NICHOLAS APPLEGATE MUTUAL FUNDS, 497, 1996-08-12

NICHOLAS APPLEGATE MUTUAL FUNDS
497, 1996-08-12

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NICHOLAS--APPLEGATE-REGISTERED TRADEMARK- MUTUAL FUNDS

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DOMESTIC QUALIFIED PORTFOLIOS

PROSPECTUS

Nicholas-Applegate Mutual Funds is an open-end management investment company
comprised of a number of diversified investment portfolios, including the five
diversified portfolios ("Portfolios") offered hereby. The Portfolios provide a
broad range of domestic investment opportunities which are suitable for
different investors. They are offered to certain qualified retirement plans,
tax-exempt and other institutional investors, and financial institutions.

EACH PORTFOLIO, UNLIKE MANY OTHER INVESTMENT COMPANIES WHICH DIRECTLY ACQUIRE
AND MANAGE THEIR OWN PORTFOLIOS OF SECURITIES, SEEKS TO ACHIEVE ITS INVESTMENT
OBJECTIVE BY INVESTING ALL OF ITS ASSETS IN A CORRESPONDING SERIES ("FUND") OF
NICHOLAS-APPLEGATE INVESTMENT TRUST, WHICH HAS THE SAME OBJECTIVE AS THE
PORTFOLIO. THE FUNDS IN TURN INVEST THEIR ASSETS, INCLUDING THOSE OF THE
PORTFOLIOS, IN PORTFOLIO SECURITIES. ACCORDINGLY, THE INVESTMENT EXPERIENCE OF
EACH PORTFOLIO WILL CORRESPOND DIRECTLY WITH THE INVESTMENT EXPERIENCE OF THE
RELATED FUND. INVESTORS SHOULD CAREFULLY CONSIDER THIS INVESTMENT APPROACH. SEE
"INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS- SPECIAL CONSIDERATIONS
REGARDING MASTER/FEEDER STRUCTURE" FOR ADDITIONAL INFORMATION REGARDING THIS
UNIQUE STRUCTURE. THERE CAN BE NO ASSURANCE THAT ANY PORTFOLIO OR FUND WILL
ACHIEVE ITS INVESTMENT OBJECTIVE.

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CORE GROWTH QUALIFIED PORTFOLIO seeks to maximize long-term capital
appreciation. It invests in the Nicholas-Applegate Core Growth Fund, which in
turn invests primarily in a diversified portfolio of common stocks of U.S.
companies with middle market capitalizations and above (generally above $500
million).

EMERGING GROWTH QUALIFIED PORTFOLIO seeks to maximize long-term capital
appreciation. It invests in the Nicholas-Applegate Emerging Growth Fund, which
in turn invests primarily in a diversified portfolio of common stocks of U.S.
corporations with smaller market capitalizations (e.g., up to $500 million).

INCOME & GROWTH QUALIFIED PORTFOLIO seeks to maximize total return, consisting
of capital appreciation and current income. It invests in the Nicholas-Applegate
Income & Growth Fund, which in turn invests primarily in convertible and equity
securities of U.S. companies. THE FUND MAY INVEST WITHOUT LIMITATION IN
SECURITIES RATED BELOW INVESTMENT GRADE, SOMETIMES CALLED "JUNK BONDS," WHICH
ARE SPECULATIVE AND INVOLVE GREATER RISKS, INCLUDING RISK OF DEFAULT, THAN
HIGHER-RATED SECURITIES. SEE "APPENDIX: CORPORATE BOND RATINGS."

BALANCED GROWTH QUALIFIED PORTFOLIO seeks to provide investors with a balance of
long-term capital appreciation and current income. It invests in the
Nicholas-Applegate Balanced Growth Fund, which in turn invests approximately 60%
of its total assets in equity and convertible securities of primarily U.S.
companies and 40% of its total assets in debt securities, money market
instruments and other short-term investments.

GOVERNMENT INCOME QUALIFIED PORTFOLIO seeks to maximize current income
consistent with prudent investment risk and preservation of capital. It invests
in the Nicholas-Applegate Government Income Fund, which in turn invests in
intermediate-term debt securities of the U.S. Government and its agencies and
instrumentalities.
- --------------------------------------------------------------------------------

SHARES OF THE PORTFOLIOS AND INTERESTS IN THE FUNDS ARE NOT BANK DEPOSITS AND
ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE
SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT IN A
PORTFOLIO INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.

This Prospectus presents information you should know before investing in any
of the Portfolios. It should be retained for future reference. A Statement of
Additional Information for the Portfolios dated August 2, 1996 has been filed
with the Securities and Exchange Commission and is incorporated by reference
into this Prospectus. The Statement may be obtained, without charge, by writing
to the Trust, P.O. Box 82169, San Diego, California 92138-2169, or by calling
(800) 551-8643. Inquiries regarding any of the Portfolios can also be made by
calling (800) 551-8643.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

AUGUST 2, 1996

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NICHOLAS--APPLEGATE MUTUAL FUNDS

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DOMESTIC QUALIFIED PORTFOLIOS

CORE GROWTH QUALIFIED PORTFOLIO
EMERGING GROWTH QUALIFIED PORTFOLIO
INCOME & GROWTH QUALIFIED PORTFOLIO
BALANCED GROWTH QUALIFIED PORTFOLIO
GOVERNMENT INCOME QUALIFIED PORTFOLIO

TABLE OF CONTENTS

Summary of Expenses...........................................................3
Prospectus Summary............................................................4
Financial Highlights..........................................................8
Investment Objectives, Policies and Risk Considerations.......................9
Organization and Management..................................................15
Purchasing Shares............................................................18
Investor Services............................................................20
Redeeming Shares.............................................................22
Dividends, Distributions and Taxes...........................................24
General Information..........................................................24
Appendix:
Investment Policies, Strategies
and Risks.................................................................27
Corporate Bond Ratings.....................................................40
Prior Performance of
Investment Adviser........................................................43

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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE PORTFOLIOS OR THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER BY THE PORTFOLIOS OR THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION.

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SUMMARY OF EXPENSES

This table is designed to help you understand the costs of investing in each of
the Portfolios. These are based on the expenses of the Portfolios for the fiscal
year ended March 31, 1996. Because each Portfolio invests all of its assets in a
corresponding Fund, each Portfolio's expenses include its proportionate share of
the operating expenses of the corresponding Fund. Actual expenses may be more or
less than those shown.

<TABLE>
<CAPTION>
EMERGING INCOME & BALANCED GOVERNMENT
CORE GROWTH GROWTH GROWTH GROWTH INCOME
QUALIFIED QUALIFIED QUALIFIED QUALIFIED QUALIFIED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
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<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases (as a percentage
of offering price) None None None None None
Sales charge on reinvested dividends None None None None None
Deferred sales charge (as a percentage of original
purchase price or redemption proceeds, whichever
is lower) None None None None None
Redemption fee None None None None None
Exchange fee None None None None None
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ANNUAL PORTFOLIO OPERATING EXPENSES AS A
PERCENTAGE OF AVERAGE NET ASSETS:
(after expense reduction)(1)
Management fees 0.75% 1.00% 0.75% 0.75% 0.40%
12b-1 expenses None None None None None
Shareholder service expenses 0.25% 0.25% 0.25% 0.25% 0.25%
All Other expenses (after expense reduction)(1) 0.25% 0.25% 0.25% 0.25% 0.15%
Total operating expenses (after expense
reduction)(1) 1.25% 1.50% 1.25% 1.25% 0.80%
</TABLE>

The Board of Trustees of the Trust believes that the aggregate per share
expenses of each Portfolio are no greater than the expenses that the Portfolio
would incur if it retained the services of an investment adviser and the assets
of the Portfolio were invested directly in the types of securities held by the
corresponding Fund. For a detailed description of the expenses of the Portfolios
and the Funds in which they invest, see "Organization and Management."
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(1)The Investment Adviser of the Master Trust has agreed to waive or defer its
management fees payable by the Funds, and to absorb other operating expenses
payable by the Funds and the Portfolios, to ensure that the expenses for each
Portfolio (other than interest, taxes, brokerage commissions and other
portfolio transaction expenses, capital expenditures and extraordinary
expenses) will not exceed the following respective percentage of such
Portfolio's average net assets on an annual basis through March 31, 1997:
Core Growth-1.25%; Emerging Growth-1.50%; Income & Growth-1.25%; Balanced
Growth-1.25% Government Income-0.80%. In subsequent years, overall operating
expenses for each Portfolio will not fall below the applicable percentage
limitation until the Investment Adviser has fully recouped fees deferred or
expenses paid by the Investment Adviser under this agreement, as each
Portfolio will reimburse the Investment Adviser when operating expenses
(before recoupment) for the Portfolio are less than the applicable percentage
limitation set forth above. Accordingly, until all such deferred fees or
expenses have been recouped by the Investment Adviser, the Portfolio's
expenses will be higher, and their yields will be lower, than would otherwise
be the case. See "Organization and Management-Expense Limitation." Actual
operating expenses for the Core Growth Qualified Portfolio for the fiscal
year ended March 31, 1996 were 2.84% of such Portfolios' average net assets.
Actual operating expenses (annualized) for the other Portfolios were the
following respective percentages of such Portfolios' average net assets:
Emerging Growth-37.86%; Income & Growth-9.21%; Balanced Growth-3,094.48%;
Government Income-3,029.81%. The various operating expenses of the Portfolios
are further described under "Organization and Management."

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EXAMPLE OF PORTFOLIO EXPENSES. The following table illustrates the expenses that
an investor would pay on a hypothetical $1,000 investment in each of the
Portfolios over various time periods, assuming (1) a 5% annual return and (2)
redemption at the end of each time period. The Portfolios charge no redemption
fees.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Core Growth Qualified Portfolio $ 13 $ 40 $ 69 $ 151
Emerging Growth Qualified Portfolio $ 15 $ 47 $ 82 $ 179
Income & Growth Qualified Portfolio $ 13 $ 40 $ 69 $ 151
Balanced Growth Qualified Portfolio $ 13 $ 40 $ 69 $ 151
Government Income Qualified Portfolio $ 8 $ 26 $ 44 $ 99
</TABLE>

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This Example assumes that all dividends and other distributions are reinvested
and that the percentage amounts listed under the heading "Annual Portfolio
Operating Expenses" in the fee table above remain the same in the years shown.

THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND A PORTFOLIO'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN. The hypothetical 5% annual return is used for illustrative purposes only
and should not be interpreted as an estimate of a Portfolio's annual return, as
there can be no guarantee of a Portfolio's future performance.

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PROSPECTUS SUMMARY

Nicholas-Applegate Mutual Funds (the "Trust") is an open-end management
investment company comprised of a number of diversified investment portfolios,
including the five Qualified Portfolios ("Portfolios") offered hereby. The
Portfolios are offered to certain qualified retirement plans and tax-exempt
investors.

INVESTMENT OBJECTIVES. The investment objectives of the Portfolios are described
on the front cover of this Prospectus. There can be no assurance that any
Portfolio will achieve its investment objective. See "Investment Objectives,
Policies and Risk Considerations" and "Appendix: Investment Policies, Strategies
and Risks."

MASTER/FEEDER STRUCTURE. The Portfolios seek to achieve their respective
investment objectives by investing all of their assets in corresponding series
("Funds") of Nicholas-Applegate Investment Trust (the "Master Trust"), a
diversified, open-end management investment company. The Funds have the same
investment objectives as the Portfolios which invest in them. The Funds, in
turn, hold investment securities. Although the "master/feeder" structure
employed by the Portfolios to achieve their investment objectives could provide
certain efficiencies and economies of scale, it could also have potential
adverse effects such as those resulting from large-scale redemptions by other
investors of their interests in the Funds, or from the failure by investors of a
Portfolio to approve a change in investment objectives and policies that has
been approved by the investors of the corresponding Fund. There may also be
other investment companies through which you can invest in the Funds which may
have higher or lower fees and expenses than those of the Portfolios. See
"Investment Objectives, Policies and Risk Considerations-Special Considerations
Regarding Master/Feeder Structure."

A Portfolio may cease investing in a corresponding Fund only if the Trust's
Board of Trustees determines that this is in the best interests of the Portfolio
and its investors, and only with the approval of the Portfolio's investors. In
such event the Board of Trustees would consider alternative arrangements such as
investing all of the Portfolio's assets in another investment

4
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company with the same investment objective as the Portfolio or hiring an
investment adviser to manage the Portfolio's assets in accordance with the
Portfolio's investment policies. No assurance exists that satisfactory
alternative arrangements would be available.

INVESTMENT RISKS AND CONSIDERATIONS. INVESTMENT RISKS AND OTHER CONSIDERATIONS
RELEVANT TO THE SECURITIES IN WHICH THE PORTFOLIOS INVEST THROUGH CORRESPONDING
FUNDS ARE DESCRIBED UNDER "INVESTMENT OBJECTIVES, POLICIES AND RISK
CONSIDERATIONS" AND IN THE APPENDIX-INVESTMENT POLICIES, STRATEGIES AND RISKS.
They include the following:

The securities of many companies in which the Core Growth, Emerging Growth,
Income & Growth and Balanced Growth Funds invest are subject to more volatile
market movements than securities of larger, more established companies because
the issuers are typically more subject to changes in earnings and prospects. The
net asset values of the corresponding Portfolios therefore can be expected to
experience above-average fluctuations, as above-average risk is assumed by the
Funds in investing in such growth companies in seeking higher than average
growth in capital.

The Income & Growth, Balanced Growth and Government Income Funds are each
permitted to invest in zero coupon securities, which may be subject to greater
volatility as a result of changes in prevailing interest rates than other debt
securites. In addition, the Balanced Growth and Income & Growth Funds are
permitted to invest in convertible and debt securities rated below "Baa" by
Moody's Investors Service, Inc. ("Moody's"), "BBB" by Standard & Poor's
Corporation ("S&P"), or investment grade by other recognized rating agencies, or
in unrated securities of comparable quality, if the Nicholas Applegate Capital
Management (the "Investment Adviser") believes that the financial condition of
the issuer or the protection afforded to the particular securities is stronger
than would otherwise be indicated by such low ratings or lack of ratings. Such
securities, commonly referred to as "junk bonds," are speculative and subject to
greater market fluctuations and risk of loss of income and principal than higher
rated bonds. The Funds will in no event purchase debt securities rated below "C"
or equivalent by Moody's, S&P or another rating agency, or determined by the
Investment Adviser to be of comparable quality. See "Appendix: Investment
Policies, Strategies and Risks" and the Statement of Additional Information for
a description of these securities and ratings.

Investments by the Funds in securities of foreign companies and governments
involve special risks in addition to the usual risks inherent in domestic
investments, including fluctuations in foreign exchange rates, political or
economic instability in the country of issue, and the possible imposition of
exchange controls or other laws or restrictions. Settlement of transactions in
foreign markets may be delayed or less frequent than in the U.S., and foreign
governments may withhold taxes from dividends and interest paid on securities
held by the Funds. There is also likely to be less publicly available
information about certain foreign issuers than is available about U.S.
companies, and foreign companies are not generally subject to uniform financial
reporting standards comparable to those applicable to U.S. companies. Investment
in emerging markets involves greater risks than other foreign investments.

The investment approach of the Investment Adviser results in above-average
portfolio turnover for each Fund. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expenses, and may also result in
the realization and distribution to shareholders of net capital gains which are
taxable to them as ordinary income for federal tax purposes.

For hedging purposes, certain Funds may purchase or write put and call options
on securities and securities indices, and effect transactions in futures
contracts and related options on stock indices. These are derivative
instruments, whose value derives from the value of an underlying

5
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security or index. Risks associated with the use of such instruments include the
possibility that the Investment Adviser's forecasts of market values and
currency rates of exchange and other factors are not correct; imperfect
correlation between the Fund's hedging technique and the asset or liability
being hedged; default by the other party to the transaction; and inability to
close out a position because of the lack of a liquid market. Investment in such
derivative instruments may not be successful, and may reduce the returns and
increase the volatility of the Funds. See "Appendix: Investment Policies,
Strategies and Risks" in this Prospectus and "Investment Objectives, Policies
and Risks" in the Statement of Additional Information.

THE CORE GROWTH AND EMERGING GROWTH FUNDS MAY ENGAGE IN SHORT SALES, WHICH
THEORETICALLY INVOLVE UNLIMITED LOSS POTENTIAL AND MAY BE CONSIDERED A
SPECULATIVE TECHNIQUE. See the description of the risks of short sales under
"Short Sales" in "Appendix: Investment Policies, Strategies and Risks."

Each Fund may invest up to 15% of its net assets in illiquid securities. Each
Fund may enter into repurchase agreements and lend its portfolio securities,
which involve the risk of loss upon the default of the seller or borrower. The
Funds may also borrow money from banks for temporary purposes which, among other
things, may require the Funds to sell portfolio securities to meet interest and
principal payments at an unfavorable time. See "Illiquid Securities,"
"Repurchase Agreements," "Securities Lending," and "Borrowing" in "Appendix:
Investment Policies, Strategies and Risks."

The Investment Adviser is compensated for its services to the Funds in the form
of monthly fees at the following annual rates: for the Emerging Growth
Fund-1.00% of the Fund's net assets; for each of the Core Growth, Income &
Growth and Balanced Growth Funds-0.75% of the first $500 million of the Fund's
net assets, 0.675% of the next $500 million and 0.65% of net assets in excess of
$1 billion; for the Government Income Fund, 0.40% of the first $500 million of
the Fund's net assets, and 0.35% of net assets in excess of $500 million. See
"Organization and Management."

DISTRIBUTOR. Nicholas-Applegate Securities (the "Distributor"), an affiliate of
the Investment Adviser, serves as distributor of shares of the Portfolios. The
Portfolios pay no distribution or other fees to the Distributor in connection
with services it provides. Under a Shareholder Service Plan, the Distributor is
reimbursed for shareholder services it provides and for payments made to plan
administrators and others for related support and recordkeeping services at an
annual rate of up to 0.25% of the Portfolios' net assets. See "Organization and
Management."

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Trustees. It also acts as administrator for the Master Trust. PNC Bank (the
"Custodian") is the custodian for the Trust and the Master Trust, and State
Street Bank and Trust Company (the "Transfer Agent") is the transfer and
dividend disbursing agent for the Trust.

PURCHASE OF SHARES. Shares of the Portfolios are offered to (i) qualified
retirement plans (including employer, association and other group retirement
plans), employee benefit trusts, foundations and endowments, (ii) certain
financial institutions having sales or service agreements with the Distributor
or another broker-dealer or financial institution with respect to sales of
shares of the Portfolios, and (iii) "wrap accounts" for the benefit of clients
of broker-dealers, financial planners having sales or service agreements with
the Distributor or another broker-dealer or financial institution with respect
to sales of shares of the Portfolios. Investments by individual participants of
qualified retirement plans are made through their plan sponsor or administrator.
Purchases may only be made by check or by wiring federal funds to the Transfer
Agent. Shares are purchased at the next offering price without any sales charge,
after an order is received in proper form by the Transfer Agent or a
sub-transfer agent. The minimum initial investment is $250,000 and the minimum
subsequent investment is $10,000. The minimum initial and subsequent investments
are waived for individual participants of qualified retirement plans. Shares of
a Portfolio may also be purchased with securities which are otherwise
appropriate for investment by the Portfolio. See "Purchasing Shares."

INVESTOR SERVICES. The following services are provided to investors of a
Portfolio for their convenience and flexibility: an automatic investment plan;
automatic reinvestment and cross-reinvestment of dividends and capital gains
distributions; an exchange privilege; and automatic withdrawals. See "Investor
Services." Individual participants of qualified retirement plans should direct
inquiries to their plan sponsor or administrator.

REDEEMING SHARES. Shares of the Portfolios may be redeemed by writing to the
Transfer Agent or by telephone if telephone redemption privileges have been
established by the plan sponsor. Redemption proceeds will be wired to your bank.
Participants of qualified retirement plans must make redemption requests to the
plan sponsor or administrator. The price received for Portfolio shares redeemed
is at the next determined net asset value after the request is received by the
Transfer Agent or a sub-transfer agent, which may be more or less than the
purchase price. No contingent deferred sales charge or other fee is imposed on
redemptions. See "Redeeming Shares."

DIVIDENDS, DISTRIBUTIONS AND TAXES. The Core Growth and Emerging Growth
Portfolios declare and pay annual dividends of net investment income; the
Balanced Growth and Income & Growth Portfolios declare and pay quarterly
dividends; and the Government Income Portfolio declares and pays monthly
dividends. The Portfolios make distributions at least annually of any net
capital gains. All dividends and distributions will be paid in the form of
additional shares at net asset value unless cash payment is requested.

7
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FINANCIAL HIGHLIGHTS

The following financial highlights have been audited by Ernst & Young, L.L.P.
with respect to the fiscal year ended March 31, 1996, and by Coopers & Lybrand
L.L.P. with respect to the period from commencement of operations of the Core
Growth Qualified Portfolio through March 31, 1996. Ernst & Young L.L.P. and
Coopers & Lybrand L.L.P. are independent auditors whose reports thereon were
unqualified. The information should be read in conjunction with the financial
statements and the notes thereto, which appear in the Trust's Annual Report to
Shareholders incorporated by reference in the Statement of Additional
Information.

