund paid commissions dollars to such brokers in the
amount of $116,796 and $62,310, respectively. Total brokerage fees paid during
a year will vary with turnover rates.

OTHER SERVICES

FUND PRICING AGREEMENTS - Effective January 1, 1997, the Trust entered
into an agreement with State Street Bank and Trust Company ("State Street"), a
national banking association located at 225 Franklin Street, Boston,
Massachusetts 02110, to calculate the daily net asset value per share for each
Fund and to maintain certain required accounting records.

The Growth and Balanced Funds may compensate State Street Bank for these
services directly or through a commission credit arrangement with Frank Russell
Securities, Inc. The Adviser places trades for the Growth and Balanced Funds
with Frank Russell Securities, Inc., subject to its obligation to obtain the
best available price and most favorable execution. Investors directly
compensates State Street for pricing and accounting services provided to the
Short-Term Investment Fund.

<PAGE>

CUSTODIAL AGREEMENT - State Street Bank also serves as custodian of the
assets of each Fund, including foreign securities through a subcustodian
relationship. Under the Custodial Agreement, State Street maintains each Fund's
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 Growth and Balanced Funds may compensate State Street for these
services directly or through a commission credit arrangement with Frank Russell
Securities, Inc. The Adviser places trades for the Growth and Balanced Funds
with Frank Russell Securities, Inc., subject to its obligation to obtain the
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 its name, subject to HMEC's right to revoke that permission.

INDEPENDENT AUDITORS - KPMG, LLP, 303 East Wacker Drive, Chicago,
Illinois 60601, serves as the Trust's independent auditors. KPMG, LLP performs
an annual audit of the financial statements of each Fund 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
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. Trading in securities on exchanges and
over-the-counter markets in Europe and the Far East is normally completed at
various times prior to 3:00 p.m. Chicago time, the current closing time of the
New York Stock Exchange. Trading on foreign exchanges may not take place on
every date the New York Stock Exchange is open. Conversely, trading in various
foreign markets may take place on days when the New York Stock Exchange is not
open and on other days when the International Equity Fund's net asset value is
not calculated. Consequently, calculation of the net asset value for the
International Equity Fund may not occur at the same time as determination of the
most current market prices of the securities included in the calculation; and
the value of the net assets held by the International Equity Fund may be
significantly affected on days when shares are not available for purchase or
redemption.

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 Trustees.

TAX STATUS

It is intended that each of the Funds will qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended ("Code").
In order to qualify as a regulated investment company under the Code, Funds
must, among other things, (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to

<PAGE>

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)
distribute at least 90% of its net investment income which includes short-term
capital gains and (c) 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).

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 Section
817(h) of the Code. These diversification requirements, which apply in addition
to the diversification requirements imposed on the Funds 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 in part, in the Fund will be currently taxable
to the variable contract owners.

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 net investment income to its shareholders. A 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 capital losses) that are distributed
as capital gain dividends. If, however, shares of a Fund are sold at a loss
after being held six months or less, such loss will be considered a long-term
capital loss to the extent of any capital gains distributions on such shares.

A Fund's options, futures and foreign currency transactions are subject
to special tax provisions that may accelerate or defer recognition of certain
gains or losses, change the character of certain gains or losses, or alter the
holding periods of certain of a Fund's securities.

The mark-to-market rules of the Code may require a Fund to recognize
unrealized gains and losses on certain options and futures held by the Fund at
the end of the fiscal year. Under these provisions, 60% of any capital gain net
income or loss recognized will generally be treated as long-term and 40% as
short-term. However, although certain forward contracts and futures contracts on
foreign currency are marked-to-market, the gain or loss is generally ordinary
under Section 988 of the Code. In addition, the straddle rules of the Code would
require deferral of certain losses realized on positions of a straddle to the
extent that a Fund had unrealized gains in offsetting positions at year end.

Foreign exchange gains and losses realized by the International Equity
Fund in connection with certain transactions that involve foreign
currency-denominated debt securities, certain foreign currency options, foreign
currency forward contracts, foreign currencies, or payables or receivables
denominated in a foreign currency are subject to Section 988 of the Code, which
generally causes such gains and losses to be treated as ordinary income and
losses and may affect the amount, timing, and character of distributions to
shareholders. For example, if the Fund sold a foreign stock or bond and part of
the gain or loss on the sale was attributable to an increase or decrease in the
value of a foreign currency, then the currency gain or loss may be treated as
ordinary income or loss. If such transactions result in higher net ordinary
income, the dividends paid by the Fund will be increased; if the result of such
transactions is lower net ordinary income, a portion of dividends paid could be
classified as a return of capital.

The International Equity Fund may qualify for and make an election
permitted under the "pass through" provisions of Section 853 of the Code, which
allows a regulated investment company to have its foreign tax credit taken by
its shareholders instead of on its own tax return. To be eligible for this
credit, more than 50% of the value of the Fund's total assets at the close of
its taxable year must consist of stock or other securities in foreign
corporations, and the Fund must have distributed at least 90% of its taxable
income.

<PAGE>

If the International Equity Fund makes this election, it may not take any
foreign tax credit, and may not take a deduction for foreign taxes paid.
However, the Fund is allowed to include the amount of foreign taxes paid in a
taxable year in its dividends paid deduction. Each shareholder would then
include in its gross income, and treat as paid by it, his proportionate share of
the foreign taxes paid by the Fund.

Investment income derived from foreign securities may be subject to
foreign income taxes withheld at the source. Because the amount of a Fund's
investments in various countries will change from time to time, it is not
possible to determine the effective rate of such taxes in advance.

If the U.S. government were to impose any restrictions, through taxation
or other means, on foreign investments by U.S. investors such as those to be
made through the portfolio, the Board of Trustees of the Fund will promptly
review the policies of the International Equity Fund to determine whether
significant changes in its investments are appropriate.

Non-U.S. investors not engaged in a U.S. trade or business with which
their investment in the International Equity Fund is effectively connected will
be subject to U.S. federal income tax treatment that is different from that
described above and in the prospectus. Such investors may be subject to
nonresident alien withholding tax at the rate of 30% (or a lower rate under an
applicable tax treaty) on amounts treated as ordinary dividends from the Fund
and, unless an effective IRS Form W-8 or authorized substitute for Form W-8 is
on file, to 31% backup withholding on certain other payments from the Fund.
Non-U.S. investors should consult their tax advisers regarding such treatment
and the application of foreign taxes to an investment in the Fund.

The above discussion is only an abbreviated summary of the applicable
provisions of the Code and is not intended as tax advice.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

The following table sets forth, as of March 31, 1999, 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.

TYPE OF SHARES % OF SHARE
OWNERSHIP OWNED OUTSTANDING
GROWTH FUND:

<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 22,473,025 81.7

BALANCED FUND:

INCOME FUND:

<PAGE>

<CAPTION>
TYPE OF SHARES % OF SHARE
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 1,024,523 94.4
(b) Horace Mann Service Corporation 401k..................... Record 60,784 5.6

SHORT-TERM FUND:

Horace Mann Life Insurance Company
One Horace Mann Plaza
Springfield, Illinois 62715
(a) Horace Mann Life Insurance Company Separate
Account.................................................. Record 176,630 90.4
(b) Horace Mann Life Insurance Company (depositor)........... Record 10,000 5.1

SMALL CAP GROWTH FUND:

Horace Mann Life Insurance Company
One Horace Mann Plaza
Springfield, Illinois 62715
(a) Horace Mann Life Insurance Company Separate
Account.................................................. Record 2,054,188 85.3
(b) Horace Mann Service Corporation 401k..................... Record 255,532 10.6

INTERNATIONAL EQUITY FUND:

Horace Mann Life Insurance Company
One Horace Mann Plaza
Springfield, Illinois 62715
(a) Horace Mann Life Insurance Company Separate
Account.................................................. Record 782,439 77.7
(b) Horace Mann Life Insurance Company (depositor)........... Record 100,000 9.9
(c) Horace Mann Service Corporation 401k..................... Record 125,318 12.4

SOCIALLY RESPONSIBLE FUND:

Horace Mann Life Insurance Company
One Horace Mann Plaza
Springfield, Illinois 62715
(a) Horace Mann Life Insurance Company Separate
Account.................................................. Record 832,332 89.4
(b) Horace Mann Service Corporation 401k..................... Record 235,584 7.4

</TABLE>

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.

<PAGE>

GENERAL INFORMATION

As a business trust, the Trust is not required to hold annual
shareholder meetings. However, special meetings may be called for purposes such
as electing or removing trustees, changing fundamental policies, or approving an
investment advisory contract. If requested to do so by the holders of at least
10% of the Trust's outstanding shares, the Trust will call a special meeting for
the purpose of voting upon the question of removal of a trustee or trustees and
will assist in the communications with other shareholders as if the Trust were
subject to Section 16(C) of the Investment Company Act of 1940. All shares of
all series of the Trust are voted together in the election of trustees. On any
other matter submitted to a vote of shareholders, shares are voted in the
aggregate and not by the individual series, except that shares are voted by the
individual series when required by the Investment Company Act of 1940 or other
applicable law or when the Board of Trustees determines that the matter affects
only the interests of one or more series, in which case shareholders of the
unaffected series are not entitled to vote on such matters.

FINANCIAL STATEMENTS

The financial statements for the Growth Fund, Balanced Fund, Income
Fund, Short-Term Investment Fund, Small Cap Growth Fund, International Equity
Fund and Socially Responsible Fund for the year ended December 31, 1998, and the
Report of Independent Auditors thereon, are incorporated herein by reference
from the Funds' Annual Report dated December 31, 1998. 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) 535-7123, or by telephoning (217) 789-2500 or (800)
999-1030 (toll-free).

<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.

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.

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APPENDIX B

DESCRIPTION OF SECURITIES AND RISKS

This section should be read in conjunction with each Fund's description
in the Prospectus, the section in the Prospectus entitled "Types of Investments
and Associated Risks" and each Fund's fundamental and nonfundamental investment
policies.

REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements.
Repurchase agreements are agreements under which 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, a Fund may incur disposition costs in connection
with liquidating 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 a Fund will evaluate the creditworthiness 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. Each Fund may invest in 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 that the Fund is
obligated to 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.

HIGH-YIELD (HIGH-RISK) SECURITIES. To the extent a Fund can invest in
high-yield (high-risk) securities, the following sections are applicable.
High-yield (high-risk) securities (hereinafter referred to as "lower-quality
securities") include (i) bonds rated as low as "C" by Moody's Investors Service,
Inc. ("Moody's"), Standard & Poor's Ratings Group ("S&P"), or Fitch Investors
Service, Inc. ("Fitch"), or "CCC" by Duff & Phelps, Inc. ("D&P"); (ii)
commercial paper rated as low as "C" by S&P, "Not Prime" by Moody's, or "Fitch
4" by Fitch; and (iii) unrated debt obligations of comparable quality.
Lower-quality securities, while generally offering higher yields than investment
grade securities with similar maturities, involve greater risks, including the
possibility of default or bankruptcy. They are regarded as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. The special risk considerations in connection with investments in
these securities are discussed below.

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EFFECT OF INTEREST RATES AND ECONOMIC CHANGES. All interest-bearing
securities typically experience appreciation when interest rates decline and
depreciation when interest rates rise. The market values of lower-quality and
comparable unrated securities tend to reflect individual corporate developments
to a greater extent than do higher-rated securities, which react primarily to
fluctuations in the general level of interest rates. Lower-quality and
comparable unrated securities also tend to be more sensitive to economic
conditions than are higher-rated securities. As a result, they generally involve
more credit risks than securities in the higher-rated categories. During an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of lower-quality and comparable unrated securities may
experience financial stress and may not have sufficient revenues to meet their
payment obligations. The issuer's ability to service its debt obligations may
also be adversely affected by specific corporate developments, the issuer's
inability to meet specific projected business forecasts or the unavailability of
additional financing. The risk of loss due to default by an issuer of these
securities is significantly greater than by issuers of higher-rated securities
because such securities are generally unsecured and are often subordinated to
other creditors. Further, if the issuer of a lower-quality or comparable unrated
security defaulted, a Fund might incur additional expenses to seek recovery.
Periods of economic uncertainty and changes would also generally result in
increased volatility in the market prices of these securities and thus in a
Fund's net asset value.

As previously stated, the value of a lower-quality or comparable
unrated security will decrease in a rising interest rate market, and
accordingly, so will a Fund's net asset value. If a Fund experiences unexpected
net redemptions in such a market, it may be forced to liquidate a portion of its
portfolio securities without regard to their investment merits. Due to the
limited liquidity of lower-quality and comparable unrated securities (discussed
below), a Fund may be forced to liquidate these securities at a substantial
discount. Any such liquidation would force a Fund to sell the more liquid
portion of its portfolio.

PAYMENT EXPECTATIONS. Lower-quality and comparable unrated securities
typically contain redemption, call or prepayment provisions which permit the
issuer of such securities containing such provisions to, at its discretion,
redeem the securities. During periods of falling interest rates, issuers of
these securities are likely to redeem or prepay the securities and refinance
them with debt securities with a lower interest rate. To the extent an issuer is
able to refinance the securities, or otherwise redeem them, a Fund may have to
replace the securities with a lower-yielding security, which would result in a
lower return for a Fund.

CREDIT RATINGS. Credit ratings issued by credit rating agencies are
designed to evaluate the safety of principal and interest payments of rated
securities. They do not, however, evaluate the market value risk of
lower-quality securities and, therefore, may not fully reflect the true risks of
an investment. In addition, credit rating agencies may or may not make timely
changes in a rating to reflect changes in the economy or in the condition of the
issuer that affect the market value of the security. Consequently, credit
ratings are used only as a preliminary indicator of investment quality.
Investments in lower-quality and comparable unrated obligations will be more
dependent on the Subadvisers' credit analysis than would be the case with
investments in investment-grade debt obligations. The Advisers employ their own
credit research and analysis, which includes a study of existing debt, capital
structure, ability to service debt and to pay dividends, the issuer's
sensitivity to economic conditions, its operating history and the current trend
of earnings. The Subadvisers continually monitor the investments in each Fund's
portfolio and carefully evaluate whether to dispose of or to retain
lower-quality and comparable unrated securities whose credit ratings or credit
quality may have changed.

LIQUIDITY AND VALUATION. A Fund may have difficulty disposing of
certain lower-quality and comparable unrated securities because there may be a
thin trading market for such securities. Because not all dealers maintain
markets in all lower-quality and comparable unrated securities, there is no
established retail secondary market for many of these securities. The Funds
anticipate that such securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for higher-
rated securities. The lack of a liquid secondary market may have an adverse
impact on the market price of the security. As a result, a Fund's net asset
value and ability to dispose of particular securities, when necessary to meet a
Fund's liquidity needs or in response to a specific economic event, may be
impacted. The lack of a liquid secondary market for certain securities may also
make it more difficult for a Fund to obtain accurate market quotations for
purposes of valuing a Fund's portfolio. Market quotations are generally
available on many lower-quality and comparable unrated issues only from a
limited number of dealers and may not necessarily represent firm bids of such

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dealers or prices for actual sales. During periods of thin trading, the spread
between bid and asked prices is likely to increase significantly. In addition,
adverse publicity and investor perception, whether or not based on fundamental
analysis, may decease the values and liquidity of lower-quality and comparable
unrated securities, especially in a thinly traded market.

WARRANTS. Each Fund may invest in 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. While warrants may be traded, there is often no secondary market
for them. Moreover, they are usually issued by the issuer of the security to
which they relate. 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, the Growth Fund, International Equity
Fund, Socially Responsible Fund, Balanced Fund, Income Fund and Short-Term
Investment Fund will not invest more than 5% of their total net assets in
warrants.