<TABLE>
<CAPTION>
CORE EMERGING INCOME & BALANCED GOVERNMENT
GROWTH GROWTH GROWTH GROWTH INCOME
Qualified Qualified Qualified Qualified Qualified
Portfolio Portfolio Portfolio Portfolio Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
6-30-94 to 4-1-95 to 8-31-95 to 8-31-95 to 8-31-95 to 8-31-95 to
3-31-95 3-31-96 3-31-96 3-31-96 3-31-96 3-31-96
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period $ 12.50 $ 13.66 $ 12.50 $ 12.50 $ 12.50 $ 12.50
Income from investment operations
Net investment income (deficit) (0.02) (0.07) (0.03) 0.17 0.15 0.37
Net realized and unrealized gains
(losses) securities and foreign
currency 1.18 4.86 1.69 1.22 0.19 (0.06)
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations 1.16 4.79 1.66 1.39 0.34 0.31
Less distributions
Dividends from net investment
income -- -- -- (0.17) (0.15) (0.37)
Distributions from capital gains -- (0.46) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 13.66 $ 17.99 $ 14.16 $ 13.72 $ 12.69 $ 12.44
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN: 9.28% 35.37% 13.28% 11.13% 2.77% 2.48%
Ratios/Supplemental Data:
Net assets ($000), end of period $2,121 $4,274 $314 $1,085 $1 $1
Ratio of expenses to average net
assets, after expense
reimbursement+ 1.24%* 1.23% 1.49%* 1.25%* 1.45%* 0.95%*
Ratio of expenses to average net
assets, before expense
reimbursement+ 3.52%* 2.84% 37.86%* 9.21%* 3094.48%* 3029.81%*
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement+ (0.33%)* (0.57%) (1.05%)* 3.59%* 2.16%* 5.23%*
Ratio of net investment deficit to
average net assets, before expense
reimbursement+ (1.61%)* (2.18%) (32.41%)* (4.22%)* (3090.46%)* (3021.56%)*
Portfolio turnover++ 98.09% 114.48% 129.59% 144.97% 197.19% 190.47%
Average commission rate paid+ N/A $0.0593 $0.0523 $0.0597 $0.0594 N/A
</TABLE>

- ----------------------------------------------
*Annualized
+Including expenses allocated from the Master Trust Funds
++For the corresponding Funds of the Master Trust

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- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS

The investment objective and policies of each Portfolio are discussed below and
in the "Appendix: Investment Policies, Strategies and Risks."

SPECIAL CONSIDERATIONS REGARDING MASTER/FEEDER STRUCTURE. The Portfolios seek to
achieve their investment objectives by investing all of their assets in
corresponding Funds, which have the same objectives as the Portfolios. The
Funds, in turn, hold investment securities. Accordingly, the investment
experience of each Portfolio will correspond directly with the investment
experience of the related Fund. For a description of the Funds' objectives,
policies, restrictions, management and expenses, see "Investment Objectives,
Policies and Risk Considerations" below, the Appendix and "Organization and
Management." There can be no assurance that any Portfolio or Fund will achieve
its investment objective. Each Portfolio's and Fund's investment objective is a
fundamental policy which may not be changed without the approval of the holders
of a majority of the outstanding shares of the Portfolio or Fund, respectively,
as defined in the Investment Company Act of 1940 (the "Investment Company Act").
Upon any such approval, each Portfolio will provide at least 30 days' written
notice to its investors before any change is made to its or the corresponding
Fund's investment objective.

There are certain risks to the Portfolios related to the use of the
"master/feeder" structure. Such risks include, but are not limited to, the
following: Large-scale redemptions by other investment companies of their
interests in the corresponding Funds, could have adverse effects, such as lack
of portfolio diversity and decreased economies of scale, and could result in the
shareholders of a Portfolio, as the remaining investor in the Fund, bearing all
the operating costs of the Fund and thus experiencing higher pro rata operating
expenses and lower returns than would otherwise be the case. In addition, the
total withdrawal by another investment company as an investor in a Fund will
cause the Fund to terminate automatically in 120 days, unless the corresponding
Portfolio and any other investors in the Fund unanimously agree to continue the
business of the Fund. As the Portfolio is required to submit such matters to a
vote of its shareholders, it will be required to incur the expenses of
shareholder meetings in connection with such withdrawals. If unanimous agreement
is not reached to continue the Fund, the Board of Trustees of the Trust would
need to consider alternative arrangements for the Portfolio, including investing
all of the Portfolio's assets in another investment company with the same
investment objective as the Portfolio or hiring an investment adviser to manage
the Portfolio's assets in accordance with the investment policies described
below and in "Appendix: Investment Policies, Strategies and Risks." The absence
of substantial experience with the master/feeder structure could result in
accounting or other difficulties. Failure by investors of a Portfolio to approve
a change in the investment objective and policies of a Portfolio parallel to a
change that has been approved by the investors of the corresponding Fund would
require the Portfolio to redeem its shares of the Fund; this could result in a
distribution in kind to the Portfolio of the portfolio securities of the Fund
(rather than a cash distribution), causing the Portfolio to incur brokerage fees
or other transaction costs in converting such securities to cash, reducing the
diversification of the Portfolio's investments and adversely affecting its
liquidity. Other shareholders in the Funds may have a greater ownership interest
in the Funds than the Portfolios' interest, and could thus have effective voting
control over the operation of the Funds.

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<PAGE>
investment companies through which investors can invest indirectly in the Funds.
The fees charged by such other investment companies may be higher or lower than
those charged by the Portfolios, which may reflect, among other things,
differences in the nature and level of the services and features offered by such
companies to their investors. Information about the availability of other
investment companies that invest in the Funds can be obtained by calling (800)
551-8643.

A Portfolio may cease investing in a corresponding Fund only if the Board of
Trustees of the Trust determines that such action is in the best interests of
the Portfolio and its investors, and only with the approval of the Portfolio's
investors. In that event, the Board of Trustees would consider alternative
arrangements, including investing all of the Portfolio's assets in another
investment company with the same investment objective as the Portfolio or hiring
an investment adviser to manage the Portfolio's assets in accordance with the
investment policies described below and in "Appendix: Investment Policies,
Strategies and Risks."

CORE GROWTH QUALIFIED PORTFOLIO. The Core Growth Qualified Portfolio seeks to
maximize long-term capital appreciation. It invests all of its assets in the
Nicholas-Applegate Core Growth Fund, which has the same investment objective as
the Core Growth Qualified Portfolio. Assets of the Core Growth Fund are invested
primarily in common stocks of U.S. companies the earnings and stock prices of
which are expected by the Fund's Investment Adviser to grow faster than the
average rate of companies in the Standard & Poor's 500 Stock Price Index.
Companies in which the Fund invests are diversified over a cross-section of
industries and may be growth companies, cyclical companies or companies believed
to be undergoing a basic change in operations or markets which, in the opinion
of the Investment Adviser, would result in a significant improvement in
earnings. The securities of such companies may be subject to more volatile
market movements than securities of larger, more established companies. Although
the Fund is not restricted to investments in companies of any particular size,
it currently intends to invest primarily in companies with middle market
capitalizations and above (generally above $500 million). See "Appendix:
Investment Policies, Strategies and Risks." for a discussion of the risks
associated with investment in such growth companies.

Under normal market conditions, at least 75% of the Core Growth Fund's total
assets will be invested in common stocks. The remainder of the Fund's assets may
be invested in preferred and convertible securities issued by similar growth
companies, investment grade corporate debt securities, securities issued or
guaranteed by the U.S. Government and its agencies or instrumentalities and
various other securities and instruments described in "Appendix: Investment
Policies, Strategies and Risks." The Fund may invest up to 20% of its total
assets, directly (or indirectly through American Depository Receipts), in
securities issued by foreign issuers. See "Appendix: Investment Policies,
Strategies and Risks" for a discussion of the risks associated with investment
in foreign securities. The debt securities in which the Fund may invest will be
rated "Baa" or higher by Moody's, "BBB" or higher by S&P or equivalent ratings
by other recognized rating agencies, or will be unrated if determined by the
Investment Adviser to be of comparable quality. These securities are of
investment grade, which means that their issuers are believed to have adequate
capacity to pay interest and repay principal, although certain of such
securities in the lower grades have speculative characteristics, and changes in
economic conditions or other circumstances may be more likely to lead to a
weakened capacity to pay interest and principal than would be the case with
higher rated securities. If the rating of a debt security held by the Fund is
downgraded below investment grade, the security will be sold as promptly as
practicable. The Fund may also make short sales, which is considered a
speculative technique. See "Appendix: Investment Policies, Strategies and Risks"
for a discussion of the risks associated with short sale transactions.

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<PAGE>
EMERGING GROWTH QUALIFIED PORTFOLIO. The Emerging Growth Qualified Portfolio
seeks to maximize long-term capital appreciation. The Portfolio invests all of
its assets in the Nicholas-Applegate Emerging Growth Fund, which has the same
investment objective as the Emerging Growth Qualified Portfolio. Assets of the
Emerging Growth Fund are invested in the same types of securities as the Core
Growth Fund, except that the Fund intends to invest primarily in companies with
smaller market capitalizations (e.g., up to $500 million). However, the Fund
will not necessarily sell any security held by it if the market capitalization
of the issuer increases above $500 million subsequent to purchase. See "Core
Growth Qualified Portfolio" above.

INCOME & GROWTH QUALIFIED PORTFOLIO. The Income & Growth Qualified Portfolio
seeks to maximize total return, consisting of capital appreciation and current
income. It invests all of its assets in the Nicholas-Applegate Income & Growth
Fund, which has the same investment objective as the Income & Growth Qualified
Portfolio. Assets of the Income & Growth Fund are invested primarily in
convertible and equity securities of U.S. companies. Convertible securities are
bonds, debentures, corporate notes or preferred stocks which pay interest or
dividends and which may be converted into common stock at the option of the
holder. Convertible securities provide for participation in the appreciation of
the underlying common stock but at a lower level of risk because the yield is
higher and the security is senior to the common stock upon liquidation of the
issuer.

Under normal market conditions, at least 65% of the Income & Growth Fund's total
assets will be invested in convertible securities and in common stocks received
upon conversion or exchange of such securities and retained in the Fund's
portfolio to permit orderly disposition. Up to 35% of the Fund's total assets
may be invested in other securities, including non-convertible equity (common
and preferred stocks) and debt securities and securities issued or guaranteed by
the U.S. Government and its agencies and instrumentalities. See "Appendix:
Investment Policies, Strategies and Risks" for a description of the various
other securities and instruments in which the Fund may invest. The Fund may also
invest in Eurodollar convertible securities and American Depository Receipts.
See "Appendix: Investment Policies, Strategies and Risks" for a discussion of
the risks associated with investment in foreign securities. At all times, a
minimum of 25% of the Fund's total assets will be invested in income-producing
securities (including convertible securities and debt securities), and a minimum
of 25% of the Fund's total assets will be invested in equity securities
(including common and preferred stocks).

The issuers of the convertible and equity securities in which the Income &
Growth Fund invests will be the same types of growth companies as those in which
the Core Growth Fund invests. See "Core Growth Qualified Portfolio" above and
the Appendix for a discussion of the risks associated with investment in such
growth companies. The Income & Growth Fund's convertible and other debt
securities will generally be investment grade securities rated "Baa" or higher
by Moody's, "BBB" or higher by S&P or equivalent ratings by other recognized
rating agencies, or will be unrated if determined by the Investment Adviser to
be of comparable quality, as described above under "Core Growth Qualified
Portfolio."

However, the Income & Growth Fund's net assets may be invested without
limitation in debt securities rated below investment grade or in unrated
securities of comparable quality if the Investment Adviser believes that the
financial condition of the issuer or the protection afforded to the particular
securities is stronger than would otherwise be indicated by such low ratings or
the lack thereof. Debt securities with ratings below "Baa" or "BBB" or
equivalent ratings, commonly referred to as "junk bonds," are speculative and
subject to greater market fluctuations and risk of loss of income and principal
than higher rated bonds. The default rate

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<PAGE>

of lower-quality debt securities is likely to be higher when issuers have
difficulty meeting projected goals or obtaining additional financing, which
could occur during economic recessions or periods of high interest rates. They
may be thinly traded, making them difficult to sell promptly at an acceptable
price. Negative publicity or investor perceptions may make valuing such
securities difficult, and could hurt the Fund's ability to dispose of them. If
the rating of an investment grade security held by the Fund is downgraded, the
Investment Adviser will determine whether it is in the best interests of the
Fund to continue to hold such security in the investment portfolio. See
"Appendix: Investment Policies, Strategies and Risks" for a discussion of the
risks associated with investment in junk bonds.

BALANCED GROWTH QUALIFIED PORTFOLIO. The Balanced Growth Qualified Portfolio
seeks to provide investors with a balance of long-term capital appreciation and
current income. It invests all of its assets in the Nicholas-Applegate Balanced
Growth Fund, which has the same investment objective as the Balanced Growth
Qualified Portfolio. Assets of the Balanced Growth Fund are invested in equity
securities (common and preferred stocks), convertible securities and warrants
primarily of U.S. companies, debt securities (bonds, debentures and notes),
money market instruments and other short-term investments and instruments
described in "Appendix: Investment Policies, Strategies and Risks." Under normal
circumstances, the Fund will allocate approximately 60% of its total assets to
equity securities, convertible securities and warrants and approximately 40% to
debt securities, money market instruments and other short-term investments and
instruments.

Temporary deviations from the Balanced Growth Fund's 60%/40% balance of
securities due to market fluctuations in the value of securities or otherwise
will be permitted so long as the percentage of equity securities, convertible
securities and warrants in the Balanced Growth Fund's investment portfolio is
not more than 70% or less than 50% of the value of the Fund's total assets. If
the value of the equity securities, convertible securities and warrants in the
Balanced Growth Fund's investment portfolio increases above 70% or decreases
below 50%, the Fund will effect sales or purchases of certain of its existing
investments as promptly as practicable, consistent with maintaining the
Portfolio's tax status as a regulated investment company, to restore the 60%/40%
ratio. Such a portfolio adjustment may cause the Fund to buy or sell securities
at different times than the Investment Adviser would otherwise have made such
purchases and sales. Such purchases and sales may also cause the Fund to incur a
higher proportion of short-term capital gains than might otherwise be the case.

The issuers of the Balanced Growth Fund's equity investments will be the same
types of growth companies as those in which the Core Growth Fund invests. See
"Core Growth Qualified Portfolio" above and the Appendix for a discussion of the
risks of investment in such growth companies. The debt securities in which the
Balanced Growth Fund may invest include debt securities issued by the U.S.
Government and its agencies and instrumentalities, and corporate debt
securities. The ratings (or in the case of unrated securities, the Investment
Adviser's assessment of comparable quality) of the Fund's convertible and other
debt securities, and its policies regarding downgraded securities, will be the
same as those of the Income & Growth Fund. The Balanced Growth Fund may invest a
portion (less than 35%) of its net assets in convertible and debt securities
rated below investment grade or in unrated securities of comparable quality.
Such securities or "junk bonds" are speculative and subject to greater risk of
loss of income and principal than higher rated bonds. See "Income & Growth
Qualified Portfolio" above and "Appendix: Investment Policies, Strategies and
Risks" for a discussion of the risks associated with investment in junk bonds.

GOVERNMENT INCOME QUALIFIED PORTFOLIO. The Government Income Qualified Portfolio
seeks to maximize current income consistent with prudent investment risk and
preservation of capital.

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The Portfolio invests all of its assets in the Nicholas-Applegate Government
Income Fund, which has the same investment objective as the Government Income
Qualified Portfolio. The assets of the Government Income Fund are invested
primarily in investment grade, intermediate-term debt securities of the U.S.
Government and its agencies and instrumentalities. Such securities are of
varying maturities, with a weighted average portfolio duration (expected life)
from three to six years. The Fund may invest in direct obligations of the United
States (such as Treasury bills, notes and bonds, which are supported by the full
faith and credit of the United States) and obligations (including
mortgage-related securities) issued or guaranteed by agencies and
instrumentalities of the U.S. Government that are established under an act of
Congress. These agencies and instrumentalities may include, but are not limited
to, the Government National Mortgage Association, Federal National Mortgage
Association, Federal Home Loan Mortgage Corporation, Student Loan Marketing
Association, Federal Farm Credit Banks, Federal Home Loan Banks, and Resolution
Funding Corporation. Under normal market conditions, at least 75% of the total
assets of the Fund will be invested in securities issued or guaranteed by the
U.S. Government or its agencies and instrumentalities. The remainder of the
Fund's assets may be invested in mortgage-related securities (including
collateralized mortgage obligations), investment grade debt securities,
short-term investments and other securities and instruments described in
"Appendix: Investment Policies, Strategies and Risks."

Although the Government Income Fund invests primarily in securities issued or
guaranteed by the U.S. Government or its agencies and instrumentalities, the
value of the Fund's and Portfolios' shares and their current yields will
fluctuate and are not guaranteed by the U.S. Government. The market value of the
debt securities in which the Fund will invest is generally affected by changes
in the level of interest rates. An increase in interest rates will tend to
reduce their market value, and a decline in interest rates will tend to increase
their value. The magnitude of these changes will be greater for securities with
longer remaining maturities than those with shorter maturities. Generally, the
longer the maturity of a debt security, the higher its yield and the greater its
price volatility. Conversely, the shorter the maturity, the lower the yield but
the greater the price stability.

Duration is one of the fundamental tools used by the Investment Adviser in the
selection of securities for the Government Income Fund. Developed as a more
precise alternative to the concept of "term to maturity," duration is a measure
of the expected life of a debt security on a present value basis and is an
indicator of a security's price volatility and risk associated with changes in
interest rates. Duration incorporates a bond's yield, coupon interest payments,
final maturity and call features into one measure. It takes the length of the
time intervals between the present time and the time that interest and principal
payments are scheduled and weights them by the present values of the cash to be
received at each future point in time. For any fixed income security with
interest payments occurring prior to the payment of principal, duration is
always less than maturity. In general, all other things being the same, the
lower the stated or coupon rate of interest of a fixed income security, the
longer the duration of the security; conversely, the higher the stated or coupon
rate of interest of a fixed income security, the shorter the duration of the
security. For example, the maturity of a coupon bond with a three-year duration
is approximately 3.5 years, and the maturity of a coupon bond with a six-year
duration is approximately nine years. In some situations the standard duration
calculation does not properly reflect the interest rate exposure of a security,
such as in the case of mortgage pass-through securities. In such instances, the
Investment Adviser will use more sophisticated analytical techniques that
incorporate the economic life of a security into the determination of its
interest rate exposure.

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<PAGE>
INVESTMENT TECHNIQUES AND PROCESSES. The focus of the Investment Adviser's
investment program is GROWTH OVER TIME-REGISTERED TRADEMARK-. In making
decisions with respect to equity securities for the Funds, the Investment
Adviser uses a proprietary investment methodology which is designed to capture
positive change at an early stage. It adheres rigorously to this methodology,
and applies it to various segments of the capital markets, domestically and
internationally. This methodology consists of investment techniques and
processes designed to identify companies with attractive earnings and dividend
growth potential and to evaluate their investment prospects. These techniques
and processes include relationships with an extensive network of brokerage and
research firms located throughout the world; computer-assisted fundamental
analysis of thousands of domestic and foreign companies; established criteria
for the purchase and sale of individual securities; portfolio structuring and
rebalancing guidelines; securities trading techniques; and continual monitoring
and reevaluation of all holdings with a view to maintaining the most attractive
mix of investments. The Investment Adviser collects data on approximately 26,000
companies in 35 countries (adjusting for reporting and accounting differences).
There can be no assurance that use of the proprietary investment methodology
will be successful.

The decision to invest assets of a Fund in any particular debt security will be
based on such factors as the Investment Adviser's analysis of the effect of the
yield to maturity of the security on the average yield to maturity of the total
debt security portfolio of the Fund, the Investment Adviser's assessment of the
credit quality of the issuer and other factors the Investment Adviser deems
relevant. In managing the Funds' debt security investments, the Investment
Adviser seeks to capture major moves in interest rates and utilizes a
proprietary model to identify interest rate trends in the bond market. There can
be no assurance that use of these techniques will be successful.

INVESTMENT POLICIES, STRATEGIES AND RISKS. The Appendix and the Statement of
Additional Information describe certain investment securities and techniques of
the Funds, and the associated risks. These include short-term investments in
cash and cash equivalents; investment in sovereign debt securities of U.S. and
foreign governments and their agencies and instrumentalities; floating and
variable rate demand notes and bonds; commercial paper; non-convertible
corporate debt securities; convertible securities, synthetic convertible
securities and warrants; closed-end country funds; depository receipts;
over-the-counter securities; when-issued securities and firm commitment
agreements; foreign exchange contracts; put and call options on securities;
stock index futures contracts; repurchase agreements; illiquid securities;
securities lending; and borrowing.

INVESTMENT RESTRICTIONS. Each Portfolio and Fund is subject to certain
investment restrictions which constitute fundamental policies. Fundamental
policies may not be changed without the approval of the holders of a majority of
the outstanding shares of the affected Portfolio or Fund, respectively, as
defined in the Investment Company Act. An investment policy or restriction which
is not described as fundamental in this Prospectus or the Statement of
Additional Information may be changed or modified by the Board of Trustees of
the Trust or Master Trust, as the case may be, without shareholder approval.

The investment objective of each Fund and Portfolio is a fundamental policy.
Certain of the investment restrictions which are fundamental policies are set
forth below. Additional investment restrictions are discussed in the Appendix
and Statement of Additional Information.

1. No Portfolio or Fund may invest more than 5% of its total assets in the
securities of any one issuer. However, up to 25% of a Portfolio's or
Fund's total assets may be invested without regard to this limitation,
and this limitation does not apply to investments in securities of the
U.S. Government or its agencies and instrumentalities.

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<PAGE>
2. No Portfolio or Fund may purchase more than 10% of the outstanding
voting securities of any one issuer, or purchase the securities of any
issuer for the purpose of exercising control.

3. No Portfolio or Fund may invest 25% or more of its total assets in any
one particular industry; however, this restriction does not apply to the
securities of the U.S. Government, its agencies and instrumentalities.

4. No Portfolio or Fund may make loans of its portfolio securities in an
aggregate amount exceeding 30% of the value of its total assets, or
borrow money (except from banks for temporary, extraordinary or
emergency purposes or for the clearance of transactions and in an
aggregate amount not exceeding 20% of the value of its total assets).

5. No Portfolio or Fund may invest more than 15% of its net assets in
illiquid securities.

The investment restrictions described above do not apply to an investment by a
Portfolio of all of its assets in a corresponding Fund.