RIGHTS OFFERINGS. The Small Cap Fund may participate in rights
offerings, which are privileges issued by corporations enabling the owners to
subscribe to and purchase a specified number of shares of the corporation at a
specified price during a specified period of time. Subscription rights normally
have a short life span to expiration. The purchase of rights involves the risk
that the Fund could lose the purchase value of a right if the right to subscribe
to additional shares is not exercised prior to the rights' expiration. Also, the
purchase of rights involves the risk that the effective price paid for the right
added to the subscription price of the related security may exceed the value of
the subscribed security's market price such as when there is no movement in the
level of the underlying security.

CONVERTIBLE PREFERRED STOCKS AND DEBT SECURITIES. The Growth Fund,
International Equity Fund, Socially Responsible Fund, Balanced Fund, Income Fund
and Short-Term Investment Fund may invest in convertible preferred stock 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. The Growth Fund,
International Equity Fund, Socially Responsible Fund, Balanced Fund, Income Fund
and Short-Term Investment Fund may invest in preferred equity redemption
cumulative stock. Preferred Equity Redemption Cumulative Stock (PERCS) is a form
of convertible preferred stock which automatically converts into shares of
common stock on a predetermined conversion date. PERCS pays 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. The Growth Fund, International
Equity Fund, Socially Responsible Fund, Balanced Fund, Income Fund and
Short-Term Investment Fund may invest in 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 rate may not vary over the lifetime of the security. In addition,
certain ARMs provide for limitations on the maximum amount by which the

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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 obligers 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.

FOREIGN SECURITIES. Investors should recognize that investing in
foreign securities involves certain special considerations, including those set
forth below, which are not typically associated with investing in U.S.
securities and which may favorably or unfavorably affect a Fund's performance.
As foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to domestic companies, there may be less publicly available
information about a foreign company than about a domestic company. Many foreign
securities markets, while growing in volume of trading activity, have
substantially less volume than the U.S. market, and securities of some foreign
issuers are less liquid and more volatile than securities of domestic issuers.
Similarly, volume and liquidity in most foreign bond markets is less than in the
U.S. and, at times, volatility of prices can be greater than in the U.S. Fixed
commissions on some foreign securities exchanges and bid-to-asked spreads in
foreign bond markets are generally higher than commissions or bid-to-asked
spreads on U.S. markets, although a Fund will endeavor to achieve the most
favorable net results on its portfolio transactions. There is generally less
government supervision and regulation of securities exchanges, brokers and
listed companies than in the U.S. It may be more difficult for a Fund's agents
to keep currently informed about corporate actions which may affect the prices
of portfolio securities. Communications between the U.S. and foreign countries
may be less reliable than within the U.S., thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. Payment for securities without delivery may be required in certain
foreign markets. In addition, with respect to certain foreign countries, there
is the possibility of expropriation or confiscatory taxation, political or
social instability, or diplomatic developments which could affect U.S.
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. The management of the Fund
seeks to mitigate the risks associated with the foregoing considerations through
continuous professional management.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Small Cap Growth Fund
and International Equity Fund may invest in foreign currencies. The Balanced
Fund and Income Fund may each enter into forward foreign currency exchange
contracts to the extent of 15% of the value of their respective total assets for
hedging purposes. Forward foreign currency exchange contracts involve an
obligation to purchase or sell a specified currency at a future date at a price
set at the time of the contract. Forward currency contracts do not eliminate
fluctuations in the values of Fund securities but rather allow the Fund to
establish a rate of exchange for a future point in time. A Fund may use forward
foreign currency exchange contracts to hedge against movements in the value of
foreign currencies (including

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the "ECU" used in the European Community) relative to the U.S. dollar in
connection with specific Fund transactions or with respect to Fund positions.

The Small Cap Growth Fund may enter into forward foreign currency
exchange contracts when deemed advisable by its Subadviser under two
circumstances. First, when entering into a contract for the purchase or sale of
a security, the Fund may enter into a forward foreign currency exchange contract
for the amount of the purchase or sale price to protect against variations,
between the date the security is purchased or sold and the date on which payment
is made or received, in the value of the foreign currency relative to the U.S.
dollar or other foreign currency. Second, when the Fund's adviser or subadviser
anticipates that a particular foreign currency may decline relative to the U.S.
dollar or other leading currencies, in order to reduce risk, the Fund may enter
into a forward contract to sell, for a fixed amount, the amount of foreign
currency approximating the value of some or all of the Fund's securities
denominated in such foreign currency. With respect to any forward foreign
currency contract, it will not generally be possible to match precisely the
amount covered by that contract and the value of the securities involved due to
the changes in the values of such securities resulting from market movements
between the date the forward contract is entered into and the date it matures.
In addition, while forward contracts may offer protection from losses resulting
from declines in the value of a particular foreign currency, they also limit
potential gains which might result from increases in the value of such currency.
The Fund will also incur costs in connection with forward foreign currency
exchange contracts and conversions of foreign currencies and U.S. dollars.

The Small Cap Growth Fund may also engage in proxy hedging transactions
to reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of Fund securities. Proxy hedging is often used when the
currency to which the Fund is exposed is difficult to hedge or to hedge against
the dollar. Proxy hedging entails entering into a forward contract to sell a
currency whose changes in value are generally considered to be linked to a
currency or currencies in which some or all of the Fund's securities are, or are
expected to be, denominated, and to buy U.S. dollars. Proxy hedging involves
some of the same risks and considerations as other transactions with similar
instruments. Currency transactions can result in losses to the Fund if the
currency being hedged fluctuates in value to a degree or in a direction that is
not anticipated. In addition, there is the risk that the perceived linkage
between various currencies may not be present or may not be present during the
particular time that the Fund is engaging in proxy hedging. The Fund may also
cross hedge currencies by entering into forward contracts to sell one or more
currencies that are expected to decline in value relative to other currencies to
which the Fund has or in which the Fund expects to have Fund exposure. For
example, the Fund may hold both French government bonds and German government
bonds, and the Subadviser may believe that French francs will deteriorate
against German marks. The Fund would sell French francs to reduce its exposure
to that currency and buy German marks. This strategy would be a hedge against a
decline in the value of French francs, although it would expose the Fund to
declines in the value of the German mark relative to the U.S. dollar. In
general, currency transactions are subject to risks different from those of
other Fund transactions, and can result in greater losses to the Fund than would
otherwise be incurred, even when the currency transactions are used for hedging
purposes. Because investments in foreign securities usually will involve
currencies of foreign countries and to the extent a Fund may hold foreign
currencies and forward contracts, futures contracts and options on foreign
currencies and foreign currency futures contracts, the value of the assets of
such Fund as measured in dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
the Fund may incur costs in connection with conversions between various
currencies. Although each Fund values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the
difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to a Fund at one rate, while offering a lesser rate or exchange should the Fund
desire to resell that currency to the dealer. Each Fund will conduct its foreign
currency exchange transactions either on a spot (i.e. cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into options or forward or futures contracts to purchase or sell foreign
currencies.

A separate account of the Fund consisting of liquid assets equal to the
amount of the Fund's assets that could be required to consummate forward
contracts entered into under the second circumstances, as set forth above, will
be established with the Fund's custodian. For the purpose of determining the
adequacy of the securities in the account, the

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deposited securities will be valued at market or fair value. If the market or
fair value of such securities declines, additional cash or securities will be
placed in the account daily so that the value of the account will equal the
amount of such commitments by the Fund.

STRATEGIC TRANSACTIONS AND DERIVATIVES. The International Equity Fund
and Socially Responsible Fund may, but are not required to, utilize various
other investment strategies as described below to hedge various market risks
(such as interest rates and broad or specific equity or fixed-income market
movements), to manage the effective maturity or duration of fixed-income
securities in such Fund's portfolio, or to enhance potential gain. These
strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, the Funds may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of fixed-income securities in a Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. Some Strategic Transactions may
also be used to enhance potential gain although no more than 5% of a Fund's
assets will be committed to Strategic Transactions entered into for non-hedging
purposes. Any or all of these investment techniques may be used at any time and
in any combination, and there is no particular strategy that dictates the use of
one technique rather than another, as use of any Strategic Transaction is a
function of numerous variables including market conditions. The ability of a
Fund to utilize these Strategic Transactions successfully will depend on the
Subadviser's ability to predict pertinent market movements, which cannot be
assured. The Fund will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments. Strategic
Transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not for speculative purposes.