PORTFOLIO TURNOVER. The Investment Adviser's investment approach results in
above-average portfolio turnover for each Fund as the Investment Adviser sells
portfolio securities when it believes the reasons for their initial purchase are
no longer valid or when it believes that the sale of a security owned by a Fund
and the purchase of another security of better value can enhance principal or
increase income. A security may also be sold to avoid a prospective decline in
market value or purchased in anticipation of a market rise. Although it is not
possible to predict future portfolio turnover rates accurately, and such rates
may vary greatly from year to year, the Investment Adviser anticipates that the
annual portfolio turnover rate for each Fund may be up to 200%, which is
substantially greater than that of many other investment companies. A high rate
of portfolio turnover (100% or more) will result in a Fund paying greater
brokerage commissions on equity securities (other than those effected with
dealers on a principal basis) than would otherwise be the case, which will be
borne directly by the Fund and ultimately by the investors of the corresponding
Portfolios. High portfolio turnover should not result in a Fund paying greater
brokerage commissions on debt securities, as most transactions in debt
securities are effected with dealers on a principal basis. However, debt
securities, as well as equity securities traded on a principal basis, are
subject to mark-ups by the dealers. High portfolio turnover may also result in
the realization of substantial net capital gains, and any distributions derived
from such gains may be ordinary income for federal tax purposes.

- --------------------------------------------------------------------------------
ORGANIZATION AND MANAGEMENT

ORGANIZATION. Each Portfolio is a series of Nicholas-Applegate Mutual Funds, a
Delaware business trust. The Board of Trustees of the Trust, in addition to
reviewing the actions of the Trust's Administrator and Distributor, as set forth
below, decides upon matters of general policy with respect to each Portfolio.
See "General Information." The trustees and officers of the Trust and of the
Master Trust are described in the Statement of Additional Information. None of
the disinterested trustees of the Trust are the same individuals as the
disinterested trustees of the Master Trust.

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<PAGE>
30th Floor, San Diego, California 92101, serves as the Investment Adviser to the
Funds. The Investment Adviser currently manages approximately $30 billion of
discretionary assets for numerous clients, including employee benefit plans of
corporations, public retirement systems and unions, university endowments,
foundations and other institutional investors, and individuals. The Investment
Adviser was organized in 1984 as a California limited partnership. Its general
partner is Nicholas-Applegate Capital Management Holdings, L.P., a California
limited partnership controlled by Arthur E. Nicholas. He and 13 other partners
manage a staff of approximately 325 employees.

As compensation for the services it provides, the Investment Adviser receives a
monthly fee at the following annual rates: for the Emerging Growth Fund, 1.0% of
the Fund's net assets; for each of the Core Growth Fund, Income & Growth Fund
and Balanced Growth Fund, 0.75% of the first $500 million of the Fund's net
assets, 0.675% of the next $500 million of net assets, and 0.65% of net assets
in excess of $1 billion; for the Government Income Fund, 0.40% of the first $500
million of the Fund's net assets, and 0.35% of net assets in excess of $500
million.

For the fiscal year ended March 31, 1996, the Investment Adviser received fees
and expense recoupments from the Funds and Portfolios equal to the following
percentages of the Portfolios' respective average net assets, after the fee
deferrals and expense reimbursements referred to under "Expense Limitation":
Core Growth Portfolio-(0.86%); Emerging Growth Portfolio-(18.82%); Income &
Growth Portfolio-(3.81%); Balanced Growth Portfolio- (1804.40%); and Government
Income Portfolio-(1767.98%).

The Funds have been managed since inception under the general supervision of Mr.
Nicholas, who has been the Chief Investment Officer of the Investment Adviser
since its organization. In addition, since December 1995, John D. Wylie, as
Chief Investment Officer Investor Services Group, is also responsible for
general oversight of the Funds' portfolios. The following persons are primarily
responsible for the Investment Adviser's day-to-day management of the Funds'
portfolios; except as otherwise indicated, each of them has been primarily
responsible since the Funds began operation: Core Growth Fund-John C. Marshall,
Jr.; Emerging Growth Fund-Catherine Somhegyi; Income & Growth Fund-John D.
Wylie; Balanced Growth Fund-John D. Wylie and the Investment Adviser's global
management team headed by Lawrence S. Speidell (since March 1996) and Catherine
Somhegyi (since March 1996); Government Income Fund-John D. Wylie. Mr. Wylie,
Mr. Marshall and Ms. Somhegyi have managed similar accounts for the Investment
Adviser for more than the last five years. Mr. Speidell has been a portfolio
manager with the Investment Adviser since March 1994; from 1983 until he joined
the Investment Adviser, he was an institutional portfolio manager with
Batterymarch Financial Management.

For historical performance information regarding institutional private accounts
managed by the Investment Adviser that have investment objectives, policies,
strategies and risks substantially similar to those of the Balanced Growth
Portfolio, see "Appendix: Prior Performance of Investment Adviser." For
historical performance information regarding certain of the other Portfolios and
their predecessor pooled investment vehicles, see "Performance Information --
Prior Performance of Certain Portfolios and Their Predecessors" in the Statement
of Additional Information.

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<PAGE>

filing all documents required for compliance by the Trust with applicable laws
and regulations, arranging for the maintenance of books and records of the Trust
and supervision of other organizations that provide services to the Trust.
Certain officers of the Trust are also provided by the Administrator. For the
services it provides to the Trust, the Administrator receives an annual fee of
between $5,000 and $35,000 for each of the groups of portfolios of the Trust
investing in the various series of the Master Trust; the fee is allocated among
various series of the Trust, including the Portfolios, in accordance with
relative net asset values. The Administrator provides similar services as the
administrator of the Master Trust, subject to the supervision of its Board of
Trustees, and is compensated separately for the services rendered to each Fund
at an annual rate of approximately 0.015% of the average daily net assets of the
Fund.

EXPENSE LIMITATION. To limit the expenses of each Portfolio, the Investment
Adviser has agreed to defer its management fees payable by the Funds, and to
absorb the other operating expenses payable by the Funds and the Portfolios, to
ensure that the expenses of each Portfolio (excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures and
extraordinary expenses, but including such Portfolio's proportionate share of
the corresponding Fund's similar operating expenses) do not exceed the following
respective percentage of such Portfolio's average net assets on an annual basis
through March 31, 1997 or any lower expense limitation imposed by any state
during any fiscal period: Core Growth-1.25%; Emerging Growth-1.50%; Income &
Growth-1.25%; Balanced Growth-1.25%; Government Income-0.80%. Each Portfolio
will reimburse the Investment Adviser for fees deferred or other expenses paid
by the Investment Adviser pursuant to this agreement in later years in which
operating expenses for the Portfolio are less than the applicable percentage
limitation set forth above for any such year. No interest, carrying or finance
charge will be paid by a Portfolio with respect to any amounts representing fees
deferred or other expenses paid by the Investment Adviser. In addition, no
Portfolio or Fund will be required to repay any unreimbursed amounts to the
Investment Adviser upon termination or non-renewal of its Investment Advisory
Agreement with the Master Trust.

For the fiscal year ended March 31, 1996, the Portfolios' total expenses were
the following percentages of their respective average net assets, after the fee
deferrals and expense reimbursements indicated in parentheses: Core Growth
Portfolio-1.23% (1.61%); Emerging Growth Portfolio-1.49% (36.37%); Income &
Growth Portfolio-1.25% (7.96%); Balanced Growth Portfolio-1.45% (3093.03%); and
Government Income Portfolio-0.95% (3028.86%).

DISTRIBUTOR. Nicholas-Applegate Securities, 600 West Broadway, 30th Floor, San
Diego, California 92101, a California limited partnership, serves as the
Distributor of shares of each Portfolio. The general partner of the Distributor
is Nicholas-Applegate Capital Management Holdings, L.P. and its limited partner
is the Investment Adviser.

The Trust has adopted a Shareholder Service Plan under which the Portfolios
reimburse the Distributor for shareholder expenses actually incurred with
respect to shares of the Portfolios. Under the Shareholder Service Plan, which
is a "reimbursement" plan, the Portfolios pay the Distributor an annual fee of
up to 0.25% of the Portfolios' average daily net assets as reimbursement for
certain expenses actually incurred in connection with shareholder services
provided by the Distributor and payments to plan administrators and others for
the provision of such services. Support services with respect to the beneficial
owners of the Portfolios' shares include establishing and maintaining accounts
and records relating to clients of plan administrators and others who invest in
the Portfolios' shares, preparing tax reports, assisting clients in processing
exchange and redemption requests and account designations, and responding to
client inquiries concerning their investments. If in any month the Distributor
is

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<PAGE>
due more monies for shareholder services than are immediately payable because of
the expense limitations under the Shareholder Service Plan, the unpaid amount is
carried forward from month to month while the Shareholder Service Plan is in
effect until such time when it may be paid. However, no carried forward amount
will be payable beyond the fiscal year during which the amounts were incurred,
and no interest, carrying or other finance charge is borne by the Portfolios
with respect to any amount carried forward.

The Distributor, at its expense, may from time to time pay additional cash
bonuses or other incentives to selected participating brokers or financial
institutions in connection with the sale, administration and servicing of all
Portfolios. In some cases, these bonuses or incentives may be offered only to
certain brokers or financial institutions which have sold or may sell
significant amounts of shares of the Portfolios or other series of the Trust.
The Distributor currently expects that any such additional bonuses or incentives
will not exceed 0.50%. Dealers may obtain further information by calling (800)
551-8045.

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT. PNC Bank, Airport Business
Center, International Court 2, 200 Stevens Drive, Lester, Pennsylvania, 19113,
serves as Custodian for the Portfolios and the Funds. PFPC Inc., an affiliate of
the Custodian, provides accounting services to the Portfolios and the Funds.
State Street Bank and Trust Company, Mutual Funds Division, Nicholas-Applegate,
2 Heritage Drive, 7th Floor, North Quincy, Massachusetts 02171, is the Transfer
Agent and the Dividend Disbursing Agent for the Portfolios.

PORTFOLIO TRANSACTIONS AND BROKERAGE. The Investment Adviser is responsible for
the Funds' portfolio transactions and the allocation of the brokerage business.
In executing such transactions, the Investment Adviser seeks to obtain the best
price and execution for the Funds. Subject to obtaining the best price and
execution, the Investment Adviser may effect transactions through brokers who
sell shares of the Portfolios or provide research services to the Investment
Adviser, which may result in the payment of higher commissions than those
charged by other brokers. However, the selection of such brokers will be made in
accordance with Section 28(e) of the Securities Exchange Act of 1934. Section
28(e) requires the Investment Adviser to make a good faith determination that
the commissions paid are reasonable in relation to the value of the brokerage
and research services provided by such broker, viewed in terms of either that
particular transaction or the Investment Adviser's overall responsibilities with
respect to the accounts as to which it exercises investment discretion.

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PURCHASING SHARES

HOW TO PURCHASE SHARES. Shares of the Portfolios are offered to (i) qualified
retirement plans (including employer, association and other group retirement
plans), employee benefit trusts, foundations and endowments, (ii) certain
financial institutions having sales or service agreements with the Distributor
or another broker-dealer or financial institution with respect to sales of
shares of the Portfolios, and (iii) "wrap accounts" for the benefit of clients
of broker-dealers, financial planners having sales or service agreements with
the Distributor or another broker-dealer or financial institution with respect
to sales of shares of the Portfolios.

Investments by individual participants of qualified retirement plans are made
through their plan sponsor or administrator, who is responsible for transmitting
all orders for the purchase, redemption and exchange of Portfolio shares. The
availability of an investment by a plan participant in the Portfolios, and the
procedures for investing, depend upon the provisions of the qualified retirement
plan and whether the plan sponsor or administrator has contracted with the Trust
or the Transfer Agent for special processing services, including subaccounting.

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Shares of the Portfolios may be purchased at net asset value without a sales
charge. The minimum initial investment is $250,000 and the minimum subsequent
investment is $10,000. The minimum initial and subsequent investments are waived
for individual participants of qualified retirement plans, and may be waived
from time to time by the Distributor for other investors (but not below
$10,000). Shares of a Portfolio may also be purchased with securities which are
otherwise appropriate for investment by the Portfolio. Shares will be purchased
for a participant of a qualified retirement plan only upon receipt by the plan's
recordkeeper of the participant's funds accompanied by the information necessary
to determine the proper share allocation for the participant.

An account may be opened by completing and signing an account application and
sending it to the address indicated on the application. Account applications can
be obtained from the Distributor or Transfer Agent. Individual participants of
qualified retirement plans can obtain an account application from their plan
sponsor or administrator. Plan sponsors and administrators will be responsible
for forwarding to the Transfer Agent all relevant information and account
applications for plan participants.

The Distributor also offers shares of the Trust's Institutional Portfolio series
to qualified retirement programs with total plan assets in excess of $50 million
and certain other taxable and tax-exempt investors. The Institutional Portfolios
have no shareholder service plan, and investors must make separate arrangements
with administrators or others for services provided pursuant to such plans.
Information about the Trust's Institutional Portfolio series can be obtained by
calling (800) 551-8045.

Purchases of shares of the Portfolios can be made by check or by wiring federal
funds to the Transfer Agent. Checks should be in U.S. dollars and made payable
to Nicholas-Applegate Mutual Funds or, in the case of a retirement account, the
custodian or trustee. Third party checks will not be accepted. Checks should be
sent to the Transfer Agent, State Street Bank and Trust Company, P.O. Box 8326,
Boston, Massachusetts 02268-8326, Attention: Nicholas-Applegate Mutual Funds.
Please specify the name of the Portfolio, the account number assigned by the
Transfer Agent, and your name. See "Purchase by Wire" below for wiring
instructions.

PURCHASE BY WIRE. Purchases of shares of the Portfolios can be made by wiring
federal funds to the Transfer Agent. Before wiring federal funds, you must first
telephone the Transfer Agent at (800) 551-8043 (toll-free) between the hours of
8:00 A.M. and 4:00 P.M. (Eastern time) on a day when the New York Stock Exchange
is open for normal trading to receive an account number. The following
information will be requested: your name, address, tax identification number,
dividend distribution election, amount being wired and wiring bank. Instructions
should then be given by you to your bank to transfer funds by wire to the
Portfolio's Transfer Agent, State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts, 02110, ABA No. 011000028, DDA No. 9904-645-0
Attention: Nicholas-Applegate Mutual Funds, specifying on the wire the name of
the Portfolio, the account number assigned by the Transfer Agent and your name.
If you arrange for receipt by the Transfer Agent of federal funds prior to close
of trading (currently 4:00 P.M., Eastern time) of the New York Stock Exchange on
a day when the Exchange is open for normal trading, you may purchase shares of
the Portfolio as of that day. Your bank is likely to charge you a fee for wire
transfers.

Subsequent purchases by wire may be made at any time by calling the Transfer
Agent and wiring federal funds as outlined above.

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Individual participants of qualified retirement plans should purchase Portfolio
shares through their plan sponsor or administrator who is responsible for
forwarding payment to the Transfer Agent.

SHARE PRICE. Shares are purchased at the next offering price after the order is
received in proper form by the Transfer Agent or a sub-transfer agent. An order
in proper form must include all correct and complete information, documents and
signatures required to process your purchase, as well as a check or bank wire
payment properly drawn and collectable. For purchases by a qualified retirement
plan, an order in proper form is defined as receipt of funds and the information
necessary to determine the proper share allocation for each participant. The
price per share is its net asset value, which is determined as of the close of
trading of the New York Stock Exchange on each day the Exchange is open for
normal trading. Orders received before 4:00 P.M. (Eastern time) on a day when
the Exchange is open for normal trading will be processed as of the close of
trading on that day. Otherwise, processing will occur on the next business day.
To determine a Portfolio's net asset value per share, the current value of the
Portfolio's total assets, less all liabilities, is divided by the total number
of shares outstanding, and the result is rounded to the nearer cent.

Investors may be charged a fee if they affect transactions through a broker or
dealer.

OTHER PORTFOLIOS. Currently, the Trust has eight Qualified Portfolios. Five of
the domestic Qualified Portfolios are offered pursuant to this Prospectus. Three
global Qualified Portfolios are offered pursuant to a separate prospectus which
can be obtained by calling (800) 973-8473. The Distributor also offers shares of
other portfolios of the Trust which invest in the same Funds of the Master Trust
as the Qualified Portfolios. These other portfolios have different sales charges
and other expenses than the Qualified Portfolios, which may affect their
performance. Information about these other portfolios can be obtained from your
dealer or by calling (800) 551-8643.

RETIREMENT PLANS. You may invest in each Portfolio through various retirement
plans including IRAs, Simplified Employee Plan (SEP) IRAs, 403(b) plans, 457
plans, and all qualified retirement plans (including 401(k) plans). For further
information about any of the plans, agreements, applications and annual fees,
contact the Distributor or your dealer. To determine which retirement plan is
appropriate for you, please consult your tax adviser.

OTHER PURCHASE INFORMATION. The Portfolio reserves the right to reject any
purchase order or to suspend or modify the continuous offering of its shares.
Purchases of Portfolio shares will be made in full and fractional shares. In the
interest of economy and convenience, certificates for shares will generally not
be issued.

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INVESTOR SERVICES

AUTOMATIC INVESTMENT PLAN. Investors may make regular monthly or quarterly
investments in the Portfolio through payroll deductions in accordance with
procedures adopted by the plan sponsor or administrator. Further details about
this service and an application form are available from the Transfer Agent or
from your plan sponsor or administrator.

AUTOMATIC REINVESTMENT. Dividends and capital gain distributions are reinvested
in additional shares at no sales charge unless you indicate otherwise on the
account application. You may elect to have dividends and capital gain
distributions paid in cash.

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CROSS-REINVESTMENT. You may cross-reinvest dividends or dividends and capital
gain distributions paid by one Portfolio into shares of any other Qualified
Portfolio, subject to conditions outlined in the Statement of Additional
Information and the applicable provisions of the qualified retirement plan.

EXCHANGE PRIVILEGE. Shares of a Portfolio may be exchanged into shares of any
other Qualified Portfolio or Series A Portfolio by writing to the Transfer
Agent, State Street Bank and Trust Company, Attention: Nicholas-Applegate Mutual
Funds, P.O. Box 8326, Boston, Massachusetts 02266-8326. Please specify the name
of the applicable series, the number of shares or dollar amount to be exchanged
and your name and account number. Shares may also be exchanged by telephoning
the Transfer Agent at (800) 551-8043 or by sending the Transfer Agent a
facsimile at (617) 774-2651, between the hours of 8:00 A.M. and 4:00 P.M.
(Eastern time) on a day when the New York Stock Exchange is open for normal
trading (see "Telephone Privilege" below).

Before effecting an exchange, you should obtain the currently effective
prospectus of the series into which the exchange is to be made. Exchange
purchases are subject to the minimum investment requirements of the series being
purchased. An exchange will be treated as a redemption and purchase for tax
purposes.

TELEPHONE PRIVILEGE. Investors may exchange or redeem shares by telephone if
they have elected the telephone privilege on their account applications.
Participants in qualified retirement plans may make telephone requests only
through their plan sponsor or administrator and only if such service is offered
under the plan. Investors should realize that by electing the telephone
privilege, they may be giving up a measure of security that they may have if
they were to exchange or redeem their shares in writing. Furthermore, in periods
of severe market or economic conditions, telephone exchanges or redemptions may
be difficult to implement, in which case investors should mail or send by
overnight delivery a written exchange or redemption request to the Transfer
Agent. Overnight deliveries should be sent to the Transfer Agent, Attention:
Nicholas-Applegate Mutual Funds, 2 Heritage Drive, 7th Floor, North Quincy,
Massachusetts 02171. Requests for telephone exchanges or redemptions received
before 4:00 P.M. (Eastern time) on a day when the New York Stock Exchange is
open for normal trading will be processed as of the close of trading on that
day. Otherwise, processing will occur on the next business day. All exchanges or
redemptions will be made on the basis of the relative net asset values of the
two series next determined after a completed request is received.

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example, that the person making the request is neither the record owner of the
shares being exchanged or redeemed nor otherwise authorized by the investor to
request the exchange or redemption. Investors will be promptly notified of any
refused request for a telephone exchange or redemption. No Portfolio or its
agents will be liable for any loss, liability or cost which results from acting
upon instructions of a person reasonably believed to be an investor with respect
to the telephone privilege.

AUTOMATIC WITHDRAWAL PLAN. An automatic withdrawal plan may be established by a
qualified retirement plan sponsor or administrator for its participants subject
to the requirements of the plan and applicable Federal law. Individual
participants of qualified retirement plans must establish automatic withdrawal
plans with the plan sponsor or administrator rather than the Trust. Automatic
withdrawals of $250 or more may be made on a monthly, quarterly, semi-annual or
annual basis if you have an account of at least $15,000 when the automatic
withdrawal plan begins. Withdrawal proceeds will normally be received prior to
the end of the period designated. All income dividends and capital gain
distributions on shares under the Automatic Withdrawal Plan must be reinvested
in additional shares of the Portfolio. For the protection of investors and the
Trust, wiring instructions must be on file prior to executing any request for
the wire transfer of automatic withdrawal proceeds.

ACCOUNT STATEMENTS. An account is opened in accordance with applicable
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from the Transfer Agent or the plan administrator or
sponsor.

REPORTS TO INVESTORS. Each Portfolio will send its investors annual and
semi-annual reports. The financial statements appearing in annual reports will
be audited by independent accountants. In order to reduce duplicate mailing and
printing expenses, the Portfolios may provide one annual and semi-annual report
and annual prospectus per household. In addition, quarterly unaudited financial
data are available from the Portfolios upon request.

INVESTOR INQUIRIES. Investor inquiries should be addressed to the Trust, P.O.
Box 82169, San Diego, California 92138-2169, or by telephone, at (800) 551-8643
(toll free). Individual participants of qualified retirement plans should direct
inquiries to their plan sponsor or administrator.

The services referred to above are available only in states where the Portfolio
to be purchased may be legally offered and may be terminated or modified at any
time upon 60 days' written notice. Investors seeking to add to, change or cancel
their selection of available services should contact their plan administrator or
sponsor, or the Transfer Agent at the address and telephone number provided
above.