Strategic Transactions, including derivative contracts, have risks
associated with them, including possible default by the other party to the
transaction, illiquidity and, to the extent the Subadviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to a Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation a Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in a Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized.

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GENERAL CHARACTERISTICS OF OPTIONS. To the extent consistent with their
investment objectives, the Small Cap Growth Fund, International Equity Fund and
Socially Responsible Fund may invest in options. Put options and call options
typically have similar structural characteristics and operational mechanics
regardless of the underlying instruments on which they are purchased or sold.
Thus, the following general discussion relates to each of the particular types
of options discussed in greater detail below. In addition, many Strategic
Transactions involving options require segregation of Fund assets in special
accounts.

A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market-value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. A Fund's purchase of a call option on a
security, financial future, index currency or other instrument might be intended
to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American-style put or call option may
be exercised at any time during the option period thereto. A Fund is authorized
to purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial intermediaries.

With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.

A Fund's ability to close out its position as a purchaser or seller of
an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options for a particular class or series of options,
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contracts to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. A Fund
will only sell OTC options (other than OTC currency options) that are subject to
a buy-back provision permitting the Fund to require the Counterparty to sell the
option back to the Fund at a formula price within seven days. The Funds expect
generally to enter into OTC options that have cash settlement provisions,
although they are not required to do so.

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Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Subadviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. A Fund will engage in OTC option transactions only
with U.S. Government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
a Fund, and portfolio securities "covering" the amount of a Fund's obligation
pursuant to an OTC option sold by it (the cost of the sell-back plus the
in-the-money amount, if any), are illiquid, and are subject to the Fund's
limitation on investing no more than 15% of its net assets in illiquid
securities.

If a Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

The Funds may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by a Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though a Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.

The Funds may purchase and sell put options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, foreign
sovereign debt, corporate debt securities (including convertible securities) and
Eurodollar instruments (whether or not it holds the above securities in its
portfolio), and on securities indices, currencies and futures contracts other
than futures on individual corporate debt and individual equity securities. The
Funds will not sell put options if, as a result, more than 50% of a Fund's
assets would be required to be segregated to cover its potential obligations
under such put options other than those with respect to futures and options
thereon. In selling put options, there is a risk that the Fund may be required
to buy the underlying security at a disadvantageous price above the market
price.

When a Fund purchases a put option, the premium paid by it is recorded
as an asset of the Fund. When a Fund writes an option, an amount equal to the
net premium (the premium less the commission) received by the Fund is included
in the liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of sale, the mean between the last bid and asked price.
If an option purchased by a Fund expires unexercised, the Fund realizes a loss
equal to the premium paid. If a Fund enters into a closing sale transaction on
an option purchased by it, the Fund will realize a gain if the premium received
by the Fund on the closing transaction is more than the premium paid to purchase
the option, or a loss if it is less. If an option written by a Fund expires on
the stipulated expiration date or if a Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. If an option written
by a Fund is exercised, the proceeds of the sale will be increased by the net
premium originally received and the Fund will realize a gain or loss.

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There are several risks associated with transactions in options on
securities and indexes. For example, there are significant differences between
the securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. In addition, a liquid secondary market for particular options,
whether traded over-the-counter or on a national securities exchange
("Exchange"), may be absent for reasons which include the following: there may
be insufficient trading interest in certain options; restrictions may be imposed
by an Exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; unusual or
unforeseen circumstances may interrupt normal operations on an Exchange; the
facilities of an Exchange or the OCC may not at all times be adequate to handle
current trading volume; or one or more Exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that Exchange (or in that class or series of options) would
cease to exist, although outstanding options that had been issued by the OCC as
a result of trades on that Exchange would continue to be exercisable in
accordance with their terms.

GENERAL CHARACTERISTICS OF FUTURES. To the extent consistent with their
investment objectives, the Growth Fund, Small Cap Growth Fund, International
Equity Fund and Socially Responsible Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currency or equity market changes, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below.

The sale of a futures contract creates a firm obligation by a Fund, as
seller, to deliver to the buyer the specific type of financial instrument called
for in the contract at a specific future time for a specified price (or, with
respect to index futures and Eurodollar instruments, the net cash amount).
Options on futures contracts are similar to options on securities except that an
option on a futures contract gives the purchaser the right in return for the
premium paid to assume a position in a futures contract and obligates the seller
to deliver such position.

The Funds' use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the Commodity Futures Trading Commission and will
be entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires a Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Funds.
If a Fund exercises an option on a futures contracts it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.

The Funds will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of a Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.

OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Funds
also may purchase and sell call and put options on securities indices and other
financial indices and in so doing can achieve many of the same objectives it
would achieve through the sale or purchase of options on individual securities
or other instruments. Options on securities indices and other financial indices
are similar to options on a security or other instrument except that, rather
than settling by physical delivery of the underlying instrument, they settle by
cash settlement, i.e., an option on an index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the index upon which

B-9

<PAGE>

the option is based exceeds, in the case of a call, or is less than, in the case
of a put, the exercise price of the option (except if, in the case of an OTC
option, physical delivery is specified). This amount of cash is equal to the
excess of the closing price of the index over the exercise price of the option,
which also may be multiplied by a formula value. The seller of the option is
obligated, in return for the premium received, to make delivery of this amount.
The gain or loss on an option on an index depends on price movements in the
instruments making up the market, market segment, industry or other composite on
which the underlying index is based, rather than price movements in individual
securities, as is the case with respect to options on securities.

CURRENCY TRANSACTIONS. The Funds may engage in currency transactions
with Counterparties in order to hedge the value of portfolio holdings
denominated in particular currencies against fluctuations in relative value.
Currency transactions include forward currency contracts, exchange listed
currency futures, exchange listed and OTC options on currencies, and currency
swaps. A forward currency contract involves a privately negotiated obligation to
purchase or sell (with delivery generally required) a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. A
currency swap is an agreement to exchange cash flows based on the notional
difference among two or more currencies and operates similarly to an interest
rate swap, which is described below. The Funds may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or are
determined to be of equivalent credit quality by the adviser.

The Funds' dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of a Fund, which will generally arise
in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.

The Funds will not enter into a transaction to hedge currency exposure
to an extent greater, after all transactions intended wholly or partially to
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging or cross hedging as described below.

The Funds may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which a Fund has or in which the Fund expects to
have portfolio exposure.

To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Funds may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of a Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of a Fund's securities
denominated in correlated currencies. For example, if the Subadviser considers
that the Austrian schilling is correlated to the German Deutsche mark (the
"D-mark"), a Fund holds securities denominated in schillings and if the
Subadviser believes that the value of schillings will decline against the U.S.
dollar, the Subadviser may enter into a commitment or option to sell D-marks and
buy dollars. Currency hedging involves some of the same risks and considerations
as other transactions with similar instruments. Currency transactions can result
in losses to a Fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. Further, there is the risk that the
perceived correlation between various currencies may not be present or may not
be present during the particular time that a Fund is engaging in proxy hedging.
If a Fund enters into a currency hedging transaction, the Fund will comply with
the asset segregation requirements described below.

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<PAGE>

RISKS OF CURRENCY TRANSACTIONS. Currency transactions are subject to
risks different from those of other portfolio transactions. Because currency
control is of great importance to the issuing governments and influences
economic planning and policy, purchases and sales of currency and related
instruments can be negatively affected by government exchange controls,
blockages and manipulations or exchange restrictions imposed by governments.
These can result in losses to a Fund if it is unable to deliver or receive
currency or funds in settlement of obligations and could also cause hedges it
has entered into to be rendered useless, resulting in full currency exposure as
well as incurring transaction costs. Buyers and sellers of currency futures are
subject to the same risks that apply to the use of futures generally. Further,
settlement of currency futures contract for the purchase of most currencies must
occur at a bank based in the issuing nation. Trading options on currency futures
is relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.