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REDEEMING SHARES

HOW TO REDEEM SHARES. Shares of a Portfolio may be redeemed by writing to the
Transfer Agent, State Street Bank and Trust Company, Attention:
Nicholas-Applegate Mutual Funds, P.O. Box 8326, Boston, Massachusetts
02266-8326. Redemptions by participants in qualified retirement plans must be
made in writing to the plan sponsor or administrator rather than the Trust.
Please specify the name of the Portfolio, the number of shares or dollar amount
to be sold and your name and account number. The price received for the shares
redeemed is at the next determined net asset value for the Portfolio shares
after the redemption request is received by the Transfer Agent or a sub-transfer
agent. No charge will be imposed by the Trust or the Transfer Agent for
redemptions.

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The signature on a redemption request must be exactly as names appear on the
Portfolio's account records, and the request must be signed by the minimum
number of persons designated on the account application that are required to
effect a redemption. Requests by participants of qualified retirement plans must
include all other signatures required by the plan and applicable Federal law.

If redemption is requested by a corporation, partnership, trust or fiduciary,
written evidence of authority acceptable to the Transfer Agent must be submitted
before such request will be accepted. If the proceeds of the redemption exceed
$50,000, are to be paid to a person other than the record owner, are to be sent
to an address other than the address on the Transfer Agent's records, or are to
be paid to a corporation, partnership, trust or fiduciary, the signature(s) on
the redemption request may be required to be guaranteed by an "eligible
guarantor," which includes a bank or savings and loan association that is
federally insured or a member firm of a national securities exchange.

REDEMPTIONS BY TELEPHONE. If an election is made on the account application (or
subsequently in writing), redemptions of shares may be requested by contacting
the Transfer Agent by telephone at (800) 551-8043 or by facsimile at (617)
774-2651 between the hours of 8:00 A.M. and 4:00 P.M. (Eastern time) on a day
when the New York Stock Exchange is open for normal trading. Investors should
state the name of the Portfolio, the number of shares or dollar amount to be
sold and their name and account number. Participants of qualified retirement
plans may make telephonic or facsimile redemption requests through their plan
sponsor or administrator, provided that such service is offered under the plan
and satisfactory arrangements have been made with the Transfer Agent. Redemption
requests received by the Transfer Agent before 4:00 P.M. (Eastern time) on a day
when the New York Stock Exchange is open for normal trading and be processed
that day. Otherwise, processing will occur on the next business day. See
"Shareholder Services-Telephone Privilege" above.

Payment for shares presented for redemption will ordinarily be wired to your
bank one business day after redemption is requested, but may take up to three
days after receipt by the Transfer Agent of a written or telephonic redemption
request except as indicated below. Such payment may be postponed or the right of
redemption suspended at times when the New York Stock Exchange is closed for
other than customary weekends and holidays, when trading on such Exchange is
restricted, when an emergency exists as a result of which disposal by a
Portfolio of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Portfolio fairly to determine the value of its
net assets, or during any other period when the Securities and Exchange
Commission, by order, so permits. Payment for redemption of recently purchased
shares will be delayed until the Transfer Agent has been advised that the
purchase check has been honored, up to 15 calendar days from the time of receipt
of the purchase check or the transfer agent. Such delay may be avoided by
purchasing shares by wire or by certified or official bank check.

INVOLUNTARY REDEMPTION. In order to reduce expenses of a Portfolio, the Trust
may redeem all of the shares of any investor whose account has a net asset value
of less than $10,000 due to redemptions other than a shareholder who is a
participant in a qualified retirement plan. The Trust will give such investors
60 days' prior written notice in which to purchase sufficient additional shares
to avoid such redemption.

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DIVIDENDS, DISTRIBUTIONS AND TAXES

The Trust intends to qualify each Portfolio as a regulated investment company
under the Internal Revenue Code. Accordingly, the Portfolios will not be subject
to federal income taxes on its net investment income and capital gains, if any,
that they distributes to their investors. All dividends out of net investment
income, together with distributions of short-term capital gains, will be taxable
as ordinary income to the investors whether or not reinvested. Any net long-term
capital gains distributed to investors will be taxable as such to the investors,
whether or not reinvested and regardless of the length of time an investor has
owned his shares.

The Core Growth and Emerging Growth Portfolios declare and pay annual dividends
of net investment income. The Balanced Growth and Income & Growth Portfolios
declare and pay quarterly dividends of net investment income. The Government
Income Portfolio declares and pays monthly dividends of net investment income.
The Portfolios make distributions at least annually of their net capital gains,
if any. In determining amounts of capital gains to be distributed by a
Portfolio, any capital loss carryovers from prior years will be offset against
its capital gains. Under U.S. Treasury Regulations, the Portfolios are required
to withhold and remit to the U.S. Treasury 31% of the dividends, capital gains
and redemption proceeds on the accounts of those investors who fail to furnish
their correct tax identification numbers on IRS Form W-9 (or IRS Form W-8, in
the case of certain foreign investors) with the required certifications
regarding the investor's status under the federal income tax law or who are
subject to backup withholding for failure to include payments of interest or
dividends on their returns. Notwithstanding the foregoing, dividends of net
income and short-term capital gains to a foreign investor will generally be
subject to U.S. withholding at the rate of 30% (or lower treaty rate).

The Trust may elect to "pass through" to a Portfolio's shareholders the amount
of foreign income taxes paid by the Portfolio. The Trust will make such an
election only if it is deemed to be in the best interests of the shareholders.
If this election is made, shareholders of the Portfolio will be required to
include in their gross income their pro rata share of foreign taxes paid by the
Portfolio. However, shareholders will be able to treat their pro rata share of
foreign taxes as either an itemized deduction or a foreign credit against U.S.
income taxes (but not both) on their tax return.

The corresponding Funds are not required to pay federal income taxes on their
net investment income and capital gains, as they are treated as partnerships for
tax purposes. Any interest, dividends and gains or losses of a Fund will be
deemed to have been "passed through" to the corresponding Portfolio and other
investors in the Fund, regardless of whether such interest, dividends or gains
have been distributed by the Fund or losses have been realized by the Portfolio
and such other investors.

Investors should consult their own tax advisers regarding specific questions as
to federal, state or local taxes. See "Taxes" in the Statement of Additional
Information.

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GENERAL INFORMATION

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period. Total return does not take into account any federal or state income
taxes which may be payable by the investor. Yield will be calculated on a 30-day
period pursuant to a formula prescribed by the Securities and Exchange
Commission (the "Commission"). The Trust also may include comparative
performance information in advertising or marketing Portfolio shares. Such
performance information may include data from Lipper Analytical Services, Inc.,
Morningstar Inc., other industry publications, business periodicals, rating
services and market indices. See "Appendix: Prior Performance of Investment
Adviser," and "Performance Information" in the Statement of Additional
Information.

Further information about the performance of the Core Growth Qualified Portfolio
is contained in the Trust's 1996 Annual Report to Shareholders, which may be
obtained without charge by calling (800) 551-8643.

DESCRIPTION OF SHARES. The Portfolios are series of Nicholas-Applegate Mutual
Funds, an open-end management investment company. The Trust was organized in
December 1992 as a Delaware business trust. The Trust is authorized to issue an
unlimited number of shares of each Portfolio. Shares of a Portfolio, when
issued, are fully paid, nonassessable, fully transferable and redeemable at the
option of the holder. Shares of a Portfolio are also redeemable at the option of
the Trust under certain circumstances. There are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of a
Portfolio is entitled to its portion of all of the Portfolio's assets after all
debts and expenses of the Portfolio have been paid. Pursuant to the Trust's
Declaration of Trust, the Board of Trustees of the Trust may authorize the
creation of additional series, and classes within series, with such preferences,
privileges, limitations and voting and dividend rights as the Board may
determine.

Investors of the Portfolios are entitled to one vote for each full share held
and fractional votes for fractional shares held, and will vote by series except
as otherwise required by law or when the Board of Trustees of the Trust
determines that a matter to be voted upon affects only the interests of
investors of a particular series. Shares of the Trust do not have cumulative
voting rights for the election of Trustees. The Trust does not intend to hold
annual meetings of its investors unless otherwise required by law. The Trust
will not be required to hold meetings of investors unless the election of
Trustees or any other matter is required to be acted on by investors under the
Investment Company Act. Investors have certain rights, including the right to
call a meeting upon the request of 10% of the outstanding shares of a Portfolio,
for the purpose of voting on the removal of one or more Trustees.

As of June 30, 1996, the following persons held of record more than 25% of the
outstanding shares of the following Portfolios, and may be deemed to control
such Portfolios: Core Growth Portfolio--Clark & Co. FBO Swedish American
Hospital (63.98%): Balanced Growth Portfolio-Nicholas-Applegate Capital
Management (83.91%); Government Income Portfolio-Nicholas-Applegate Capital
Management (84.12%).

MASTER TRUST. The Funds are series of Nicholas-Applegate Investment Trust, an
open-end management investment company organized as a Delaware business trust in
December 1992. The trustees and officers of the Master Trust are described in
the Statement of Additional Information. Whenever a Portfolio is requested to
vote on matters pertaining to the corresponding Fund or the Master Trust in its
capacity as a shareholder of such Fund, the Trust will hold a meeting of its
investors and will cast its vote as instructed by such investors or, in the case
of a matter pertaining exclusively to the corresponding Fund, as instructed
particularly by investors of the Portfolio and other series of the Trust which
invest in the Fund. The Trust will vote shares for which it has received no
voting instructions in the same proportion as the shares for which it does
receive voting instructions.

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ADDITIONAL INFORMATION. This Prospectus, including the Statement of Additional
Information which has been incorporated by reference herein, does not contain
all the information set forth in the Registration Statement filed by the Trust
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended. The Master Trust has also filed a Registration Statement with the
Commission. Copies of the Trust's and Master Trust's Registration Statement may
be obtained at a reasonable charge from the Commission or may be examined,
without charge, at the office of the Commission in Washington, D.C.

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APPENDIX

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INVESTMENT POLICIES, STRATEGIES AND RISKS

The investment policies and strategies of the Portfolios (as implemented through
their investment in corresponding Funds) encompass the following securities,
techniques and risk considerations.

SHORT-TERM INVESTMENTS (ALL FUNDS). Each of the Funds may invest in short-term
investments to maintain liquidity for redemptions or during periods when, in the
opinion of the Investment Adviser, attractive investments are temporarily
unavailable. Under normal circumstances, no more than 10% of a Fund's total
assets will be retained in cash (U.S. dollars) and cash equivalents. However,
each Fund may invest without restriction in short-term investments for temporary
defensive purposes, such as when the securities markets or economic conditions
are expected to enter a period of decline. Short-term investments in which the
Funds may invest include U.S. Treasury bills or other U.S. Government or
Government agency or instrumentality obligations; certificates of deposit;
bankers' acceptances; time deposits; high quality commercial paper and other
short-term high grade corporate obligations; shares of money market mutual
funds; or repurchase agreements with respect to such securities. These
instruments are described below. The Funds will only invest in short-term
investments which, in the opinion of the Investment Adviser present minimal
credit and interest rate risk.

GOVERNMENT OBLIGATIONS (ALL FUNDS). Securities issued or guaranteed by the U.S.
Government or its agencies and instrumentalities in which each of the Funds may
invest include U.S. Treasury securities, which differ only in their interest
rates, maturities and times of issuance. Treasury bills have initial maturities
of one year or less; Treasury notes have initial maturities of one to ten years;
and Treasury bonds generally have initial maturities of more than ten years.

Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
("GNMA") pass-through certificates, are supported by the full faith and credit
of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, by
the right of the issuer to borrow money from the Treasury; others, such as those
issued by the Federal National Mortgage Association, by the discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Student Loan
Marketing Association, only by the credit of the agency or instrumentality.
While the U.S. Government provides financial support to U.S.
Government-sponsored agencies and instrumentalities, no assurance can be given
that it will always do so, since it is not so obligated by law. The Funds will
invest in securities issued or guaranteed by U.S. Government agencies and
instrumentalities only when the Investment Adviser is satisfied that the credit
risk with respect to the issuer is minimal.

ZERO COUPON SECURITIES (INCOME & GROWTH, BALANCED GROWTH AND GOVERNMENT INCOME
FUNDS). The Income & Growth, Balanced Growth and Government Income Funds may
each invest up to 35% of its net assets in "zero coupon" securities issued or
guaranteed by the U.S. Government and its agencies and instrumentalities. Zero
coupon securities may be issued by the U.S. Treasury or by a U.S. Government
agency, authority or instrumentality (such as the Student Loan Marketing
Association or the Resolution Funding Corporation). Zero coupon securities are
sold at a substantial discount from face value and redeemed at face value at
their maturity date without interim cash payments of interest and principal.
This discount is amortized over the life of the security and such amortization
will constitute the income earned on the security for both accounting and tax
purposes. Because of these features, such securities may be subject

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to greater volatility as a result of changes in prevailing interest rates than
interest paying investments in which the Fund may invest. Because income on such
securities is accrued on a current basis, even though the Funds do not receive
the income currently in cash, the Funds may have to sell other portfolio
investments to obtain cash needed by the related Portfolios to make income
distributions.

CERTIFICATES OF DEPOSIT, TIME DEPOSITS AND BANKERS' ACCEPTANCES (ALL
FUNDS). Each of the Funds may invest in certificates of deposit, time deposits
and bankers' acceptances issued by domestic banks, foreign banks, foreign
branches of domestic banks, domestic and foreign branches of foreign banks, and
domestic savings and loan associations, all of which at the date of investment
have capital, surplus and undivided profits as of the date of their most recent
published financial statements in excess of $100 million, or less than $100
million if the principal amount of such bank obligations is insured by the
Federal Deposit Insurance Corporation. Certificates of deposit are certificates
evidencing the obligation of a bank to repay funds deposited with it for a
specified period of time. Time deposits are non-negotiable deposits maintained
in a banking institution for a specified period of time at a stated interest
rate. Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer; these instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity.

COMMERCIAL PAPER (ALL FUNDS). The Funds may invest in commercial paper of
domestic and foreign entities which is rated (or guaranteed by a corporation the
commercial paper of which is rated) in the two highest rating categories by at
least two nationally recognized statistical rating organizations ("NRSROs"),
including "P-1" or "P-2" by Moody's or "A-1" or "A-2" by S&P, or, if rated by
only one NRSRO, in such NRSRO's two highest grades, or, if not rated, is issued
by an entity which the Investment Adviser, acting pursuant to guidelines
established by the Master Trust's Board of Trustees, has determined to be of
minimal credit risk and comparable quality. Commercial paper consists of
short-term, unsecured promissory notes issued to finance short-term credit
needs.

VARIABLE RATE DEMAND SECURITIES (ALL FUNDS). Each of the Funds may purchase
floating and variable rate demand notes and bonds, which are obligations
ordinarily having stated maturities in excess of one year, but which permit the
holder to demand payment of principal at any time, or at specified intervals not
exceeding one year, in each case upon not more than 30 days' notice. Variable
rate demand notes include master demand notes, which are obligations that permit
a Fund to invest fluctuating amounts, which may change daily without penalty.
The interest rates on these notes are adjusted at designated intervals or
whenever there are changes in the market rates of interest on which the interest
rates are based. The issuer of such obligations normally has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of such obligations. Because these
obligations are direct lending arrangements between the lender and borrower, it
is not contemplated that such instruments generally will be traded, and there
generally is no established secondary market for these obligations, although
they are redeemable at face value. Such obligations frequently are not rated by
credit rating agencies and a Fund may invest in obligations which are not so
rated only if the Investment Adviser determines that at the time of investment
the obligations are of comparable quality to the other obligations in which the
Fund may invest. The Investment Adviser will monitor the creditworthiness of the
issuers of such obligations and their earning power and cash flow, and will also
consider situations in which all holders of such notes would redeem at the same
time. Investment by a Fund in floating or variable rate

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demand obligations as to which it cannot exercise the demand feature on not more
than seven days' notice will be subject to the Fund's limit on illiquid
securities of 15% of net assets if there is no secondary market available for
these obligations.

CORPORATE DEBT SECURITIES (ALL FUNDS). The non-convertible corporate debt
securities in which the Funds may invest include obligations of varying
maturities (such as debentures, bonds and notes) over a cross-section of
industries. The value of a debt security changes as interest rates fluctuate,
with longer-term securities fluctuating more widely in response to changes in
interest rates than those of shorter-term securities. A decline in interest
rates usually produces an increase in the value of debt securities, while an
increase in interest rates generally reduces their value. Certain of the Funds
may invest some of their assets in debt securities rated below investment grade.
See "Junk Bond Considerations" below. For short-term purposes, all Funds may
also invest in corporate obligations issued by domestic and foreign issuers
which mature in one year or less and which are rated "Aa" or higher by Moody's,
"AA" or higher by S&P, rated in the two highest rating categories by any other
NRSRO, or which are unrated but determined by the Investment Adviser to be of
minimal credit risk and comparable quality.

CONVERTIBLE SECURITIES AND WARRANTS (ALL FUNDS). Each of the Funds may invest in
debt and equity securities which may be exchanged for, converted into, or
exercised to acquire a predetermined number of shares of the issuer's common
stock at the option of the holder during a specified time period (such as
convertible preferred stocks, convertible debentures and warrants). Convertible
securities generally pay interest or dividends and provide for participation in
the appreciation of the underlying common stock but at a lower level of risk
because the yield is higher and the security is senior to common stock.
Convertible securities may also include warrants which give the holder the right
to purchase at any time during a specified period a predetermined number of
shares of common stock at a fixed price but which do not pay a fixed dividend.
Investments in warrants involve certain risks, including the possible lack of a
liquid market for resale, potential price fluctuations as a result of
speculation or other factors, and the failure of the price of the underlying
security to reach or have reasonable prospects of reaching a level at which the
warrant can be prudently exercised, in which event the warrant may expire
without being exercised, resulting in a loss of a Fund's entire investment
therein. As a matter of operating policy, no Fund will invest more than 5% of
its net assets in warrants.

The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The credit standing of the issuer and other factors
may also affect the investment value of a convertible security. The conversion
value of a convertible security is determined by the market price of the
underlying common stock. If the conversion value is low relative to the
investment value, the price of the convertible security is governed principally
by its investment value. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value.

Like other debt securities, the market value of convertible debt securities
tends to vary inversely with the level of interest rates. The value of the
security declines as interest rates increase and increases as interest rates
decline. Although under normal market conditions longer term debt securities
have greater yields than do shorter term debt securities of similar quality,
they are subject to greater price fluctuations. Fluctuations in the value of a
Fund's investments will be reflected in its and the corresponding Portfolio's
net asset value per share. A convertible security may be subject to redemption
at the option of the issuer at a price

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established in the instrument governing the convertible security. If a
convertible security held by a Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.

Convertible debt securities purchased by the Income & Growth and Balanced Growth
Funds are subject to certain minimum rating requirements (see "Junk Bond
Considerations" below). Convertible debt securities purchased by the other
Funds, which are acquired in whole or substantial part for their equity
characteristics, are not subject to such rating requirements.

JUNK BOND CONSIDERATIONS (INCOME & GROWTH AND BALANCED GROWTH FUNDS). The Income
& Growth and Balanced Growth Funds may invest in convertible and other debt
securities rated below "Baa" by Moody's, "BBB" by S&P below or investment grade
by other recognized rating agencies, or in unrated securities determined by the
Investment Adviser to be of comparable quality, if the Investment Adviser
believes that the financial condition of the issuer or the protection afforded
to the particular securities is stronger than would otherwise be indicated by
such low ratings or the lack thereof. Securities rated below "Baa" or "BBB" or
equivalent ratings, commonly referred to as "junk bonds," are subject to greater
risk of loss of income and principal than higher-rated bonds and are considered
to be predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal, which may in any case decline during sustained
periods of deteriorating economic conditions or rising interest rates. Junk
bonds are also generally considered to be subject to greater market risk in
times of deteriorating economic conditions, and to wider market and yield
fluctuations, than higher-rated securities. Junk bonds may also be more
susceptible to real or perceived adverse economic and competitive industry
conditions than investment grade securities. The market for such securities may
be thinner and less active than that for higher-rated securities, which can
adversely affect the prices at which these securities can be sold. To the extent
that there is no established secondary market for lower-rated securities, the
Fund may experience difficulty in valuing such securities and, in turn, its
assets. In addition, adverse publicity and investor perceptions about junk
bonds, whether or not based on fundamental analysis, may tend to decrease the
market value and liquidity of such securities.

Legislation has been and could be adopted limiting the use, or tax and other
advantages, of junk bonds which could adversely affect their value. Under the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989, for
example, federally insured savings and loan associations were required to divest
their investments in non-investment grade corporate debt securities by July 1,
1994. Such legislation could have a material adverse effect on the market for,
and prices of, such securities.

The Investment Adviser will try to reduce the risk inherent in the Funds'
investment in such securities through credit analysis, diversification and
attention to current developments and trends in interest rates and economic
conditions. However, there can be no assurance that losses will not occur. Since
the risk of default is higher for lower-rated bonds, the Investment Adviser's
research and credit analysis are a correspondingly important aspect of its
program for managing the Fund's investments in such debt securities. The
Investment Adviser will attempt to identify those issuers of high-yielding
securities whose financial condition is adequate to meet future obligations, or
has improved or is expected to improve in the future.

The Income & Growth and Balanced Growth Funds will in no event purchase
securities rated below "C" or equivalent by Moody's, S&P or another rating
agency, or determined by the Investment Adviser to be of comparable quality.
Debt securities with such ratings are predominantly speculative with respect to
the capacity of the issuer to pay interest and repay principal. Unrated
securities will also be considered for investment when the Investment

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Adviser believes that the financial condition of the issuers of such securities,
or the protection afforded by the terms of the securities themselves, limit the
risk to a Fund to a degree comparable to that of rated securities which are
consistent with the Fund's investment objective and policies. See "Appendix:
Corporate Bond Ratings" for a description of credit ratings.