COMBINED TRANSACTIONS. The Funds may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
currency transactions (including forward currency contracts) and multiple
interest rate transactions and any combination of futures, options, currency and
interest rate transactions ("component" transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Subadviser, it is in the best interests of a Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Subadviser's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.

SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into
which the Funds may enter are interest rate, currency and index swaps and the
purchase or sale of related caps, floors and collars. The Funds expect to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Funds intend to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. A currency swap is an agreement
to exchange cash flows on a notional amount of two or more currencies based on
the relative value differential among them and an index swap is an agreement to
swap cash flows on a notional amount based on change in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specific index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.

The Funds will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the
Subadviser and the Funds believe such obligations do not constitute senior
securities under the Investment Company Act of 1940, as amended (the "1940
Act"), and, accordingly, will not treat them as being subject to the 1940 Act's
borrowing restrictions. The Funds will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Adviser.
If there is a default by the Counterparty, the Funds may have contractual
remedies pursuant to the agreements related to the transaction.

EURODOLLAR INSTRUMENTS. The Funds may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures

B-11

<PAGE>

contracts enable purchasers to obtain a fixed rate for the lending of funds and
sellers to obtain a fixed rate for borrowing. The Funds might use Eurodollar
futures contracts and options thereon to hedge against changes in LIBOR, to
which many interest rate swaps and fixed income instruments are linked.

RISKS OF STRATEGIC TRANSACTIONS OUTSIDE THE U.S. When conducted outside
the U.S., Strategic Transactions may not be regulated as rigorously as in the
U.S., may not involve a clearing mechanism and related guarantees, and are
subject to the risk of governmental actions affecting trading in, or the prices
of, foreign securities, currencies and other instruments. The value of such
positions also could be adversely affected by (i) other complex foreign,
political, legal and economic factors, (ii) lesser availability than in the U.S.
of data on which to make trading decisions, (iii) delays in the Fund's ability
to act upon economic events occurring in foreign markets during non-business
hours in the U.S., (iv) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the U.S. and (v) lower
trading volume and liquidity.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic
Transactions, in addition to other requirements, require that the Funds
segregate liquid, high-grade assets with its custodian to the extent Fund
obligations are not otherwise "covered" through ownership of the underlying
security, financial instrument or currency. In general, either the full amount
of any obligation by a Fund to pay or deliver securities or assets must be
covered at all times by the securities, instruments or currency required to be
delivered, or, subject to any regulatory restrictions, an amount of cash or
liquid, high grade securities at least equal to the current amount of the
obligation must be segregated with the custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. For example, a call option
written by a Fund will require the Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate liquid high grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call option sold
by a Fund on an index will require the Fund to own portfolio securities which
correlate with the index or to segregate liquid, high grade assets equal to the
excess of the index value over the exercise price on a current basis. A put
option written by a Fund requires the Fund to segregate liquid, high grade
assets equal to the exercise price.

Except when the Funds enter into a forward contract for the purchase
or sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates a Fund to buy or sell currency
will generally require the Fund to hold an amount of that currency or liquid
securities denominated in that currency equal to the Fund's obligations or to
segregate liquid high grade assets equal to the amount of the Fund's obligation.

OTC options entered into by the Funds, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when a
Fund sells these instruments, it will only segregate an amount of assets equal
to its accrued net obligations, as there is no requirement for payment or
delivery of amounts in excess of the net amount. These amounts will equal 100%
of the exercise price in the case of a non-cash-settled put, the same as an OCC
guaranteed listed option sold by a Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when a Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by a Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement, and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement,
will be treated the same as other options settling with physical delivery.

In the case of a futures contract or an option thereon, the Funds must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.

With respect to swaps, the Funds will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid high grade

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<PAGE>

securities having a value equal to the accrued excess. Caps, floors and collars
require segregation of assets with a value equal to the Fund's net obligations,
if any.

Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Funds may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligations in related options and Strategic
Transactions. For example, a Fund could purchase a put option if the strike
price of that option is the same as or higher than the strike price of a put
option sold by the Fund. Moreover, instead of segregating assets if a Fund held
a futures or forward contract, it could purchase a put option on the same
futures or forward contract with a strike price as high or higher than the price
of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction, no segregation is required, but if it terminates prior
to such time, assets equal to any remaining obligation would need to be
segregated.

The Funds' activities involving Strategic Transactions may be limited
by the requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company. (See
"TAX STATUS").

VARIABLE AND FLOATING RATE INSTRUMENTS. The Small Cap Growth Fund may
invest in variable and floating rate instruments. With respect to purchasable
variable and floating rate instruments, the Adviser or Subadviser will consider
the earning power, cash flows and liquidity ratios of the issuers and guarantors
of such instruments and, if the instruments are subject to a demand feature,
will monitor their financial status to meet payment on demand. Such instruments
may include variable amount demand notes that permit the indebtedness thereunder
to vary in addition to providing for periodic adjustments in the interest rate.
The absence of an active secondary market with respect to particular variable
and floating rate instruments could make it difficult for the Fund to dispose of
a variable or floating rate note if the issuer defaulted on its payment
obligation or during periods that the Fund is not entitled to exercise its
demand rights, and the Fund could, for these or other reasons, suffer a loss
with respect to such instruments. In determining average-weighted Fund maturity,
an instrument will be deemed to have a maturity equal to either the period
remaining until the next interest rate adjustment or the time the Fund involved
can recover payment of principal as specified in the instrument, depending on
the type of instrument involved.

MONEY MARKET OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN
BRANCHES OF U.S. BANKS. The Small Cap Growth Fund may purchase bank obligations,
such as certificates of deposit, bankers' acceptances and time deposits,
including instruments issued or supported by the credit of U.S. or foreign banks
or savings institutions having total assets at the time of purchase in excess of
$1 billion. The assets of a bank or savings institution will be deemed to
include the assets of its domestic and foreign branches for purposes of the
Fund's investment policies. Investments in short-term bank obligations may
include obligations of foreign banks and domestic branches of foreign banks, and
also foreign branches of domestic banks.

MORTGAGE-RELATED SECURITIES. The Small Cap Growth Fund, Balanced Fund
and Income Fund may invest in mortgage-related securities. There are a number of
important differences among the agencies and instrumentalities of the U.S.
Government that issue mortgage-related securities and among the securities that
they issue. Mortgage-related securities guaranteed by the Government National
Mortgage Association ("GNMA") include GNMA Mortgage Pass-Through Certificates
(also known as "Ginnie Maes") which are guaranteed as to the timely payment of
principal and interest by GNMA and such guarantee is backed by the full faith
and credit of the United States. GNMA is a wholly-owned U.S. Government
corporation within the Department of Housing and Urban Development. GNMA
certificates also are supported by the authority of GNMA to borrower funds from
the U.S. Treasury to make payments under its guarantee. Mortgage-related
securities issued by the Federal National Mortgage Association ("FNMA") include
FNMA guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are solely the obligations of the FNMA, are not backed by or entitled to
the full faith and credit of the United States and are supported by the right of
the issuer to borrow from the Treasury. FNMA is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are guaranteed
as to timely payment of principal and interest by FNMA. Mortgage-related
securities issued by the Federal Home Loan Mortgage Corporation ("FHLMC")
include FHLMC Mortgage Participation Certificates (also known as "Freddie Macs"
or "PCS"). FHLMC is a corporate

B-13

<PAGE>

instrumentality of the United States, created pursuant to an Act of Congress,
which is owned entirely by Federal Home Loan Banks. Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitled the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.

ASSET-BACKED SECURITIES. The Small Cap Growth Fund, Balanced Fund and
Income Fund may invest in asset-backed securities. Asset-backed securities are
generally issued as pass-through certificates, which represent undivided
fractional ownership interests in an underlying pool of assets, or as debt
instruments, which are also known as collateralized obligations, and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Asset-backed securities
are often backed by a pool of assets representing the obligations of a number of
different parties.

In general, the collateral supporting asset-backed securities is of
shorter maturity than mortgage-related securities. Like other fixed-income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities.

U.S. GOVERNMENT OBLIGATIONS. Examples of the types of U.S. Government
obligations which the Funds may hold include U.S. Treasury bills, Treasury
instruments and Treasury bonds and the obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, the Farmers Home Administration, the Export-Import Bank of the
United States, the Small Business Administration, FNMA, GNMA, the General
Services Administration, the Student Loan Marketing Association, the Central
Bank for Cooperatives, FHLMC, the Federal Intermediate Credit Banks, the
Maritime Administration, the International Bank of Reconstruction and
Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.

SUPRANATIONAL ORGANIZATION OBLIGATIONS. The Small Cap Growth Fund and
Socially Responsible Fund may purchase debt securities of supranational
organizations such as the European Coal and Steel Community, the European
Economic Community and the World Bank, which are chartered to promote economic
development.

LEASE OBLIGATIONS. The Small Cap Growth Fund may hold participation
certificates in a lease, an installment purchase contract or a conditional sales
contract ("lease obligations"). The Subadviser will monitor the credit standing
of each municipal borrower and each entity providing credit support and/or a put
option relating to lease obligations. In determining whether a lease obligation
is liquid, the Subadviser will consider, among other factors, the following: (i)
whether the lease can be canceled; (ii) the degree of assurance that assets
represented by the lease could be sold; (iii) the strength of the lessee's
general credit (e.g., its debt, administrative, economic, and financial
characteristics); (iv) the likelihood that the municipality would discontinue
appropriating funding for the lease property because the property is no longer
deemed essential to the operations of the municipality (e.g., the potential for
an "event of nonappropriation"); (v) legal recourse in the event of failure to
appropriate; (vi) whether the security is backed by a credit enhancement such as
insurance and (vii) any limitations which are imposed on the lease obligor's
ability to utilize substitute property or services other than those covered by
the lease obligation.

Municipal leases, like other municipal debt obligations, are subject to
the risk of non-payment. The ability of issuers of municipal leases to make
timely lease payments may be adversely impacted in general economic downturns
and as relative governmental cost burdens are allocated and reallocated among
federal, state and local governmental units. Such non-payment would result in a
reduction of income to the Fund, and could result in a reduction in the value of
the municipal lease experiencing non-payment and a potential decrease in the net
asset value of the Fund. Issuers of municipal securities might seek protection
under the bankruptcy laws. In the event of bankruptcy of such an issuer, the
Fund could experience delays and limitations with respect to the collection of
principal and interest on such municipal leases and the Fund may not, in all
circumstances, be able to collect all principal and interest to which it is
entitled. To enforce its rights in the event of a default in lease payments, the
Fund might take possession of and manage the assets

B-14

<PAGE>

securing the issuer's obligations on such securities, which may increase the
Fund's operating expenses and adversely affect the net asset value of the Fund.
When the lease contains a non-appropriation clause, however, the failure to pay
would not be a default and the Fund would not have the right to take possession
of the assets. Any income derived from the Fund's ownership or operation of such
assets may not be tax-exempt. In addition, the Fund's intention to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended, may limit the extent to which the Fund may exercise its rights by
taking possession of such assets, because as a regulated investment company the
Fund is subject to certain limitations on its investments and on the nature of
its income.

COMMERCIAL PAPER. The Small Cap Growth Fund, Socially Responsible Fund,
Balanced Fund, Income Fund and Short-Term Investment Fund may purchase
commercial paper rated (at the time of purchase) "A-1" by S&P or "Prime-1" by
Moody's or, when deemed advisable by the Fund's adviser or subadviser, "high
quality" issues rated "A-2" or "Prime-2" by S&P or Moody's, respectively. These
ratings symbols are described in Appendix A.

Commercial paper purchasable by the Fund includes "Section 4(2) paper,"
a term that includes debt obligations issued in reliance on the "private
placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933. Section 4(2) paper is restricted as to disposition under
the Federal securities laws, and is frequently sold (and resold) to
institutional investors such as the Fund through or with the assistance of
investment dealers who make a market in the Section 4(2) paper, thereby
providing liquidity. Certain transactions in Section 4(2) paper may qualify for
the registration exemption provided in Rule 144A under the Securities Act of
1933.

INVESTMENT GRADE DEBT OBLIGATIONS. The Growth Fund, Balanced Fund,
Income Fund and Short-Term Investment Fund may invest in "investment grade
securities," which are securities rated in the four highest rating categories of
an NRSRO. It should be noted that debt obligations rated in the lowest of the
top four ratings (i.e., "Baa" by Moody's or "BBB" by S&P) are considered to have
some speculative characteristics and are more sensitive to economic change than
higher rated securities. See Appendix A to this Statement of Additional
Information for a description of applicable securities ratings.

WHEN-ISSUED PURCHASE AND FORWARD COMMITMENTS. The Small Cap Growth
Fund, International Equity Fund, Socially Responsible Fund, Balanced Fund and
Income Fund may enter into "when-issued" and "forward" commitments, including,
for the Small Cap Growth Fund only, "TBA" (to be announced) purchase
commitments, to purchase or sell securities at a fixed price at a future date.
When a Fund agrees to purchase securities on this basis, the custodian will set
aside liquid assets equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside Fund securities to satisfy a purchase
commitment, and in such a case a Fund may be required subsequently to place
additional assets in the separate account in order to ensure that the value of
the account remains equal to the amount of the Fund's commitments. It may be
expected that the market value of a Fund's net assets will fluctuate to a
greater degree when it sets aside Fund securities to cover such purchase
commitments than when it sets aside cash. Because a Fund's liquidity and ability
to manage its Fund might be affected when it sets aside cash or Fund securities
to cover such purchase commitments, each Fund expects that its forward
commitments and commitments to purchase when-issued or, in the case of the Small
Cap Growth Fund, TBA securities will not exceed 25% of the value of its total
assets absent unusual market conditions.

If deemed advisable as a matter of investment strategy, a Fund may
dispose of or renegotiate a commitment after it has been entered into and may
sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases, a Fund may realize
a taxable capital gain or loss. When a Fund engages in when-issued, TBA or
forward commitment transactions, it relies on the other party to consummate the
trade. Failure of such party to do so may result in a Fund incurring a loss or
missing an opportunity to obtain a price considered to be advantageous. The
market value of the securities underlying a commitment to purchase securities,
and any subsequent fluctuations in their market value, is taken into account
when determining the market value of each Fund starting on the day the Fund
agrees to purchase the securities. A Fund does not earn interest on the
securities it has committed to purchase until they are paid for and delivered on
the settlement date.

STAND-BY COMMITMENTS. The Small Cap Growth Fund may invest in stand-by
commitments. Under a stand-by commitment for a Municipal Obligation, a dealer
agrees to purchase at the Fund's option a specified Municipal

B-15

<PAGE>

Obligation at a specified price. Stand-by commitments for Municipal Obligations
may be exercisable by the Fund at any time before the maturity of the underlying
Municipal Obligations and may be sold, transferred or assigned only with the
instruments involved. It is expected that such stand-by commitments will
generally be available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Fund may pay for such a
stand-by commitment either separately in cash or by paying a higher price for
Municipal Obligations which are acquired subject to the commitment for Municipal
Obligations (thus reducing the yield to maturity otherwise available for the
same securities). The total amount paid in either manner for outstanding
stand-by commitments for Municipal Obligations held by the Fund will not exceed
1/2 of 1% of the value of the Fund's total assets calculated immediately after
each stand-by commitment is acquired.

Stand-by commitments will only be entered into with dealers, banks and
broker-dealers which, in a subadviser's opinion, present minimal credit risks.
The Fund will acquire stand-by commitments solely to facilitate Fund liquidity
and not to exercise its rights thereunder for trading purposes. Stand-by
commitments will be valued at zero in determining net asset value. Accordingly,
where the Fund pays directly or indirectly for a stand-by commitment, its cost
will be reflected as an unrealized loss for the period during which the
commitment is held by the Fund and will be reflected as a realized gain or loss
when the commitment is exercised or expires.

B-16

<PAGE>

HORACE MANN MUTUAL FUNDS

PART C

OTHER INFORMATION

ITEM 23. EXHIBITS
(a)Declaration of Trust and Certificate of Trust. (1)/
(b)By-Laws. (1)/
(c)Not applicable.
(d)Investment Advisory Contracts.