Credit ratings evaluate the safety of principal and interest payments of
securities, not their market value. The rating of an issuer is also heavily
weighted by past developments and does not necessarily reflect probable future
conditions. There is frequently a lag between the time a rating is assigned and
the time it is updated. As credit rating agencies may fail to timely change
credit ratings of securities to reflect subsequent events, the Investment
Adviser will also monitor issuers of such securities to determine if such
issuers will have sufficient cash flow and profits to meet required principal
and interest payments and to assure their liquidity. If the rating of a debt
security held by a Fund is downgraded below "C" or an equivalent rating, or if
the Investment Adviser determines that an unrated security is of comparable
quality, the Investment Adviser will determine whether it is in the best
interests of the Fund to continue to hold such security in its investment
portfolio. However, if the downgrading of an investment grade security causes
the Balanced Fund to hold 35% or more of its net assets in securities rated
below investment grade or determined by the Investment Adviser to be of
comparable quality, the Fund will sell sufficient principal amount of such
securities as promptly as practicable to make sure that it holds less than 35%
of its net assets in such securities.

The average percentages of assets invested by the Income & Growth and Balanced
Growth Funds in bonds of each permissible rating, on a monthly dollar-weighted
basis, were as follows for the year ended March 31, 1996: AA-3.86% and 0%;
A-10.76% and 1.93%; BBB-14.14% and 0%; BB-3.50% and 0%; B-20.20% and 31.98%;
CCC-0.10% and 0%; nonrated-3.28% and 14.98%.

SYNTHETIC CONVERTIBLE SECURITIES (INCOME & GROWTH FUND). The Income & Growth
Fund may invest in "synthetic" convertible securities, which are derivative
positions composed of two or more different securities whose investment
characteristics, taken together, resemble those of convertible securities. For
example, the Fund may purchase a non-convertible debt security and a warrant or
option, which enables the Fund to have a convertible-like position with respect
to a company, group of companies or stock index. Synthetic convertible
securities are typically offered by financial institutions and investment banks
in private placement transactions. Upon conversion, the Fund generally receives
an amount in cash equal to the difference between the conversion price and the
then current value of the underlying security. Unlike a true convertible
security, a synthetic convertible comprises two or more separate securities,
each with its own market value. Therefore, the market value of a synthetic
convertible is the sum of the values of its fixed-income component and its
convertible component. For this reason, the values of a synthetic convertible
and a true convertible security may respond differently to market fluctuations.
The Income & Growth Fund only invests in synthetic convertibles with respect to
companies whose corporate debt securities are rated "A" or higher by Moody's or
"A" or higher by S&P, and will not invest more than 15% of its net assets in
such synthetic securities and other illiquid securities. See "Illiquid
Securities" below.

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES (ALL FUNDS). Each of the
Funds may invest in certificates issued by the Government National Mortgage
Association ("GNMA") as a short-term investment. GNMA certificates are
mortgage-backed securities representing part

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ownership of a pool of mortgage loans, which are issued by lenders such as
mortgage bankers, commercial banks and savings associations, and are either
insured by the Federal Housing Administration or the Veterans Administration. A
pool of these mortgages is assembled and, after being approved by GNMA, is
offered to investors through securities dealers. The timely payment of interest
and principal on each mortgage is guaranteed by GNMA and backed by the full
faith and credit of the U.S. Government. Principal is paid back monthly by the
borrower over the term of the loan rather than returned in a lump sum at
maturity. Due to the prepayment feature and the need to reinvest prepayments of
principal at current market rates, GNMA certificates can be less effective than
typical bonds of similar maturities at "locking in" yields during periods of
declining interest rates.

CMOS (GOVERNMENT INCOME FUND). The Government Income Fund may invest in
mortgage-related securities and collateralized mortgage obligations ("CMOs"). A
CMO is a debt security issued by a U.S. Government agency or instrumentality
that is collateralized by a portfolio or pool of mortgages or mortgage-backed
securities. The issuer's obligation to make interest and principal payments is
secured by the underlying pool or portfolio of mortgages or securities. The
market value of mortgage-related derivative securities, even those in which the
underlying pool or mortgage loans is guaranteed as to the payment of principal
and interest by the U.S. Government, is not insured. When interest rates
increase, the market value of mortgage-related securities may decrease in the
same manner as other debt, but when interest rates decline, such securities may
not increase as much as other debt instruments because of their prepayment
feature. If such securities are purchased at a premium, the Government Income
Fund will suffer a loss if the obligation is prepaid. Prepayments will be
reinvested at prevailing rates, which may be less than the rate paid by such
obligation.

"ROLL" TRANSACTIONS (GOVERNMENT INCOME FUND). The Government Income Fund may
enter into "roll" transactions, which are the sale of GNMA certificates and
other securities together with a commitment to purchase similar, but not
identical, securities at a later date from the same party. During the roll
period, the Fund forgoes principal and interest paid on the securities. The Fund
is compensated by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale. Like when-issued securities or firm commitment
agreements, roll transactions involve the risk that the market value of the
securities sold by the Fund may decline below the price at which the Fund is
committed to purchase similar securities. Additionally, in the event the buyer
of securities under a roll transaction files for bankruptcy or becomes
insolvent, the Fund's use of the proceeds of the transaction may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Fund's obligation to repurchase the securities.

The Fund will engage in roll transactions for the purpose of acquiring
securities for its portfolio consistent with its investment objective and
policies and not for investment leverage. Nonetheless, roll transactions are
speculative techniques and are considered borrowings by the Fund for purposes of
the percentage limitations applicable to borrowings. See "Borrowings" below. The
Fund will establish a segregated account with its Custodian in which it will
maintain cash, U.S. Government securities and other liquid, high-grade debt
obligations in an amount sufficient to meet its payment obligations with respect
to these transactions. The Fund will not enter into roll transactions if, as a
result, more than 15% of the Fund's net assets would be segregated to cover such
contracts.

EQUITY SECURITIES (CORE GROWTH, EMERGING GROWTH, INCOME & GROWTH AND BALANCED
GROWTH FUNDS). Each of the Core Growth, Emerging Growth, Income & Growth and
Balanced Growth

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Funds may invest in equity securities, including common stocks, convertible
securities and warrants. Common stocks, the most familiar type of equity
securities, represent an equity (ownership) interest in a corporation. See
"Convertible Securities and Warrants" for a description of convertible
securities and warrants. Each of the Core Growth, Emerging Growth, Income &
Growth and Balanced Growth Funds may invest in equity securities of growth
companies, cyclical companies, companies with smaller market capitalizations
(i.e., $500 million or less) or companies believed to be undergoing a basic
change in operations or markets which could result in a significant improvement
in earnings, and the Emerging Growth Fund will invest primarily in such
securities. Although equity securities have a history of long term growth in
value, their prices fluctuate based on changes in the issuer's financial
condition and prospects and on overall market and economic conditions. Small
companies and new companies often have limited product lines, markets or
financial resources, and may be dependent upon one or few key persons for
management. The securities of such companies may be subject to more volatile
market movements than securities of larger, more established companies, both
because the securities typically are traded in lower volume and because the
issuers typically are more subject to changes in earnings and prospects. The
corresponding Portfolios' net asset values can be expected to experience
above-average fluctuations, as above-average risk is assumed by the Funds in
investing in such growth companies in seeking higher than average growth in
capital.

DEPOSITORY RECEIPTS (CORE GROWTH, EMERGING GROWTH, INCOME & GROWTH AND BALANCED
GROWTH FUNDS). Each of the Core Growth, Emerging Growth, Income & Growth and
Balanced Growth Funds may invest in American Depository Receipts ("ADRs"), which
are receipts issued by an American bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. ADRs, in registered form, are
designed for use in U.S. securities markets. Such depository receipts may be
sponsored by the foreign issuer or may be unsponsored. Unsponsored depository
receipts are organized independently and without the cooperation of the foreign
issuer of the underlying securities; as a result, available information
regarding the issuer may not be as current as for sponsored depository receipts,
and the prices of unsponsored depository receipts may be more volatile than if
they were sponsored by the issuers of the underlying securities.

EURODOLLAR CONVERTIBLE SECURITIES (INCOME & GROWTH FUND). The Income & Growth
Fund may invest in Eurodollar convertible securities, which are fixed income
securities of a U.S. issuer or a foreign issuer that are issued outside the
United States and are convertible into or exchangeable for equity securities of
the same or a different issuer. Interest and dividends on Eurodollar securities
are payable in U.S. dollars outside of the United States. The Fund may invest
without limitation in Eurodollar convertible securities that are convertible
into or exchangeable for foreign equity securities listed, or represented by
ADRs listed, on the New York Stock Exchange or the American Stock Exchange or
convertible into or exchangeable for publicly traded common stock of U.S.
companies. The Fund may also invest up to 15% of its total assets invested in
convertible securities, taken at market value, in Eurodollar convertible
securities that are convertible into or exchangeable for foreign equity
securities which are not listed, or represented by ADRs listed, on such
exchanges.

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<PAGE>
be the possibility of expropriation or confiscatory taxation, limitations on
liquidity of securities or political or economic developments which could affect
the foreign investments of a Fund. Moreover, securities of foreign issuers
generally will not be registered with the Securities and Exchange Commission and
such issuers generally will not be subject to the Commission's reporting
requirements. Accordingly, there is likely to be less publicly available
information concerning certain of the foreign issuers of securities held by a
Fund than is available concerning U.S. companies. Foreign companies are also
generally not subject to uniform accounting, auditing and financial reporting
standards or to practices and requirements comparable to those applicable to
U.S. companies. There may also be less government supervision and regulation of
foreign broker-dealers, financial institutions and listed companies than exists
in the United States. The Funds will not invest in securities denominated in a
foreign currency unless, at the time of investment, such currency is considered
by the Investment Adviser to be fully exchangeable into United States dollars
without significant legal restriction. See "Investment Objectives, Policies and
Risks-Foreign Investments" in the Statement of Additional Information.

SPECIAL CONSIDERATIONS REGARDING EMERGING MARKETS INVESTMENTS (CORE GROWTH,
EMERGING GROWTH, INCOME & GROWTH AND BALANCED GROWTH FUNDS) Investments in
securities issued by the governments of emerging or developing countries, and of
companies within those countries, involves greater risks than other foreign
investments. Investments in emerging or developing markets involve exposure to
economic and legal structures that are generally less diverse and mature (and in
some cases the absence of developed legal structures governing private and
foreign investments and private property), and to political systems which can be
expected to have less stability, than those of more developed countries. The
risks of investment in such countries may include matters such as relatively
unstable governments, higher degrees of government involvement in the economy,
the absence until recently of capital market structures or market-oriented
economies, economies based on only a few industries, securities markets which
trade only a small number of securities, restrictions on foreign investment in
stocks, and significant foreign currency devaluations and fluctuations. Emerging
markets can be substantially more volatile than both U.S. and more developed
foreign markets. Such volatility may be exacerbated by illiquidity. The average
daily trading volume in all of the emerging markets combined is a small fraction
of the average daily volume of the U.S. market. Small trading volumes may result
in a Fund being forced to purchase securities at substantially higher prices
than the current market, or to sell securities at much lower prices than the
current market.

OVER-THE-COUNTER SECURITIES (CORE GROWTH, EMERGING GROWTH, INCOME & GROWTH AND
BALANCED GROWTH FUNDS). Securities owned by each of the Core Growth, Emerging
Growth, Income & Growth and Balanced Growth Funds may be traded in the
over-the-counter market or on a regional securities exchange and may not be
traded every day or in the volume typical of securities trading on a national
securities exchange. As a result, disposition by such Funds of portfolio
securities to meet redemptions by investors or otherwise may require the Funds
to sell these securities at a discount from market prices, to sell during
periods when such disposition is not desirable, or to make many small sales over
a lengthy period of time.

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value of the securities at settlement may be more or less than the agreed upon
price, or that the party with which a Fund enters into such a transaction may
not perform its commitment. The Funds will normally enter into these
transactions with the intention of actually receiving or delivering the
securities. The Funds may sell the securities before the settlement date.

To the extent a Fund engages in any of these transactions it will do so for the
purpose of acquiring securities for its portfolio consistent with its investment
objective and policies and not for the purpose of investment leverage. The Funds
will segregate liquid assets such as cash, U.S. Government securities and other
liquid debt or equity securities in an amount sufficient to meet their payment
obligations with respect to these transactions. A Fund may not purchase
when-issued securities or enter into firm commitments if, as a result, more than
15% of the Fund's net assets would be segregated to cover such contracts.

SHORT SALES (CORE GROWTH AND EMERGING GROWTH FUNDS). The Investment Adviser
believes that its growth equity management approach, in addition to identifying
equity securities the earnings and prices of which it expects to grow at a rate
above that of the S&P 500, also identifies securities the prices of which can be
expected to decline. Therefore, each of the Core Growth, and Emerging Growth
Funds is authorized to make short sales of securities it owns or has the right
to acquire at no added cost through conversion or exchange of other securities
it owns (referred to as short sales "against the box") and to make short sales
of securities which it does not own or have the right to acquire. A short sale
that is not made "against the box" is a transaction in which the Fund sells a
security it does not own in anticipation of a decline in market price. When the
Fund makes a short sale, the proceeds it receives are retained by the broker
until the Fund replaces the borrowed security. In order to deliver the security
to the buyer, the Fund must arrange through a broker to borrow the security and,
in so doing, the Fund becomes obligated to replace the security borrowed at its
market price at the time of replacement, whatever that price may be.

Short sales by the Core Growth or Emerging Growth Fund that are not made
"against the box" create opportunities to increase the Fund's return but, at the
same time, involve special risk considerations and may be considered a
speculative technique. Since the Fund in effect profits from a decline in the
price of the securities sold short without the need to invest the full purchase
price of the securities on the date of the short sale, the Fund's net asset
value per share, and that of the corresponding Portfolio, will tend to increase
more when the securities it has sold short decrease in value, and to decrease
more when the securities it has sold short increase in value, than would
otherwise be the case if it had not engaged in such short sales. Short sales
theoretically involve unlimited loss potential, as the market price of
securities sold short may continuously increase, although the Fund may mitigate
such losses by replacing the securities sold short before the market price has
increased significantly. Under adverse market conditions a Fund might have
difficulty purchasing securities to meet its short sale delivery obligations,
and might have to sell portfolio securities to raise the capital necessary to
meet its short sale obligations at a time when fundamental investment
considerations would not favor such sales. The value of securities of any issuer
in which a Fund maintains a short position which is "not against the box" may
not exceed the lesser of 2% of the value of the Fund's net assets or 2% of the
securities of such class of the issuer.

If the Core Growth or Emerging Growth Fund makes a short sale "against the box,"
the Fund would not immediately deliver the securities sold and would not receive
the proceeds from the sale. The seller is said to have a short position in the
securities sold until it delivers the securities sold, at which time it receives
the proceeds of the sale. A Fund's decision to make a short sale "against the
box" may be a technique to hedge against market risks when the

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Investment Adviser believes that the price of a security may decline, causing a
decline in the value of a security owned by the Fund or a security convertible
into or exchangeable for such security. In such case, any future losses in the
Fund's long position would be reduced by a gain in the short position.

In the view of the Securities and Exchange Commission, a short sale involves the
creation of a "senior security" as such term is defined in the Investment
Company Act, unless the sale is "against the box" and the securities sold are
placed in a segregated account (not with the broker), or unless the Fund's
obligation to deliver the securities sold short is "covered" by placing in a
segregated account (not with the broker) cash, U.S. Government securities or
other liquid or equity securities in an amount equal to the difference between
the market value of the securities sold short at the time of the short sale and
any such collateral required to be deposited with a broker in connection with
the sale (not including the proceeds from the short sale), which difference is
adjusted daily for changes in the value of the securities sold short. The total
value of the cash, U.S. Government securities or other liquid or equity
securities deposited with the broker and otherwise segregated may not at any
time be less than the market value of the securities sold short at the time of
the short sale. Each Fund will comply with these requirements. In addition, as a
matter of policy, the Master Trust's Board of Trustees has determined that no
Fund will make short sales of securities or maintain a short position if to do
so could create liabilities or require collateral deposits and segregation of
assets aggregating more than 25% of the Fund's total assets, taken at market
value.

A Fund's ability to enter into short sales transactions is limited by the
requirements of the Internal Revenue Code with respect to the corresponding
Portfolio's qualification as a regulated investment company. See "Dividends,
Distributions and Taxes" in the Statement of Additional Information.

OPTIONS (CORE GROWTH, EMERGING GROWTH, INCOME & GROWTH AND BALANCED GROWTH
FUNDS). Each of the Core Growth, Emerging Growth, Income & Growth and Balanced
Growth Funds may purchase listed covered "put" and "call" options with respect
to securities which are otherwise eligible for purchase by such Fund and with
respect to various stock indices, for hedging purposes, subject to the following
restrictions: the aggregate premiums on call options purchased by a Fund may not
exceed 5% of the market value of net assets of the Fund as of the date the call
options are purchased, and the aggregate premiums on put options may not exceed
5% of the market value of the net assets of the Fund as of the date such options
are purchased. In addition, a Fund will not purchase or sell options if,
immediately thereafter, more than 25% of its net assets would be hedged. A "put"
gives a holder the right, in return for the premium paid, to require the writer
of the put to purchase from the holder a security at a specified price. A "call"
gives a holder the right, in return for the premium paid, to require the writer
of the call to sell a security to the holder at a specified price. An option on
a securities index (such as a stock index) gives the holder the right, in return
for the premium paid, to require the writer to pay cash equal to the difference
between the closing price of the index and the exercise price of the option,
expressed in dollars, times a specified multiplier.

Put and call options are derivative securities traded on United States and
Foreign exchanges, including the American Stock Exchange, Chicago Board Options
Exchange, Philadelphia Stock Exchange, Pacific Stock Exchange and New York Stock
Exchange. Additionally, the Core Growth and Emerging Growth Funds may purchase
options not traded on a securities exchange, which may bear a greater risk of
nonperformance than options traded on a securities exchange. Options not traded
on an exchange are considered dealer options and generally lack the liquidity of
an exchange traded option. Accordingly, dealer options may be subject to the

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Funds' restriction on investment in illiquid securities, as described below.
Dealer options may also involve the risk that the securities dealers
participating in such transactions will fail to meet their obligations under the
terms of the option.

The Core Growth, Emerging Growth and Income & Growth Funds may also write listed
covered options on up to 25% of the value of their respective net assets. Call
options written by a Fund give the holder the right to buy the underlying
securities from the Fund at a stated exercise price; put options written by a
Fund give the holder the right to sell the underlying security to the Fund. A
call option is covered if the Fund owns the security underlying the call or has
an absolute and immediate right to acquire that security without additional cash
consideration upon conversion or exchange of securities currently held by the
Fund. A put option is covered if the Fund maintains cash or cash equivalents
equal to the exercise price in a segregated amount with its Custodian. If an
option written by a Fund expires unexercised, the Fund realizes a gain equal to
the premium received at the time the option was written. If an option purchased
by a Fund expires unexercised, the Fund realizes a capital loss equal to the
premium paid.

Prior to the earlier of exercise or expiration, an option written by a Fund may
be closed out by an offsetting purchase or sale of an option of the same series.
A Fund will realize a gain from a closing purchase transaction if the cost of
the closing transaction is less than the premium received from writing the
option; if it is more, the Fund will realize a capital loss. If the premium
received from a closing sale transaction is more than the premium paid to
purchase the option, the Fund will realize a gain; if it is less, the Fund will
realize a loss.

FUTURES CONTRACTS (CORE GROWTH, EMERGING GROWTH, INCOME & GROWTH, BALANCED
GROWTH AND GOVERNMENT INCOME FUNDS). The Core Growth, Emerging Growth, Income &
Growth and Government Income Funds may purchase and sell stock index futures
contracts as a hedge against changes in market conditions. A stock index futures
contract is a bilateral agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of the last trading day of
the contract and the price at which the futures contract is originally struck.
No physical delivery of the underlying stocks in the index is made.

The Income & Growth and Government Income Funds may purchase and sell financial
futures contracts as a hedge against changes in interest rates. Additionally,
the Income & Growth, Balanced Growth and Government Income Funds may purchase
and sell related options on futures contracts. A financial futures contract
obligates the seller of the contract to deliver and the purchaser of the
contract to take delivery of the type of financial instrument called for in the
contract at a specified future time (the settlement date) for a specified price.
Although the terms of a contract call for actual delivery or acceptance of the
financial instrument, the contracts will be closed out before the delivery date
without delivery or acceptance taking place. Futures options possess many of the
same characteristics as options on securities and indices. A futures option
gives the holder, in return for the premium paid, the right to buy (call) from
or sell (put) to the writer of the option a futures contract at a specified
price at any time during the period of the option. Upon exercise of a call
option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option, the
opposite is true. A futures option may be closed out before exercise or
expiration by an offsetting purchase or sale of a futures option of the same
series.

Financial and stock index futures contracts are derivative instruments traded on
United States commodities and futures exchanges, including the Chicago
Mercantile Exchange, the New

37
<PAGE>
York Futures Exchange, the Kansas City Board of Trade, the Chicago Board of
Trade and the International Monetary Market, as well as commodity and securities
exchanges located outside the United States, including the London International
Financial Futures Exchange, the Singapore International Monetary Exchange, the
Sydney Futures Exchange Limited and the Tokyo Stock Exchange.

The Funds will not engage in transactions in futures contracts for speculation,
but only as a hedge against the risk of unexpected changes in the values of
securities held or intended to be held by the Funds. As a general rule, no Fund
will purchase or sell futures if, immediately thereafter, more than 25% of its
net assets would be hedged. In addition, no Fund may purchase or sell futures or
related options if, immediately thereafter, the sum of the amount of margin
deposits on the Fund's existing futures positions and premiums paid for such
options would exceed 5% of the market value of the fund's net assets. In
instances involving the purchase of futures contracts by a Fund, an amount of
cash or liquid debt or equity securities equal to the market value of the
futures contracts will be deposited in a segregated account with the Fund's
Custodian or with a broker to collateralize the position and thereby insure that
the use of such futures is unleveraged.