(i) Form of Investment Advisory Agreement with Wilshire Associates
Incorporated.(4)/
(ii) Investment Sub-Advisory Agreement between Horace Mann Investors, Inc.
and Scudder Kemper Investments, Inc. dated October 29, 1998.(4)/
(iii)Form of Investment Sub-Advisory Agreement between Wilshire Associates
Incorporated and Scudder Kemper Investments, Inc.(4)/
(iv) Form of Investment Sub-Advisory Agreement between Wilshire Associates
Incorporated and Wellington Management Company, LLP.(4)/
(v) Form of Investment Sub-Advisory Agreement between Wilshire Associates
Incorporated and BlackRock, Inc.(4)/
(vi) Form of Investment Sub-Advisory Agreement between Wilshire Associates
Incorporated and Mellon Equity Associates, LLP.(4)/
(vii)Form of Investment Sub-Advisory Agreement between Wilshire Associates
Incorporated and Brinson Partners.(4)/

(e)Not applicable.
(f)Not applicable.
(g)(i) Custodian Services Agreement. (2)/
(h)(i) Transfer Agent Agreement. (2)/
(ii) Money Transfer Services Agreement. (2)/
(iii)Form of Administration Agreement with Horace Mann Investors, Inc.(4)/

(iv) Form of Support Services Agreement with HMLIC.(4)/
(i)Opinion and Consent of Vedder, Price, Kaufman & Kammholz. (3)/
(j)Consent of KPMG LLP.*

<PAGE>

(k) None.

(l) Investment Letter from initial investor to the Registrant. (1)/
(m) Not applicable.
(n) Not applicable.

(o) Not applicable.

(p) (i) Power of Attorney (2)/

(1)/ Incorporated by reference to the initial Registration Statement filed on
November 8, 1996.

(2)/ Incorporated by reference to Registrant's Pre-Effective Amendment No. 1
filed on or about February 20, 1997.

(3)/ Incorporated by reference to Registrant's Post-Effective Amendment No. 1
filed on Form N-1A on or about March 19, 1997.

(4)/ Incorporated by reference to Registrant's Post-Effective Amendment No.4
filed on Form N-1A on or about February 26, 1999.

* Filed herewith.

<PAGE>

ITEM 24. Persons Controlled By or Under Common Control with Registrant

No person is directly controlled by Horace Mann Mutual Funds. Companies
under common control include Horace Mann Educators Corp. and its subsidiaries.
See Exhibit No. 19, incorporated by reference to Registrant's Post-Effective
Amendment No. 1 filed on or about February 20, 1997.

Item 25. Indemnification

Article V of Registrant's Declaration of Trust, provides for the
indemnification of Registrant's trustees, officers, employees and agents against
liabilities incurred by them in connection with the defense or disposition of
any action or proceeding in which they may be involved or with which they may be
threatened, while in office or thereafter, by reason of being or having been in
such office, except with respect to matters as to which it has been determined
that they acted with willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of their office
("Disabling Conduct").

Registrant has obtained from a major insurance carrier a trustees' and
officers' liability policy covering certain types of errors and omissions.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to trustees, 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 Securities 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 trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, 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
Securities Act and will be governed by the final adjudication of such issue.

Item 26. Business and Other Connections of Investment Adviser

<PAGE>

Effective March 1, 1999, Wilshire Associates Incorporated (the "Adviser")
is the investment adviser to the Registrant. The Adviser has entered into
investment subadvisory agreements with Brinson Partners, Inc., Mellon Equity
Associates, LLP, Wellington Management Company, LLP, Scudder Kemper Investments,
Inc. and BlackRock Financial Management, Inc.

BUSINESS AND OTHER CONNECTIONS OF OFFICERS AND PARTNERS OF REGISTRANT'S PROPOSED
INVESTMENT ADVISER, WILSHIRE ASSOCIATES INCORPORATED, ("WILSHIRE"). WILSHIRE IS
AN INVESTMENT ADVISER REGISTERED UNDER THE INVESTMENT ADVISERS ACT OF 1940, AS
AMENDED (THE "ADVISERS ACT").

The list required by this Item 26 of officers and partners of Wilshire,
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 A and D of
Form ADV filed by Wilshire pursuant to the Advisers Act (SEC File No.801-36233).

BUSINESS AND OTHER CONNECTIONS OF OFFICERS AND PARTNERS OF REGISTRANT'S
INVESTMENT SUBADVISER, SCUDDER KEMPER INVESTMENTS, INC. ("SCUDDER KEMPER").
SCUDDER KEMPER IS AN INVESTMENT ADVISER REGISTERED UNDER THE ADVISERS ACT.

<PAGE>

The list required by this Item 26 of officers and partners of Scudder
Kemper, 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 A
and D of Form ADV filed by Scudder Kemper pursuant to the Advisers Act (SEC File
No. 801-252).

BUSINESS AND OTHER CONNECTIONS OF OFFICERS AND PARTNERS OF REGISTRANT'S
INVESTMENT SUBADVISER, WELLINGTON MANAGEMENT COMPANY, LLP ("WELLINGTON").
WELLINGTON IS AN INVESTMENT ADVISER REGISTERED UNDER THE ADVISERS ACT.

The list required by this Item 26 of officers and partners of Wellington,
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 pursuant to the Advisers Act (SEC File No.
801-15908).

BUSINESS AND OTHER CONNECTIONS OF OFFICERS AND PARTNERS OF REGISTRANT'S
INVESTMENT SUBADVISER, BLACKROCK FINANCIAL MANAGEMENT, INC. ("BLACKROCK").
BLACKROCK IS AN INVESTMENT ADVISER REGISTERED UNDER THE ADVISERS ACT.

The list required by this Item 26 of officers and partners of BlackRock,
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 A and D of
Form ADV filed by BlackRock pursuant to the Advisers Act (SEC File No.
801-47711).

BUSINESS AND OTHER CONNECTIONS OF OFFICERS AND PARTNERS OF REGISTRANT'S
PROPOSED INVESTMENT SUBADVISER, MELLON EQUITY ASSOCIATES, LLP ("MELLON
EQUITY"). MELLON EQUITY IS AN INVESTMENT ADVISER REGISTERED UNDER THE ADVISERS
ACT.

The list required by this Item 26 of officers and partners of Mellon
Equity, 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 A
and D of Form ADV filed by Mellon Equity pursuant to the Advisers Act (SEC File
No. 801-28692).

BUSINESS AND OTHER CONNECTIONS OF OFFICERS AND PARTNERS OF REGISTRANT'S
PROPOSED INVESTMENT SUBADVISER, BRINSON PARTNERS, INC. ("BRINSON"). BRINSON IS
AN INVESTMENT ADVISER REGISTERED UNDER THE ADVISERS ACT.

The list required by this Item 26 of officers and partners of Brinson,
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 A and D of
Form ADV filed by Brinson pursuant to the Advisers Act (SEC File No. 801-34910).

Item 27. Principal Underwriters

Not applicable.

Item 28. Location of Accounts and Records

All such accounts, books and other documents are maintained (i) at the
offices of the Registrant, (ii) at the offices of Registrant's administrator,
Horace Mann Investors, Inc., One Horace Mann Plaza, Springfield, Illinois 62715,
(iii) at the offices of Registrant's investment adviser or subadvisers, Wilshire
Associates, Incorporated, 1299 Ocean Avenue, Santa Monica, California
90401-1085, Wellington Management Company, LLP, 75 State Street, Boston,
Massachusetts 02109, Scudder Kemper Investments, Inc., Two International Place,
Boston, Massachusetts 02110 and BlackRock Financial Management Inc., 1600 Market
Street, 27th Floor, Philadelphia, Pennsylvania 19103, or (iv) at the offices of
Registrant's custodian, State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110.

<PAGE>

Item 29. Management Services

Not applicable.

Item 30. Undertakings

(a) Not applicable.

(b) Not applicable.

(c) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant certifies that it meets all of
the requirement for effectiveness of this registration statement under rule
485(b) under the Securities Act of 1933 and has duly caused this amendment to
the registration statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Springfield and State of Illinois on the
29 day of April, 1999.

HORACE MANN MUTUAL FUNDS

By: /S/ GEORGE J. ZOCK
George J. Zock, President

Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed below on April 29, 1999
by the following persons in the capacities indicated.

SIGNATURE TITLE

/S/ GEORGE J. ZOCK President (Principal Executive Officer)and Trustee
George J. Zock

/S/ WILLIAM J. KELLY Treasurer (Principal Financial and Accounting Officer)
William J. Kelly

/S/ A. Thomas Arisman Trustee
A. Thomas Arisman

/S/ A. L. GALLOP* Trustee
A. L. Gallop

/S/ RICHARD A. HOLT* Trustee
Richard A. Holt

/S/ RICHARD D. LANG* Trustee
Richard D. Lang

/S/ HARRIET A. RUSSELL* Trustee
Harriet A. Russell

*George J. Zock signs this document pursuant to powers of attorney filed as
Exhibit 20 to Registrant's Pre-Effective Amendment No. 1 as filed on or about
February 20, 1997 and as Exhibit P to Post Effective Amendment No. 3 as filed on
December 30, 1998.

<PAGE>

EXHIBIT INDEX

(j) Consent of KPMG LLP

KPMG

CONSENT OF INDEPENDENT AUDITORS

The Board of Trustees and Shareholders
Horace Mann Mutual Funds:

We consent to the use of our report incorporated by reference herein and to the
references to our firm under the headings "Growth Fund Financial Highlights",
"Balanced Fund Financial Highlights", "Income Fund Financial Highlights",
"Short-Term Investment Fund Financial Highlights", "Small Cap Growth Fund
Financial Highlights", "International Equity Fund Financial Highlights", and
"Socially Responsible Fund Financial Highlights" in the Prospectus and under
the heading "Other Services-Independent Auditors" in the Statement of
Additional Information

KPMG LLP

Chicago, Illinois
April 23, 1999

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<PER-SHARE-NII> .78
<PER-SHARE-GAIN-APPREC> .27
<PER-SHARE-DIVIDEND> .69
<PER-SHARE-DISTRIBUTIONS> .12
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.24
<EXPENSE-RATIO> .88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0001026708
<NAME> HORACE MANN SHORT-TERM INVESTMENT FUND
<SERIES>
<NUMBER> 4
<NAME> SHORT-TERM
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,331
<INVESTMENTS-AT-VALUE> 1,332
<RECEIVABLES> 1
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<TOTAL-ASSETS> 1,335
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<OTHER-ITEMS-LIABILITIES> 4
<TOTAL-LIABILITIES> 4
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,330
<SHARES-COMMON-STOCK> 133
<SHARES-COMMON-PRIOR> 115
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,331
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 74
<OTHER-INCOME> 0
<EXPENSES-NET> 9
<NET-INVESTMENT-INCOME> 65
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 65
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 65
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,937
<NUMBER-OF-SHARES-REDEEMED> 3,806
<SHARES-REINVESTED> 49
<NET-CHANGE-IN-ASSETS> 180
<ACCUMULATED-NII-PRIOR> 1
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 35
<AVERAGE-NET-ASSETS> 1,358
<PER-SHARE-NAV-BEGIN> 9.99
<PER-SHARE-NII> .49
<PER-SHARE-GAIN-APPREC> .01
<PER-SHARE-DIVIDEND> .51
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.98
<EXPENSE-RATIO> .69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0001026708
<NAME> HORACE MANN SMALL CAP GROWTH FUND
<SERIES>
<NUMBER> 5
<NAME> SMALL CAP
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 22,341
<INVESTMENTS-AT-VALUE> 28,633
<RECEIVABLES> 28
<ASSETS-OTHER> 46
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 28,707
<PAYABLE-FOR-SECURITIES> 22
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30
<TOTAL-LIABILITIES> 52
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,204
<SHARES-COMMON-STOCK> 2,315
<SHARES-COMMON-PRIOR> 1,412
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3,841)
<ACCUM-APPREC-OR-DEPREC> 6,292
<NET-ASSETS> 28,655
<DIVIDEND-INCOME> 5
<INTEREST-INCOME> 109
<OTHER-INCOME> 0
<EXPENSES-NET> 241
<NET-INVESTMENT-INCOME> (127)
<REALIZED-GAINS-CURRENT> (3,345)
<APPREC-INCREASE-CURRENT> 5,176
<NET-CHANGE-FROM-OPS> 1,704
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,868
<NUMBER-OF-SHARES-REDEEMED> 4,443
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 12,129
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (496)
<GROSS-ADVISORY-FEES> 297
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 382
<AVERAGE-NET-ASSETS> 21,706
<PER-SHARE-NAV-BEGIN> 11.70
<PER-SHARE-NII> (.07)
<PER-SHARE-GAIN-APPREC> .75
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.38
<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0001026708
<NAME> HORACE MANN INTERNATIONAL EQUITY FUND
<SERIES>
<NUMBER> 6
<NAME> INTERNATIONAL
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 9,229
<INVESTMENTS-AT-VALUE> 10,325
<RECEIVABLES> 28
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,354
<PAYABLE-FOR-SECURITIES> 16
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27
<TOTAL-LIABILITIES> 43
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,233
<SHARES-COMMON-STOCK> 850
<SHARES-COMMON-PRIOR> 508
<ACCUMULATED-NII-CURRENT> 4
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (23)
<ACCUM-APPREC-OR-DEPREC> 1,097
<NET-ASSETS> 10,311
<DIVIDEND-INCOME> 111
<INTEREST-INCOME> 48
<OTHER-INCOME> 0
<EXPENSES-NET> 81
<NET-INVESTMENT-INCOME> 78
<REALIZED-GAINS-CURRENT> 45
<APPREC-INCREASE-CURRENT> 1,072
<NET-CHANGE-FROM-OPS> 1,195
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 73
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,128
<NUMBER-OF-SHARES-REDEEMED> 1,167
<SHARES-REINVESTED> 14
<NET-CHANGE-IN-ASSETS> 5,097
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (69)
<GROSS-ADVISORY-FEES> 83
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 163
<AVERAGE-NET-ASSETS> 7,910
<PER-SHARE-NAV-BEGIN> 10.27
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> 1.84
<PER-SHARE-DIVIDEND> .09
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<PER-SHARE-NAV-END> 12.13
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0001026708
<NAME> HORACE MANN SOCIALLY RESPONSIBLE FUND
<SERIES>
<NUMBER> 7
<NAME> SOCIALLY RESPONSIBLE
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 34,119
<INVESTMENTS-AT-VALUE> 35,532
<RECEIVABLES> 121
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 35,654
<PAYABLE-FOR-SECURITIES> 3
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 87
<TOTAL-LIABILITIES> 90
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,194
<SHARES-COMMON-STOCK> 2,738
<SHARES-COMMON-PRIOR> 762
<ACCUMULATED-NII-CURRENT> 11
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (54)
<ACCUM-APPREC-OR-DEPREC> 1,413
<NET-ASSETS> 35,564
<DIVIDEND-INCOME> 555
<INTEREST-INCOME> 47
<OTHER-INCOME> 0
<EXPENSES-NET> 140
<NET-INVESTMENT-INCOME> 462
<REALIZED-GAINS-CURRENT> 289
<APPREC-INCREASE-CURRENT> 831
<NET-CHANGE-FROM-OPS> 1,582
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 452
<DISTRIBUTIONS-OF-GAINS> 336
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,958
<NUMBER-OF-SHARES-REDEEMED> 2,930
<SHARES-REINVESTED> 529
<NET-CHANGE-IN-ASSETS> 26,351
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (7)
<GROSS-ADVISORY-FEES> 195
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 247
<AVERAGE-NET-ASSETS> 21,956
<PER-SHARE-NAV-BEGIN> 12.10
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> .91
<PER-SHARE-DIVIDEND> .17
<PER-SHARE-DISTRIBUTIONS> .12
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.99
<EXPENSE-RATIO> .64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>