SPECIAL HEDGING CONSIDERATIONS (ALL FUNDS). Special risks are associated with
the use of options and futures contracts as hedging techniques. There can be no
guaranty of a correlation between price movements in the hedging vehicle and in
the portfolio securities being hedged. A lack of correlation could result in a
loss on both the hedged securities in a Fund and the hedging vehicle, so that
the Fund's return might have been better had hedging not been attempted. In
addition, a decision as to whether, when and how to use options or futures
involves the exercise of skill and judgment which are different from those
needed to select portfolio securities, and even a well-conceived transaction may
be unsuccessful to some degree because of market behavior, currency fluctuations
or interest rate trends. If the Investment Adviser is incorrect in its forecasts
regarding market values, interest rate trends or other relevant factors, a Fund
may be in a worse position than if the Fund had not engaged in options or
futures transactions. The potential loss incurred by a Fund in writing options
on futures and engaging in futures transactions is unlimited. The Investment
Adviser is experienced in the use of options and futures contracts as an
investment technique.

There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out an option position or futures contract. Most futures
exchanges and boards of trade limit the amount of fluctuation in futures
contract prices during a single day; once the daily limit has been reached on a
particular contract, no trades may be made that day at a price beyond that
limit. In addition, certain of these instruments are relatively new and without
a significant trading history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Lack of a liquid market for
any reason may prevent a Fund from liquidating an unfavorable position and a
Fund would remain obligated to meet margin requirements until the position is
closed.

A Fund's ability to enter into options and futures contracts is limited by the
requirements of the Internal Revenue Code with respect to the corresponding
Portfolio's qualification as a regulated investment company. See "Dividends,
Distributions and Taxes" in the Statement of Additional Information.

38
<PAGE>
in excess of the purchase price, reflecting an agreed-upon rate of return
effective for the period of time the Fund's money is invested in the security.
Each Fund's repurchase agreements will at all times be fully collateralized in
an amount at least equal to 102% of the purchase price, including accrued
interest earned on the underlying securities. The instruments held as collateral
are valued daily and, if the value of the instruments declines, the Fund will
require additional collateral. If the seller defaults and the value of the
collateral securing the repurchase agreement declines, the Fund may incur a
loss. If bankruptcy proceedings are commenced with respect to the seller,
realization upon the collateral by a Fund may be delayed or limited. A Fund will
only enter into repurchase agreements involving securities in which it could
otherwise invest and with selected financial institutions and brokers and
dealers which meet certain creditworthiness and other criteria.

ILLIQUID SECURITIES (ALL FUNDS). Each Fund may invest up to 15% of its net
assets in securities that at the time of purchase have legal or contractual
restrictions on resale or are otherwise illiquid. Historically, illiquid
securities have included securities subject to contractual or legal restrictions
on resale because they have not been registered under the Securities Act of 1933
("restricted securities"), securities which are otherwise not readily marketable
such as over-the-counter, or dealer traded, options, and repurchase agreements
having a maturity of more than seven days. Mutual funds do not typically hold a
significant amount of restricted or other illiquid securities because of the
potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and the Fund might not be able to dispose of restricted or other securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions. The Fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay.

In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act of 1933, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, the Investment Adviser may
determine, pursuant to guidelines established by the Master Trust's Board of
Trustees, that such securities are not illiquid securities notwithstanding their
legal or contractual restrictions on resale, based on factors such as the
frequency of trades and quotes for the securities, the number of dealers and
others wishing to purchase and sell the securities, and the nature of the
security and the marketplace trades. In all other cases, however, securities
subject to restrictions on resale will be deemed illiquid. Investing in
restricted securities eligible for resale under Rule 144A could have the effect
of increasing the level of illiquidity in the Funds to the extent that qualified
institutional buyers become for a time uninterested in purchasing such
securities.

39
<PAGE>
such securities, and the Fund may invest the cash collateral and earn additional
income, or it may receive an agreed-upon amount of interest income from the
borrower who has delivered equivalent collateral or secured a letter of credit.
Such loans involve risks of delay in receiving additional collateral or in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially. However, such securities
lending will be made only when, in the Investment Adviser's judgment, the income
to be earned from the loans justifies the attendant risks. Loans are subject to
termination at the option of the Fund or the borrower.

BORROWING (ALL FUNDS). Each Fund may borrow money from banks in amounts up to
20% of its total assets (calculated when the loan is made) only for temporary,
extraordinary or emergency purposes or for the clearance of transactions.
Borrowing involves special risk considerations. Interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds (or on the assets that were retained
rather than sold to meet the needs for which funds were borrowed). Under adverse
market conditions, a Fund might have to sell portfolio securities to meet
interest or principal payments at a time when fundamental investment
considerations would not favor such sales. All borrowings by a Fund will be made
only to the extent that the value of the Fund's total assets, less its
liabilities other than borrowings, is equal to at least 300% of all borrowings.
If such asset coverage of 300% is not maintained, the Fund will take prompt
action to reduce its borrowings as required by applicable law. Short sales "not
against the box" are considered borrowings for purposes of the percentage
limitations applicable to borrowings.

- --------------------------------------------------------------------------------
CORPORATE BOND RATINGS

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS

AAA -- Bonds rated Aaa are judged to be of the best quality. They 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, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

AA -- Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.

A -- Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. 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 -- Bonds rated Baa are considered as medium-grade obligations (I.E., they
are neither highly protected nor poorly secured). 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.

40
<PAGE>
BA -- Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B -- Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small.

CAA -- Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.

CA -- Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.

C -- Bonds rated C are the lowest-rated class of bonds, and such issues can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.

Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modified 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

DESCRIPTION OF S&P'S CORPORATE BOND RATINGS:

AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.

AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.

A -- Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB -- Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.

BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.

B -- Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.

CCC -- Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic

41
<PAGE>
conditions, it is not likely to have the capacity to pay interest and repay
principal. The CCC rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied B or B- Rating.

CC -- Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.

C -- The Rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

CI -- The rating CI is reserved for income bonds on which no interest is being
paid.

D -- Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

The ratings from AA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.

42
<PAGE>
- --------------------------------------------------------------------------------

PRIOR PERFORMANCE OF INVESTMENT ADVISER

The following table sets forth the Investment Adviser's composite performance
data relating to the historical performance of institutional private accounts
managed by the Investment Adviser, since the date indicated, that have
investment objectives, policies, stategies and risks substantially similar to
those of the Balanced Growth Portfolio. The data is provided to illustrate the
past performance of the Investment Adviser in managing substantially similar
accounts as measured against specified market indices and does not represent the
performance of the Balanced Growth Portfolio. Investors should not consider this
performance data as an indication of future performance of the Balanced Growth
Portfolio or of the Investment Adviser.

The Investment Adviser's composite performance data shown below were calculated
in accordance with recommended standards of the Association for Investment
Management and Research ("AIMR"*), retroactively applied to all time periods.
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 reflect the deduction of investment advisory fees, brokerage
commissions and execution costs paid by the Investment Adviser's institutional
private accounts without provision for federal or state income taxes. Custodial
fees, if any, were not included in the calculation. The Investment Adviser's
composite includes all actual, fee-paying, discretionary institutional, private
accounts managed by the Investment Adviser that have investment objectives,
policies, strategies and risks substantially similar to those of the Balanced
Growth Portfolio. Securities transactions are accounted for on the trade date
and accrual accounting is utilized. Cash and equivalents are included in
performance returns. The monthly returns of the Investment Adviser's composite
combine the individual accounts' returns (calculated on a time-weighted rate of
return that is revalued whenever cash flows exceed $500) by asset-weighing each
individual account's asset value as of the beginning of the month. Quarterly and
yearly returns are calculated by geometrically linking the monthly and quarterly
returns, respectively. The yearly returns are computed by geometrically linking
the returns of each quarter within the calendar year.

The institutional private accounts that are included in the Investment Adviser's
composite are not subject to the same types of expenses to which the Balanced
Growth Portfolio are subject nor to the diversification requirements, specific
tax restrictions and investment limitations imposed on the Balanced Growth
Portfolio by the Investment Company Act or Subchapter M of the Internal Revenue
Code. Consequently, the performance results for the Investment Adviser's
composite could have been adversely affected if the institutional private
accounts included in the composite had been regulated as investment companies
under the federal securities laws.

- ---------------------------

*AIMR is a non-profit membership and education organization with more than
60,000 members worldwide that, among other things, has formulated a set of
performance presentation standards for investment advisers. These AIMR
performance presentation standards are intended to (i) promote full and fair
presentations by investment advisers of their performance results, and (ii)
ensure uniformity in reporting so that performance results of investment
advisers are directly comparable.

43
<PAGE>

The investment results of the Investment Adviser's composite presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the Balanced Growth Portfolio or an individual investor investing
in such Portfolio. Investors should also be aware that the use of a methodology
different from that used below to calculate performance could result in
different performance data.

<TABLE>
<CAPTION>
BALANCED GROWTH PERFORMANCE
------------------------------------------------------------------------
INVESTMENT ADVISER'S LEHMAN BROS. 60% S&P 500 INDEX
BALANCED GROWTH S&P 500 GOV'T./CORP. 40% LEHMAN BROS.
YEAR COMPOSITE INDEX(1) INDEX(2) GOV'T./CORP. INDEX
- ------------------------------------------------- ---------------------- ---------- -------------- --------------------
<S> <C> <C> <C> <C>
1988(3).......................................... 4.98% 10.25% 3.80% 7.67%
1989............................................. 17.61% 31.61% 14.23% 24.59%
1990............................................. 5.69% (3.04%) 8.29% 1.58%
1991............................................. 32.73% 30.46% 16.13% 24.61%
1992............................................. 9.40% 7.62% 7.57% 7.67%
1993............................................. 20.14% (3.80%) 11.06% 10.52%
1994............................................. (5.37%) 1.32% (3.61%) (0.67%)
1995............................................. 29.23% 37.60% 19.24% 30.02%
1996(4).......................................... 7.17% 10.09% (1.88%) 5.18%
Last year(4)..................................... 21.69% 25.99% 4.66% 17.08%
Last 5 years(4).................................. 15.50% 16.73% 8.48% 12.86%
Since inception(4)............................... 14.17% 15.73% 8.84% 13.06%
</TABLE>

- ----------------------------------

(1)The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarded as
generally representative of the U.S. stock market. The Index reflects the
reinvestment of income dividends and capital gain distributions, if any, but
does not reflect fees, brokerage commissions, or other expenses of investing.

(2)The Lehman Brothers Government/Corporate Bond Index is an unmanaged
market-weighted index consisting of all public obligations of the U.S.
Government, its agencies and instrumentalities, and all corporate issuers of
fixed rate, non-convertible, investment grade U.S. dollar denominated bonds
having maturities of greater than one year. It is generally regarded as
representative of the market for domestic bonds. The Index reflects the
reinvestment of income dividends and capital gains distributions, if any, but
does not reflect fees, brokerage commissions or markups, or other expenses of
investing.

(3)Commencement of investment operations is April 1, 1988.

(4)Through June 30, 1996.

44
<PAGE>
QDOMPRO896
<PAGE>
NICHOLAS--APPLEGATE-REGISTERED TRADEMARK- MUTUAL FUNDS

- -------------------------------------------------
GLOBAL QUALIFIED PORTFOLIOS

PROSPECTUS

Nicholas-Applegate Mutual Funds is an open-end management investment company
comprised of a number of diversified investment portfolios, including the three
diversified portfolios ("Portfolios") offered hereby. The Portfolios provide a
broad range of global investment opportunities which are suitable for different
investors. They are offered to certain qualified retirement plans, tax-exempt
and other institutional investors, and financial institutions.

- --------------------------------------------------------------------------------

WORLDWIDE GROWTH QUALIFIED PORTFOLIO seeks to maximize long-term capital
appreciation. It invests in the Worldwide Growth Fund, which in turn invests in
a global portfolio of equity securities of U.S. and foreign companies.

INTERNATIONAL GROWTH QUALIFIED PORTFOLIO seeks to maximize long-term capital
appreciation. It invests in the International Growth Fund, which in turn invests
in an international portfolio of equity securities of foreign companies only.

EMERGING COUNTRIES QUALIFIED PORTFOLIO seeks to maximize long-term capital
appreciation. It invests in the Emerging Countries Fund, which in turn invests
primarily in a diversified portfolio of equity securities of issuers located in
emerging markets. INVESTMENT IN THIS PORTFOLIO SHOULD BE CONSIDERED SPECULATIVE,
SINCE IT WILL INVEST IN EMERGING MARKET COUNTRIES. SEE "INVESTMENT OBJECTIVES,
POLICIES AND RISK CONSIDERATIONS," PAGE 8.
- --------------------------------------------------------------------------------

AUGUST 2, 1996

<PAGE>
NICHOLAS--APPLEGATE MUTUAL FUNDS

- -------------------------------------------------
GLOBAL QUALIFIED PORTFOLIOS

WORLDWIDE GROWTH QUALIFIED PORTFOLIO
INTERNATIONAL GROWTH QUALIFIED PORTFOLIO
EMERGING COUNTRIES QUALIFIED PORTFOLIO

TABLE OF CONTENTS

Summary of Expenses.......................................3
Prospectus Summary........................................4
Financial Highlights......................................8
Investment Objectives, Policies and Risk Considerations...8
Organization and Management..............................14
Purchasing Shares........................................16
Investor Services........................................19
Redeeming Shares.........................................21
Dividends, Distributions and Taxes.......................22
General Information......................................23
Appendix:
Investment Policies, Strategies
and Risks.............................................25

2
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF EXPENSES

This table is designed to help you understand the costs of investing in each of
the Portfolios. These are based on the expenses of each Portfolio for its fiscal
year ended March 31, 1996. Because each Portfolio invests all of its assets in a
corresponding Fund, each Portfolio's expenses include its proportionate share of
the operating expenses of the corresponding Fund. Actual expenses may be more or
less than those shown.

<TABLE>
<CAPTION>
WORLDWIDE INTERNATIONAL EMERGING
GROWTH GROWTH COUNTRIES
QUALIFIED QUALIFIED QUALIFIED
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases (as a percentage of offering price) None None None
Sales charge on reinvested dividends None None None
Deferred sales charge (as a percentage of original purchase price or
redemption proceeds, whichever is lower) None None None
Redemption fee None None None
Exchange fee None None None
- -------------------------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET
ASSETS:
(after expense reduction)(1)
Management fees 1.00% 1.00% 1.25%
12b-1 expenses None None None
Shareholder service expenses 0.25% 0.25% 0.25%
All Other expenses (after expense reduction)(1) 0.35% 0.40% 0.40%
Total operating expenses (after expense reduction)(1) 1.60% 1.65% 1.90%
</TABLE>

(1)The Investment Adviser of the Master Trust has agreed to waive or defer its
management fees payable by the Funds, and to absorb other operating expenses
payable by the Funds and the Portfolios, to ensure that the expenses for each
Portfolio (other than interest, taxes, brokerage commissions and other
portfolio transaction expenses, capital expenditures and extraordinary
expenses) will not exceed the following respective percentage of such
Portfolio's average net assets on an annual basis through March 31, 1997:
Worldwide Growth-1.60%; International Growth-1.65%; Emerging Countries-1.90%.
In subsequent years, overall operating expenses for each Portfolio will not
fall below the applicable percentage limitation until the Investment Adviser
has fully recouped fees deferred or expenses paid by the Investment Adviser
under this agreement, as each Portfolio will reimburse the Investment Adviser
when operating expenses (before recoupment) for the Portfolio are less than
the applicable percentage limitation set forth above. Accordingly, until all
such deferred fees or expenses have been recouped by the Investment Adviser,
the Portfolio's expenses will be higher, and their yields will be lower, than
would otherwise be the case. See "Organization and Management -- Expense
Limitation." Actual operating expenses (annualized) for the Portfolios for
the fiscal year ended March 31, 1996 were the following respective
percentages of such Portfolios' average net assets: Worldwide
Growth-3,232.53%; International Growth-531.72%; Emerging Countries-44.24%.
The various operating expenses of the Portfolios are further described under
"Organization and Management."

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
Worldwide Growth Qualified Portfolio $16 $50 $ 87 $190
International Growth Qualified Portfolio $17 $52 $ 90 $195
Emerging Countries Qualified Portfolio $19 $60 $103 $222
</TABLE>

- ---------------------------

- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY

Nicholas-Applegate Mutual Funds (the "Trust") is an open-end management
investment company comprised of a number of diversified investment portfolios,
including the three Qualified Portfolios ("Portfolios") offered hereby. The
Portfolios are offered to certain qualified retirement plans and tax-exempt
investors.

MASTER/FEEDER STRUCTURE. The Portfolios seek to achieve their respective
investment objectives by investing all of their assets in corresponding series
("Funds") of Nicholas-Applegate Investment Trust (the "Master Trust"), a
diversified, open-end management investment company. The Funds have the same
investment objectives as the Portfolios which invest in them. The Funds, in
turn, hold investment securities. Although the "master/feeder" structure
employed by the Portfolios to achieve their investment objectives could provide
certain efficiencies and economies of scale, it could also have potential
adverse effects such as those resulting from large-scale redemptions by other
investors of their interests in the Funds, or from the failure by investors of a
Portfolio to approve a change in investment objectives and policies that has
been approved by the investors of the corresponding Fund. There may also be
other investment companies through which you can invest in the Funds which may
have higher or lower fees and expenses than those of the Portfolios. See
"Investment Objectives, Policies and Risk Considerations -- Special
Considerations Regarding Master/Feeder Structure."

The securities of many companies in which the Worldwide Growth, International
Growth and Emerging Countries Funds invest are subject to more volatile market
movements than securities of larger, more established companies because the
issuers are typically more subject to changes in earnings and prospects. The net
asset values of the corresponding Portfolios therefore can be expected to
experience above-average fluctuations, as above-average risk is assumed by the
Funds in investing in such growth companies in seeking higher than average
growth in capital.

In addition, investment by the Emerging Countries Fund in emerging markets
involves greater risks than other foreign investments, including less-developed
economic and legal structures; less stable political systems; illiquid
securities markets; possible expropriations, nationalization or confiscatory
taxation; and possible foreign currency devaluations and fluctuations. As a
result of these and other factors, the share price of the Emerging Countries
Portfolio is expected to be volatile, and investment in the Portfolio should be
considered speculative and appropriate only as a long-term investment vehicle.
The Worldwide Growth and International Growth Funds may also invest a portion of
their assets in emerging market countries.

The investment approach of Nicholas-Applegate Capital Management (the
"Investment Adviser") results in above-average portfolio turnover for each Fund.
A high rate of portfolio turnover involves correspondingly greater brokerage
commission expenses, and may also result in the realization and distribution to
shareholders of net capital gains which are taxable to them as ordinary income
for federal tax purposes.

For hedging purposes, certain Funds may purchase or write put and call options
on securities and securities indices, effect transactions in futures contracts
and related options on stock indices, and enter into foreign exchange forward
contracts, currency futures or related options. These are derivative
instruments, whose value derives from the value of an underlying security, index
or currency. Risks associated with the use of such instruments include the
possibility that the Investment Adviser's forecasts of market values and
currency rates of exchange and other factors are not correct; imperfect
correlation between the Fund's hedging technique and the asset or liability
being hedged; default by the other party to the transaction; and inability to
close out a position because of the lack of a liquid market. Investment in such
derivative

5
<PAGE>
instruments may not be successful, and may reduce the returns and increase the
volatility of the Funds. See "Appendix: Investment Policies, Strategies and
Risks" in this Prospectus and "Investment Objectives, Policies and Risks" in the
Statement of Additional Information.

THE WORLDWIDE GROWTH AND INTERNATIONAL GROWTH FUNDS MAY ENGAGE IN SHORT SALES,
WHICH THEORETICALLY INVOLVE UNLIMITED LOSS POTENTIAL AND MAY BE CONSIDERED A
SPECULATIVE TECHNIQUE. See the description of the risks of short sales under
"Short Sales" in "Appendix: Investment Policies, Strategies and Risks."

The Investment Adviser is compensated for its services to the Funds in the form
of monthly fees at the following annual rates: for the Emerging Countries
Fund-1.25% of the Fund's net assets; and for each of the Worldwide Growth and
International Growth Funds-1.00% of the first $500 million of the Fund's net
assets, 0.90% of the next $500 million and 0.85% of net assets in excess of $1
billion. The advisory fees paid by the Funds are higher than those paid by most
other investment companies. See "Organization and Management."

ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN. Investment Company Administration
Corporation (the "Administrator") is the administrator for the Trust, with
responsibility for managing the daily business operations of the Portfolios,
subject to the supervision of the Trust's Board of Trustees. It also acts as
administrator for the Master Trust. PNC Bank (the "Custodian") is the custodian
for the Trust and the Master Trust, and State Street Bank and Trust Company (the
"Transfer Agent") is the transfer and dividend disbursing agent for the Trust.

6
<PAGE>
broker-dealers, financial institutions or financial planners having sales or
service agreements with the Distributor or another broker-dealer or financial
institution with respect to sales of shares of the Portfolios. Investments by
individual participants of qualified retirement plans are made through their
plan sponsor or administrator. Purchases may only be made by check or by wiring
federal funds to the Transfer Agent. Shares are purchased at the next offering
price without any sales charge, after an order is received in proper form by the
Transfer Agent or a sub-transfer agent. The minimum initial investment is
$250,000 and the minimum subsequent investment is $10,000. The minimum initial
and subsequent investments are waived for individual participants of qualified
retirement plans. Shares of a Portfolio may also be purchased with securities
which are otherwise appropriate for investment by the Portfolio. See "Purchasing
Shares."

DIVIDENDS, DISTRIBUTIONS AND TAXES. The Portfolios declare and pay annual
dividends of net investment income. The Portfolios make distributions at least
annually of any net capital gains. All dividends and distributions will be paid
in the form of additional shares at net asset value unless cash payment is
requested.

7
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS

The following financial highlights have been audited by Ernst & Young L.L.P.
with respect to the period from commencement of operations of the Portfolios
through March 31, 1996. Ernst & Young L.L.P. are independent auditors whose
reports thereon were unqualified. This information should be read in conjunction
with the financial statements and the notes thereto which appear in the Trust's
1996 Annual Report to Shareholders incorporated by reference in the Statement of
Additional Information.

<TABLE>
<CAPTION>
WORLDWIDE INTERNATIONAL EMERGING
GROWTH GROWTH COUNTRIES
Qualified Qualified Qualified
Portfolio Portfolio Portfolio
8-31-95 8-31-95 8-31-95
to to to
3-31-96 3-31-96 3-31-96
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $ 12.50 $ 12.50 $ 12.50
Income from investment operations:
Net investment income (deficit) (0.04 ) 0.01 0.01
Net realized and unrealized gains on securities 0.81 1.01 0.67
- ------------------------------------------------------------------------------------------------------------
Total from investment operations 0.77 1.02 0.68
Less distributions:
Dividends from net investment income -- -- --
Distributions from capital gains -- -- --
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.27 $ 13.52 $ 13.18
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN: 6.32 % 8.16% 5.44%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $1 $19 $350
Ratio of expenses to average net assets, after expense
reimbursements*+ 1.60 % 1.65% 1.90%
Ratio of expenses to average net assets, before expense
reimbursements*+ 3232.53 % 531.72% 44.24%
Ratio of net investment income (deficit) to average net assets, after
expense reimbursements*+ (0.50 %) 0.33% 0.47%
Ratio of net investment deficit to average net assets, before expense
reimbursements*+ (3231.44 %) (529.11%) (35.33%)
Portfolio turnover** 132.20 % 141.02% 118.21%
Average commission rate paid** $ 0.0187 $ 0.0128 $0.0022
</TABLE>

- ---------------------------------------
* Annualized

** For the corresponding Funds of the Master Trust

+ Includes expenses allocated from the Master Trust Funds

- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS

The investment objective and policies of each Portfolio are discussed below and
in the "Appendix: Investment Policies, Strategies and Risks."

8
<PAGE>
defined in the Investment Company Act of 1940 (the "Investment Company Act").
Upon any such approval, each Portfolio will provide at least 30 days' written
notice to its investors before any change is made to its or the corresponding
Fund's investment objective.

The Trust's Board of Trustees believes that the Portfolios will achieve certain
efficiencies and economies of scale through the "master/feeder" structure, and
that the aggregate expenses of the Portfolios will be less than if the
Portfolios invested directly in the securities held by the Funds. However, other
investment companies that offer their shares to the public also may invest all
or substantially all of their assets in the Funds. Accordingly, there may be
other investment companies through which investors can invest indirectly in the
Funds. The fees charged by such other investment companies may be higher or
lower than those charged by the Portfolios, which may reflect, among other
things, differences in the nature and level of the services and features offered
by such companies to their investors. Information about the availability of
other investment companies that invest in the Funds can be obtained by calling
(800) 551-8643.

9
<PAGE>
WORLDWIDE GROWTH QUALIFIED PORTFOLIO. The Worldwide Growth Qualified Portfolio
seeks to maximize long-term capital appreciation. It invests all of its assets
in the Nicholas-Applegate Worldwide Growth Fund, which has the same investment
objective as the Worldwide Growth Qualified Portfolio. Assets of the Worldwide
Growth Fund are invested primarily in equity securities of U.S. and foreign
companies. Such companies may be in the earlier stages of development, growth
companies, cyclical companies or companies believed to be undergoing a basic
change in operations or markets which, in the opinion of the Investment Adviser,
would result in a significant improvement in earnings. The securities of such
companies may be subject to more volatile market movements than securities of
larger, more established companies. Although the Fund is not restricted to
investments in companies of any particular size, it currently intends to invest
principally in companies with smaller to middle market capitalizations and above
(generally above $100 million). See "Appendix: Investment Policies, Strategies
and Risks" for a discussion of the risks associated with investment in such
companies.

The Worldwide Growth Fund may invest in securities issued by companies based or
operating in any country, including the United States. Under normal market
conditions, as a fundamental policy which cannot be changed without shareholder
approval, at least 65% of the Fund's total assets will be invested in securities
of issuers located in at least three countries, one of which may be the United
States. Under normal market conditions, the Fund may invest up to 50% of its
total assets in securities of U.S. issuers. With these exceptions, the Fund is
not driven by allocation considerations with respect to any particular
countries, geographic regions or economic sectors. Countries in which investment
opportunities will be sought include Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, the
United Kingdom and the United States. However, the Fund may also invest in
securities issued by companies based in other countries such as the countries of
Eastern Europe and South America, Indonesia, Korea, Mexico, the Philippines,
Portugal and Thailand. The Worldwide Growth Fund may also invest up to 10% of
its total assets in closed-end or open-end country funds. An investment in such
funds may result in duplication of fees. See "Appendix: Investment Policies,
Strategies and Risks" for a discussion of the risks associated with investment
in foreign securities.

Under normal market conditions, at least 75% of the Worldwide Growth Fund's
total assets will be invested in equity securities (common and preferred
stocks), and warrants and securities convertible into equity securities. The
remainder of the Worldwide Growth Fund's assets will be invested in debt
securities of foreign companies and foreign governments and their agencies and
instrumentalities which the Investment Adviser believes present attractive
opportunities for capital growth, as well as in various other securities and
instruments described in "Appendix: Investment Policies, Strategies and Risks."
The debt securities in which the Fund may invest will be rated "Baa" or higher
by Moody's, "BBB" or higher by S&P or equivalent ratings by other recognized
rating agencies, or will be unrated if determined by the Investment Adviser to
be of comparable quality. These securities are of investment grade, which means
that their issuers are believed to have adequate capacity to pay interest and
repay principal, although certain of such securities in the lower grades have
speculative characteristics, and changes in economic conditions or other
circumstances may be more likely to lead to a weakened capacity to pay interest
and principal than would be the case with higher rated securities. If the rating
of a debt security held by the Fund is downgraded below investment grade, the
security will be sold as promptly as practicable. The Fund may also

10
<PAGE>
make short sales, which is considered a speculative technique. See "Appendix:
Investment Policies, Strategies and Risks" for a discussion of the risks
associated with short sale transactions.

INTERNATIONAL GROWTH QUALIFIED PORTFOLIO. The International Growth Qualified
Portfolio seeks to maximize long-term capital appreciation. It invests all of
its assets in the Nicholas-Applegate International Growth Fund, which has the
same investment objective as the International Growth Qualified Portfolio.
Assets of the International Growth Fund are invested in the same types of
securities as the Worldwide Growth Fund, except that the International Growth
Fund may invest up to 35% of its total assets in securities of U.S. companies.
Under normal market conditions, as a fundamental policy which cannot be changed
without shareholder approval, at least 65% of the Fund's total assets will be
invested in securities of issuers located in at least three countries. See
"Worldwide Growth Institutional Portfolio" above.

EMERGING COUNTRIES QUALIFIED PORTFOLIO. The Emerging Countries Qualified
Portfolio seeks to maximize long-term capital appreciation. It invests all of
its assets in the Nicholas-Applegate Emerging Countries Fund, which has the same
investment objective as the Emerging Countries Qualified Portfolio. Assets of
the Fund are invested primarily in equity securities of issuers located in
countries with emerging securities markets -- that is, countries with securities
markets which are, in the opinion of the Investment Adviser, emerging as
investment markets but have yet to reach a level of maturity associated with
developed foreign stock markets, especially in terms of participation by foreign
investors. The Fund currently expects to invest in issuers located in some or
all of the following emerging market countries: Argentina, Brazil, Chile, China,
Colombia, the Czech Republic, Greece, Hungary, India, Indonesia, Israel, Jordan,
Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland, Portugal,
Singapore, Sri Lanka, South Africa, South Korea, Taiwan, Thailand, Turkey and
Venezuela. At the discretion of the Investment Adviser, the Fund may also invest
in other countries with emerging securities markets. See "Appendix: Investment
Policies, Strategies and Risks" for a discussion of the risks associated with
investment in emerging markets countries.

Under normal market conditions, as a fundamental policy which cannot be changed
without shareholder approval, at least 65% of the Emerging Countries Fund's
total assets will be invested in securities of issuers located in at least three
different countries. With this exception, the Fund is not driven by allocation
considerations with respect to any particular countries, geographic regions or
economic sectors. Although the Fund is authorized to invest more than 25% of its
total assets in the securities of issuers located in any one country, it does
not currently intend to do so. The Investment Adviser currently selects
portfolio securities for the Fund from an investment universe of approximately
6,000 foreign issuers in 20 emerging markets.

The Fund may invest up to 10% of its total assets in closed-end or open-end
country funds. Under normal market conditions, the Fund may invest up to 35% of
its total assets in securities of U.S. companies. In addition, the Fund may also
invest up to 20% of its total assets in securities of issuers that are not
domiciled or do not have their principal places of business in developing
countries, but that have or will have substantial assets in developing
countries, or derive or expect to derive a substantial portion of their total
revenues from either goods and services produced in, or sales made in,
developing countries.

Under normal market conditions, at least 75% of the Emerging Countries Fund's
total assets will be invested in equity securities (common and preferred
stocks), and warrants and securities convertible into equity securities. The
remainder of the Fund's assets will be invested in debt securities of foreign
companies and foreign governments and their agencies

11
<PAGE>
and instrumentalities which the Investment Adviser believes present attractive
opportunities for capital growth, as well as in various other securities and
instruments described in "Appendix: Investment Policies, Strategies and Risks."

The debt securities in which the Emerging Countries Fund may invest will be
rated "Baa" or higher by Moody's, "BBB" or higher by S&P or investment grade by
other recognized rating agencies, or will be unrated if determined by the
Investment Adviser to be of comparable quality. At least 75% of the Fund's total
assets invested in such securities will be invested in securities rated A or
better by Moody's or S&P or, if unrated, determined to be of comparable quality
by the Investment Adviser. See "Worldwide Growth Institutional Portfolio" for a
description of these investment grade securities. If the rating of a debt
security held by the Fund is downgraded below investment grade, the security
will be sold as promptly as practicable.

The Emerging Countries Fund intends to invest principally in securities that are
listed on a bona fide securities exchange or are actively traded in an
over-the-counter market (either within or outside the issuer's domicile
country). The Fund will not invest in securities denominated in a foreign
currency unless, at the time of investment, such currency is considered by the
Investment Adviser to be fully exchangeable into United States dollars without
significant legal restriction. The Fund may purchase securities issued by the
government of, or a company located in, one nation but denominated in the
currency of another nation (or in a multinational currency unit).

INVESTMENT TECHNIQUES AND PROCESSES. The focus of the Investment Adviser's
investment program is GROWTH OVER TIME-REGISTERED TRADEMARK-. In making
decisions with respect to equity securities for the Funds, the Investment
Adviser uses a proprietary investment methodology which is designed to capture
positive change at an early stage. It adheres rigorously to this methodology,
and applies it to various segments of the capital markets, domestically and
internationally. This methodology consists of investment techniques and
processes designed to identify companies with attractive earnings and dividend
growth potential and to evaluate their investment prospects. These techniques
and processes include relationships with an extensive network of brokerage and
research firms located throughout the world; computer-assisted fundamental
analysis of thousands of domestic and foreign companies; established criteria
for the purchase and sale of individual securities; portfolio structuring and
rebalancing guidelines; securities trading techniques; and continual monitoring
and reevaluation of all holdings with a view to maintaining the most attractive
mix of investments. The Investment Adviser collects data on approximately 26,000
companies in 35 countries (adjusting for reporting and accounting differences).
There can be no assurance that use of the proprietary investment methodology
will be successful.

12
<PAGE>
and instrumentalities; floating and variable rate demand notes and bonds;
commercial paper; non-convertible corporate debt securities; convertible
securities, synthetic convertible securities and warrants; closed-end country
funds; depository receipts; over-the-counter securities; when-issued securities
and firm commitment agreements; foreign exchange contracts; put and call options
on securities; stock index futures contracts; repurchase agreements; illiquid
securities; securities lending; and borrowing.

1. No Portfolio or Fund may invest more than 5% of its total assets in the
securities of any one issuer. However, up to 25% of a Portfolio's or
Fund's total assets may be invested without regard to this limitation, and
this limitation does not apply to investments in securities of the U.S.
Government or its agencies and instrumentalities.

2. No Portfolio or Fund may purchase more than 10% of the outstanding voting
securities of any one issuer, or purchase the securities of any issuer for
the purpose of exercising control.

3. No Portfolio or Fund may invest 25% or more of its total assets in any one
particular industry; however, this restriction does not apply to the
securities of the U.S. Government, its agencies and instrumentalities.

4. No Portfolio or Fund may make loans of its portfolio securities in an
aggregate amount exceeding 30% of the value of its total assets, or borrow
money (except from banks for temporary, extraordinary or emergency
purposes or for the clearance of transactions and in an aggregate amount
not exceeding 20% of the value of its total assets).

5. No Portfolio or Fund may invest more than 15% of its net assets in
illiquid securities.

The investment restrictions described above do not apply to an investment by a
Portfolio of all of its assets in a corresponding Fund.

13
<PAGE>
turnover should not result in a Fund paying greater brokerage commissions on
debt securities, as most transactions in debt securities are effected with
dealers on a principal basis. However, debt securities, as well as equity
securities traded on a principal basis, are subject to mark-ups by the dealers.
High portfolio turnover may also result in the realization of substantial net
capital gains, and any distributions derived from such gains may be ordinary
income for federal tax purposes.

- --------------------------------------------------------------------------------
ORGANIZATION AND MANAGEMENT

ORGANIZATION. Each Portfolio is a series of Nicholas-Applegate Mutual Funds, a
Delaware business trust. The Board of Trustees of the Trust, in addition to
reviewing the actions of the Trust's Administrator and Distributor, as set forth
below, decides upon matters of general policy with respect to each Portfolio.
See "General Information". The trustees and officers of the Trust and of the
Master Trust are described in the Statement of Additional Information. None of
the disinterested trustees of the Trust are the same individuals as the
disinterested trustees of the Master Trust.

INVESTMENT ADVISER. The Trust has not retained the services of an investment
adviser for the Portfolios, as the Portfolios seek to achieve their investment
objectives by investing all of their assets in corresponding Funds.
Nicholas-Applegate Capital Management, 600 West Broadway, 30th Floor, San Diego,
California 92101, serves as the Investment Adviser to the Funds. The Investment
Adviser currently manages approximately $30 billion of discretionary assets for
numerous clients, including employee benefit plans of corporations, public
retirement systems and unions, university endowments, foundations and other
institutional investors, and individuals. The Investment Adviser was organized
in 1984 as a California limited partnership. Its general partner is
Nicholas-Applegate Capital Management Holdings, L.P., a California limited
partnership controlled by Arthur E. Nicholas. He and thirteen other partners
manage a staff of approximately 325 employees.

As compensation for the services it provides, the Investment Adviser receives a
monthly fee at the following annual rates: for the Emerging Countries Fund,
1.25% of the Fund's net assets; and for each of the Worldwide Growth and
International Growth Funds, 1.00% on the first $500 million of the Fund's net
assets, 0.90% on the next $500 million of net assets, and 0.85% on net assets in
excess of $1 billion.

For the fiscal year ended March 31, 1996, the Investment Adviser received fees
and expense recoupments from the Funds and Portfolios equal to the following
percentages of the Portfolios' respective average net assets, after the fee
deferrals and expense reimbursements referred to under "Expense Limitation":
Worldwide Growth Portfolio -- (1884.51%); International Growth Portfolio --
(308.59%); and Emerging Countries Portfolio -- (22.69%).

14
<PAGE>
than the last five years. Mr. Speidell has been a portfolio manager with the
Investment Adviser since March 1994; from 1983 until he joined the Investment
Adviser, he was an institutional portfolio manager with Batterymarch Financial
Management.

ADMINISTRATOR. Investment Company Administration Corporation, a Delaware
corporation, is the Administrator of each Portfolio. Pursuant to an
Administration Agreement with the Trust, and subject to the supervision of the
Board of Trustees of the Trust, the Administrator supervises the overall
administration of the Trust. Its responsibilities include preparing and filing
all documents required for compliance by the Trust with applicable laws and
regulations, arranging for the maintenance of books and records of the Trust and
supervision of other organizations that provide services to the Trust. Certain
officers of the Trust are also provided by the Administrator. For the services
it provides to the Trust, the Administrator receives an annual fee of between
$5,000 and $35,000 for each of the groups of portfolios of the Trust investing
in the various series of the Master Trust; the fee is allocated among various
series of the Trust, including the Portfolios, in accordance with relative net
asset values. The Administrator provides similar services as the administrator
of the Master Trust, subject to the supervision of its Board of Trustees, and is
compensated separately for the services rendered to each Fund at an annual rate
of approximately 0.015% of the average daily net assets of the Fund.

EXPENSE LIMITATION. To limit the expenses of each Portfolio, the Investment
Adviser has agreed to defer its management fees payable by the Funds, and to
absorb the other operating expenses payable by the Funds and the Portfolios, to
ensure that the expenses of each Portfolio (excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures and
extraordinary expenses, but including such Portfolio's proportionate share of
the corresponding Fund's similar operating expenses) do not exceed the following
respective percentage of such Portfolio's average net assets on an annual basis
through March 31, 1997 or any lower expense limitation imposed by any state
during any fiscal period: Worldwide Growth-1.60%; International Growth-1.65%;
Emerging Countries-1.90%. Each Portfolio will reimburse the Investment Adviser
for fees deferred or other expenses paid by the Investment Adviser pursuant to
this agreement in later years in which operating expenses for the Portfolio are
less than the applicable percentage limitation set forth above for any such
year. No interest, carrying or finance charge will be paid by a Portfolio with
respect to any amounts representing fees deferred or other expenses paid by the
Investment Adviser. In addition, no Portfolio or Fund will be required to repay
any unreimbursed amounts to the Investment Adviser upon termination or
non-renewal of its Investment Advisory Agreement with the Master Trust.

For the fiscal year ended March 31, 1996, the Qualified Portfolios' total
expenses were the following percentages of their respective average net assets,
after the fee deferrals and expense reimbursements indicated in parentheses:
Worldwide Growth Portfolio -- 1.60% (3230.93%); International Growth Portfolio
- -- 1.65% (530.07%); and Emerging Countries Portfolio -- 1.90% (42.34%).

15
<PAGE>
reimbursement for certain expenses actually incurred in connection with
shareholder services provided by the Distributor and payments to plan
administrators and others for the provision of such services. Support services
with respect to the beneficial owners of the Portfolios' shares include
establishing and maintaining accounts and records relating to clients of plan
administrators and others who invest in the Portfolios' shares, preparing tax
reports, assisting clients in processing exchange and redemption requests and
account designations, and responding to client inquiries concerning their
investments. If in any month the Distributor is due more monies for shareholder
services than are immediately payable because of the expense limitations under
the Shareholder Service Plan, the unpaid amount is carried forward from month to
month while the Shareholder Service Plan is in effect until such time when it
may be paid. However, no carried forward amount will be payable beyond the
fiscal year during which the amounts were incurred, and no interest, carrying or
other finance charge is borne by the Portfolios with respect to any amount
carried forward.

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT. PNC Bank, Airport Business
Center, International Court 2, 200 Stevens Drive, Lester, Pennsylvania, 19113,
serves as Custodian for the Portfolios and the Funds. PFPC Inc., an affiliate of
the Custodian, provides accounting services to the Portfolios and the Funds.
State Street Bank and Trust Company, 2 Heritage Drive, 7th Floor, North Quincy,
Massachusetts 02171, is the Transfer Agent and the Dividend Disbursing Agent for
the Portfolios.

- --------------------------------------------------------------------------------
PURCHASING SHARES

HOW TO PURCHASE SHARES. Shares of the Portfolios are offered to (i) qualified
retirement plans (including employer, association and other group retirement
plans), employee benefit trusts, foundations and endowments, (ii) certain
financial institutions having sales or service agreements with the Distributor
or another broker-dealer or financial institution with respect to sales of
shares of the Portfolios, (iii) "wrap accounts" for the benefit of clients of
broker-

16
<PAGE>
dealers, financial institutions or financial planners having sales or service
agreements with the Distributor or another broker-dealer or financial
institution with respect to sales of shares of the Portfolios, and (iv) certain
other persons determined from time to time by the Distributor.

Purchases of shares of the Portfolios can be made by check or by wiring federal
funds to the Transfer Agent. Checks should be in U.S. dollars and made payable
to Nicholas-Applegate Mutual Funds or, in the case of a retirement account, the
custodian or trustee. Third party checks will not be accepted. Checks should be
sent to the Transfer Agent, State Street Bank and Trust Company, P.O. Box 8326,
Boston, Massachusetts 02266-8326, Attention: Nicholas-Applegate Mutual Funds.
Please specify the name of the Portfolio, the account number assigned by the
Transfer Agent, and your name. See "Purchase by Wire" below for wiring
instructions.

17
<PAGE>
02110, ABA No. 011000028, DDA No. 9904-645-0 Attention: Nicholas-Applegate
Mutual Funds, specifying on the wire the name of the Portfolio, the account
number assigned by the Transfer Agent and your name. If you arrange for receipt
by the Transfer Agent of federal funds prior to close of trading (currently 4:00
P.M., Eastern time) of the New York Stock Exchange on a day when the Exchange is
open for normal trading, you may purchase shares of the Portfolio as of that
day. Your bank is likely to charge you a fee for wire transfers.

Subsequent purchases by wire may be made at any time by calling the Transfer
Agent and wiring federal funds as outlined above.

Individual participants of qualified retirement plans should purchase Portfolio
shares through their plan sponsor or administrator who is responsible for
forwarding payment to the Transfer Agent.

Investors may be charged a fee if they effect transactions through a broker or
agent.

OTHER PORTFOLIOS. Currently, the Trust has eight Qualified Portfolios. Three of
the global Qualified Portfolios are offered pursuant to this Prospectus. Five
domestic Qualified Portfolios are offered pursuant to a separate prospectus
which can be obtained by calling (800) 973-8473. The Distributor also offers
shares of other portfolios of the Trust which invest in the same Funds of the
Master Trust as the Qualified Portfolios. These other portfolios have different
sales charges and other expenses than the Qualified Portfolios, which may affect
their performance. Information about these other portfolios can be obtained from
your dealer or by calling (800) 551-8643.

OTHER PURCHASE INFORMATION. The Portfolios reserve the right to reject any
purchase order or to suspend or modify the continuous offering of their shares.
Purchases of Portfolio shares will be made in full and fractional shares. In the
interest of economy and convenience, certificates for shares will generally not
be issued.

18
<PAGE>
- --------------------------------------------------------------------------------
INVESTOR SERVICES

CROSS-REINVESTMENT. You may cross-reinvest dividends or dividends and capital
gain distributions paid by one Portfolio into shares of any other Qualified
Portfolio, subject to conditions outlined in the Statement of Additional
Information and the applicable provisions of the qualified retirement plan.

The Trust's exchange privilege is not intended to afford shareholders a way to
speculate on short-term market movements. Accordingly the Trust reserves the
right to limit the number of exchanges an investor or participant may make in
any year, to avoid excessive Portfolio expenses. In order to prevent excessive
use of the exchange privilege that may potentially disrupt the management of the
Emerging Countries Qualified Portfolio and increase transaction costs, the
Portfolio has established a policy of limiting excessive exchange activity.
Exchange activity generally will not be deemed excessive if limited to two
substantive exchange redemptions, at least 30 days apart, from the Portfolio
during any twelve month period. In addition, the Portfolio reserves the right to
reject any exchange request that is deemed to be disruptive to efficient
portfolio management. Any such restriction will be made by the Emerging
Countries Qualified Portfolio on a prospective basis only, upon notice to the
shareholder not later than ten days following such shareholder's most recent
exchange.

Individual participants of qualified retirement plans may exchange shares
(depending upon the provisions of the plan) by written or telephone request
through the plan sponsor or administrator. Such participants may exchange shares
only for shares of other Qualified Portfolios that are included in their plan.
In addition, the exchange privilege may not be available to investors who are
eligible to purchase shares of a Portfolio as a result of agreements between the
Distributor and certain broker-dealers, financial planners and similar
institutions.

19
<PAGE>
such service is offered under the plan. Investors should realize that by
electing the telephone privilege, they may be giving up a measure of security
that they may have if they were to exchange or redeem their shares in writing.
Furthermore, in periods of severe market or economic conditions, telephone
exchanges or redemptions may be difficult to implement, in which case investors
should mail or send by overnight delivery a written exchange or redemption
request to the Transfer Agent. Overnight deliveries should be sent to the
Transfer Agent, Attention: Nicholas-Applegate Mutual Funds, 2 Heritage Drive,
7th Floor, North Quincy, Massachusetts 02171. Requests for telephone exchanges
or redemptions received before 4:00 P.M. (Eastern time) on a day when the New
York Stock Exchange is open for normal trading will be processed as of the close
of trading on that day. Otherwise, processing will occur on the next business
day.

The Trust will employ procedures designed to provide reasonable assurance that
instructions communicated by telephone are genuine and, if it does not do so, it
may be liable for any losses due to unauthorized or fraudulent instructions. The
procedures employed by the Trust include requiring personal identification by
account number and social security number, tape recording of telephone
instructions, and providing written confirmation of transactions. The Trust
reserves the right to refuse a telephone exchange or redemption request if it
believes, for example, that the person making the request is neither the record
owner of the shares being exchanged or redeemed nor otherwise authorized by the
investor to request the exchange or redemption. Investors will be promptly
notified of any refused request for a telephone exchange or redemption. No
Portfolio or its agents will be liable for any loss, liability or cost which
results from acting upon instructions of a person reasonably believed to be an
investor with respect to the telephone privilege.

20
<PAGE>
The services referred to above are available only in states where the Portfolio
to be purchased may be legally offered and may be terminated or modified at any
time upon 60 days' written notice. Investors seeking to add to, change or cancel
their selection of available services should contact their plan administrator or
sponsor, or the Transfer Agent at the address and telephone number provided
above.

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REDEEMING SHARES

The signature on a redemption request must be exactly as names appear on the
Portfolio's account records, and the request must be signed by the minimum
number of persons designated on the account application that are required to
effect a redemption. Requests by participants of qualified retirement plans must
include all other signatures required by the plan and applicable Federal law.

REDEMPTIONS BY TELEPHONE. If an election is made on the account application (or
subsequently in writing), redemptions of shares may be requested by contacting
the Transfer Agent by telephone at (800) 551-8043 or by facsimile at (617)
774-2651 between the hours of 8:00 A.M. and 4:00 P.M. (Eastern time) on a day
when the New York Stock Exchange is open for normal trading. Investors should
state the name of the Portfolio, the number of shares or dollar amount to be
sold and their name and account number. Participants of qualified retirement
plans may make telephonic or facsimile redemption requests through their plan
sponsor or administrator, provided that such service is offered under the plan
and satisfactory arrangements have been made with the Transfer Agent. Redemption
requests received by the Transfer Agent before 4:00 P.M. (Eastern time) on a day
when the New York Stock Exchange is open for normal trading will be processed
that day. Otherwise, processing will occur on the next business day. See
"Shareholder Services -- Telephone Privilege" above.

REDEMPTION PAYMENTS. Payment for shares presented for redemption will ordinarily
be wired to your bank one business day after redemption is requested, but may
take up to three days after receipt by the Transfer Agent of a written or
telephonic redemption request except as indicated below. Such payment may be
postponed or the right of redemption suspended at times when the New York Stock
Exchange is closed for other than customary weekends and holidays, when trading
on such Exchange is restricted, when an emergency exists as a result of which

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disposal by a Portfolio of securities owned by it is not reasonably practicable
or it is not reasonably practicable for the Portfolio fairly to determine the
value of its net assets, or during any other period when the Securities and
Exchange Commission, by order, so permits. Payment for redemption of recently
purchased shares will be delayed until the Transfer Agent has been advised that
the purchase check has been honored, up to 15 calendar days from the time of
receipt of the purchase check by the Transfer Agent. Such delay may be avoided
by purchasing shares by wire or by certified or official bank check.

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DIVIDENDS, DISTRIBUTIONS AND TAXES

The Portfolios declare and pay annual dividends of net investment income. The
Portfolios make distributions at least annually of their net capital gains, if
any. In determining amounts of capital gains to be distributed by a Portfolio,
any capital loss carryovers from prior years will be offset against its capital
gains. Under U.S. Treasury Regulations, the Portfolios are required to withhold
and remit to the U.S. Treasury 31% of the dividends, capital gains and
redemption proceeds on the accounts of those investors who fail to furnish their
correct tax identification numbers on IRS Form W-9 (or IRS Form W-8, in the case
of certain foreign investors) with the required certifications regarding the
investor's status under the federal income tax law or who are subject to backup
withholding for failure to include payments of interest or dividends on their
returns. Notwithstanding the foregoing, dividends of net income and short-term
capital gains to a foreign investor will generally be subject to U.S.
withholding at the rate of 30% (or lower treaty rate).

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Investors should consult their own tax advisers regarding specific questions as
to federal, state or local taxes. See "Taxes" in the Statement of Additional
Information.

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GENERAL INFORMATION

PERFORMANCE INFORMATION. From time to time the Trust may advertise each
Portfolio's total return and, if applicable, its yield. These figures are based
on historical earnings and are not intended to indicate future performance.
Total return shows how much an investment in the Portfolio would have increased
(or decreased) over a specified period of time (I.E., one, five or ten years or
since inception of the Portfolio) assuming that all distributions and dividends
by the Trust to investors of the Portfolio were reinvested on the reinvestment
dates during the period. Total return does not take into account any federal or
state income taxes which may be payable by the investor. Yield will be
calculated on a 30-day period pursuant to a formula prescribed by the Securities
and Exchange Commission ("Commission"). The Trust also may include comparative
performance information in advertising or marketing Portfolio shares. Such
performance information may include data from Lipper Analytical Services, Inc.,
Morningstar Inc., other industry publications, business periodicals, rating
services and market indices. See "Performance Information" in the Statement of
Additional Information.

DESCRIPTION OF SHARES. The Portfolios are series of Nicholas-Applegate Mutual
Funds, an open-end management investment company. The Trust was organized in
December 1992 as a Delaware business trust.

The Trust is authorized to issue an unlimited number of shares of each
Portfolio. Shares of a Portfolio, when issued, are fully paid, nonassessable,
fully transferable and redeemable at the option of the holder. Shares of a
Portfolio are also redeemable at the option of the Trust under certain
circumstances. There are no conversion, preemptive or other subscription rights.
In the event of liquidation, each share of a Portfolio is entitled to its
portion of all of the Portfolio's assets after all debts and expenses of the
Portfolio have been paid. Pursuant to the Trust's Declaration of Trust, the
Board of Trustees of the Trust may authorize the creation of additional series,
and classes within series, with such preferences, privileges, limitations and
voting and dividend rights as the Board may determine.

Shareholders of the Portfolios are entitled to one vote for each full share held
and fractional votes for fractional shares held, and will vote by series except
as otherwise required by law or when the Board of Trustees of the Trust
determines that a matter to be voted upon affects only the interests of
investors of a particular series. Shares of the Trust do not have cumulative
voting rights for the election of Trustees. The Trust does not intend to hold
annual meetings of its investors unless otherwise required by law. The Trust
will not be required to hold meetings of investors unless the election of
Trustees or any other matter is required to be acted on by investors under the
Investment Company Act. Investors have certain rights, including the right to
call a meeting upon the request of 10% of the outstanding shares of a Portfolio,
for the purpose of voting on the removal of one or more Trustees.

As of June 30, 1996, the following persons held more than 25% of the outstanding
shares of the Portfolios, and may be deemed to control such Portfolios:
Worldwide Growth Qualified Portfolio -- Nicholas-Applegate Capital Management
(95.6%).

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Master Trust in its capacity as a shareholder of such Fund, the Trust will hold
a meeting of its investors and will cast its vote as instructed by such
investors or, in the case of a matter pertaining exclusively to the
corresponding Fund, as instructed particularly by investors of the Portfolio and
other series of the Trust which invest in the Fund. The Trust will vote shares
for which it has received no voting instructions in the same proportion as the
shares for which it does receive voting instructions.

ADDITIONAL INFORMATION. This Prospectus, including the Statement of Additional
Information which has been incorporated by reference herein, does not contain
all the information set forth in the Registration Statement filed by the Trust
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended. The Master Trust has also filed a Registration Statement with the
Commission. Copies of the Trust's and Master Trust's Registration Statement may
be obtained at a reasonable charge from the Commission or may be examined,
without charge, at the office of the Commission in Washington, D.C.

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<PAGE>
APPENDIX

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INVESTMENT POLICIES, STRATEGIES AND RISKS

The investment policies and strategies of the Portfolios (as implemented through
their investment in corresponding Funds) encompass the following securities,
techniques and risk considerations.

SHORT-TERM INVESTMENTS (ALL FUNDS). Each of the Funds may invest in short-term
investments to maintain liquidity for redemptions or during periods when, in the
opinion of the Investment Adviser, attractive investments are temporarily
unavailable. Under normal circumstances, no more than 10% of a Fund's total
assets will be retained in cash (U.S. dollars, foreign currencies or
multinational currency units) and cash equivalents. However, each Fund may
invest without restriction in short-term investments for temporary defensive
purposes, such as when the securities markets or economic conditions are
expected to enter a period of decline. Short-term investments in which the Funds
may invest include U.S. Treasury bills or other U.S. Government or Government
agency or instrumentality obligations; certificates of deposit; bankers'
acceptances; time deposits; high quality commercial paper and other short-term
high grade corporate obligations; shares of money market mutual funds; or
repurchase agreements with respect to such securities. These instruments are
described below. The Funds will only invest in short-term investments which, in
the opinion of the Investment Adviser present minimal credit and interest rate
risk.

Each of the Funds may invest in sovereign debt securities of emerging market
governments and their agencies and instrumentalities. Investments in such
securities involve special risks. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling to
pay principal or interest when due in accordance with the terms of the debt.
Periods of economic uncertainty may result in the volatility of market prices of
sovereign debt, and in turn the Fund's net asset value, to a greater extent than
the volatility inherent in domestic fixed income securities.

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<PAGE>
CERTIFICATES OF DEPOSIT, TIME DEPOSITS AND BANKERS' ACCEPTANCES (ALL
FUNDS). Each of the Funds may invest in certificates of deposit, time deposits
and bankers' acceptances issued by domestic banks, foreign banks, foreign
branches of domestic banks, domestic and foreign branches of foreign banks, and
domestic savings and loan associations, all of which at the date of investment
have capital, surplus and undivided profits as of the date of their most recent
published financial statements in excess of $100 million, or less than $100
million if the principal amount of such bank obligations is insured by the
Federal Deposit Insurance Corporation. Certificates of deposit are certificates
evidencing the obligation of a bank to repay funds deposited with it for a
specified period of time. Time deposits are non-negotiable deposits maintained
in a banking institution for a specified period of time at a stated interest
rate. Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer; these instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity.

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fluctuate, with longer-term securities fluctuating more widely in response to
changes in interest rates than those of shorter-term securities. A decline in
interest rates usually produces an increase in the value of debt securities,
while an increase in interest rates generally reduces their value. For
short-term purposes, all Funds may also invest in corporate obligations issued
by domestic and foreign issuers which mature in one year or less and which are
rated "Aa" or higher by Moody's, "AA" or higher by S&P, rated in the two highest
rating categories by any other NRSRO, or which are unrated but determined by the
Investment Adviser to be of minimal credit risk and comparable quality.

Convertible debt securities purchased by the Funds, which are acquired in whole
or substantial part for their equity characteristics, are not subject to rating
requirements.

EURODOLLAR CONVERTIBLE SECURITIES (ALL FUNDS). Each of the Funds may invest in
Eurodollar convertible securities, which are fixed income securities of a U.S.
issuer or a foreign issuer

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<PAGE>
that are issued outside the United States and are convertible into or
exchangeable for equity securities of the same or a different issuer. Interest
and dividends on Eurodollar securities are payable in U.S. dollars outside of
the United States. The Funds may invest without limitation in Eurodollar
convertible securities that are convertible into or exchangeable for foreign
equity securities listed, or represented by ADRs listed, on the New York Stock
Exchange or the American Stock Exchange or convertible into or exchangeable for
publicly traded common stock of U.S. companies. Each Fund may also invest up to
15% of its total assets invested in convertible securities, taken at market
value, in Eurodollar convertible securities that are convertible into or
exchangeable for foreign equity securities which are not listed, or represented
by ADRs listed, on such exchanges.

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES (WORLDWIDE GROWTH
FUND). The Worldwide Growth Fund may invest in certificates issued by the
Government National Mortgage Association ("GNMA") as a short-term investment.
GNMA certificates are mortgage-backed securities representing part ownership of
a pool of mortgage loans, which are issued by lenders such as mortgage bankers,
commercial banks and savings associations, and are either insured by the Federal
Housing Administration or the Veterans Administration. A pool of these mortgages
is assembled and, after being approved by GNMA, is offered to investors through
securities dealers. The timely payment of interest and principal on each
mortgage is guaranteed by GNMA and backed by the full faith and credit of the
U.S. Government. Principal is paid back monthly by the borrower over the term of
the loan rather than returned in a lump sum at maturity. Due to the prepayment
feature and the need to reinvest prepayments of principal at current market
rates, GNMA certificates can be less effective than typical bonds of similar
maturities at "locking in" yields during periods of declining interest rates.

EQUITY SECURITIES (ALL FUNDS). Each of the Funds may invest in equity
securities, including common stocks, convertible securities and warrants. Common
stocks, the most familiar type of equity securities, represent an equity
(ownership) interest in a corporation. See "Convertible Securities and Warrants"
for a description of convertible securities and warrants.

Each of the Funds may invest in equity securities of growth companies, cyclical
companies, companies with smaller market capitalizations (i.e., $500 million or
less) or companies believed to be undergoing a basic change in operations or
markets which could result in a significant improvement in earnings. Although
equity securities have a history of long term growth in value, their prices
fluctuate based on changes in the issuer's financial condition and prospects and
on overall market and economic conditions. Small companies and new companies
often have limited product lines, markets or financial resources, and may be
dependent upon one or few key persons for management. The securities of such
companies may be subject to more volatile market movements than securities of
larger, more established companies, both because the securities typically are
traded in lower volume and because the issuers typically are more subject to
changes in earnings and prospects. The corresponding Portfolios' net asset
values can be expected to experience above-average fluctuations, as
above-average risk is assumed by the Funds in investing in such growth companies
in seeking higher than average growth in capital.

COUNTRY FUNDS (ALL FUNDS). Closed-end and open-end country funds in which the
Funds may invest are registered investment companies which hold portfolio
securities of issuers operated or located in a single country or geographical
region. The extent to which a Fund may invest in closed-end and open-end country
funds is limited by the Investment Company Act and various state securities or
"blue sky" laws. Accordingly, as a fundamental policy, none of such Funds will
own more than 3% of the outstanding voting stock of any closed-end or open-end
investment company, will invest more than 10% of its total assets in securities
issued by

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closed-end and open-end investment companies nor, together with other investment
companies managed by the Investment Adviser, will own more than 10% of any
closed-end or open-end investment company. Assets of the Funds invested in
closed-end and open-end country funds are subject to advisory and other fees
imposed by the closed-end and open-end country funds, as well as to fees imposed
by the Funds.

DEPOSITORY RECEIPTS (ALL FUNDS). Each of the Funds may invest in American
Depository Receipts ("ADRs"), which are receipts issued by an American bank or
trust company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs, in registered form, are designed for use in U.S. securities
markets. The Funds may also invest in European and Global Depository Receipts
("EDRs" and "GDRs"), which, in bearer form, are designed for use in European and
foreign securities markets, and in other instruments representing securities of
foreign companies. Such depository receipts may be sponsored by the foreign
issuer or may be unsponsored. Unsponsored depository receipts are organized
independently and without the cooperation of the foreign issuer of the
underlying securities; as a result, available information regarding the issuer
may not be as current as for sponsored depository receipts, and the prices of
unsponsored depository receipts may be more volatile than if they were sponsored
by the issuers of the underlying securities.

FOREIGN INVESTMENT CONSIDERATIONS (ALL FUNDS). There are special risks
associated with the Funds' investments in securities of foreign companies and
governments, which add to the usual risks inherent in domestic investments. Such
special risks include fluctuations in foreign exchange rates, political or
economic instability in the country of issue, and the possible imposition of
exchange controls or other laws or restrictions. In addition, securities prices
in foreign markets are generally subject to different economic, financial,
political and social factors than are the prices of securities in United States
markets. With respect to some foreign countries there may be the possibility of
expropriation or confiscatory taxation, limitations on liquidity of securities
or political or economic developments which could affect the foreign investments
of a Fund. Moreover, securities of foreign issuers generally will not be
registered with the Securities and Exchange Commission and such issuers
generally will not be subject to the Commission's reporting requirements.
Accordingly, there is likely to be less publicly available information
concerning certain of the foreign issuers of securities held by a Fund than is
available concerning U.S. companies. Foreign companies are also generally not
subject to uniform accounting, auditing and financial reporting standards or to
practices and requirements comparable to those applicable to U.S. companies.
There may also be less government supervision and regulation of foreign
broker-dealers, financial institutions and listed companies than exists in the
United States. The Funds will not invest in securities denominated in a foreign
currency unless, at the time of investment, such currency is considered by the
Investment Adviser to be fully exchangeable into United States dollars without
significant legal restriction. See "Investment Objectives, Policies and Risks --
Foreign Investments" in the Statement of Additional Information.

SPECIAL CONSIDERATIONS REGARDING EMERGING MARKETS INVESTMENTS. (ALL FUNDS.)
Investments by the Funds in securities issued by the governments of emerging or
developing countries, and of companies within those countries, involves greater
risks than other foreign investments. Investments in emerging or developing
markets involve exposure to economic and legal structures that are generally
less diverse and mature (and in some cases the absence of developed legal
structures governing private and foreign investments and private property), and
to political systems which can be expected to have less stability, than those of
more developed countries. The risks of investment in such countries may include
matters such as relatively unstable governments, higher degrees of government
involvement in the economy, the absence

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until recently of capital market structures or market-oriented economies,
economies based on only a few industries, securities markets which trade only a
small number of securities, restrictions on foreign investment in stocks, and
significant foreign currency devaluations and fluctuations.

Emerging markets can be substantially more volatile than both U.S. and more
developed foreign markets. Such volatility may be exacerbated by illiquidity.
The average daily trading volume in all of the emerging markets combined is a
small fraction of the average daily volume of the U.S. market. Small trading
volumes may result in a Fund being forced to purchase securities at
substantially higher prices than the current market, or to sell securities at
much lower prices than the current market.

The Emerging Countries Fund is not restricted to investments in companies of any
particular size or market capitalization. The issuers of the equity securities
acquired by the Fund may be in the earlier stages of development, growth
companies, cyclical companies, or companies believed to be undergoing a basic
change in markets or operations which, in the opinion of the Investment Adviser,
would result in a significant improvement in earnings. Smaller companies and new
companies often have limited production lines, markets or financial resources,
and may be dependent upon a few key persons for management. The securities of
such companies may be subject to more volatile market movements than securities
of larger or more established companies.

As a result of the factors described above, the share price of the Emerging
Countries Portfolio is expected to be volatile, investment in the Portfolio
should be considered speculative, and investors should be able to tolerate
sudden, sometimes substantial, fluctuations in the value of their investments.
Because of the risks associated with international equity investments and
emerging markets in particular, the Emerging Countries Portfolio is intended to
be a long-term investment vehicle and is not designed to provide investors with
a means of speculating on short-term market movements.

OVER-THE-COUNTER SECURITIES (ALL FUNDS). Securities owned by each of the Funds
may be traded in the over-the-counter market or on a regional securities
exchange and may not be traded every day or in the volume typical of securities
trading on a national securities exchange. As a result, disposition by such
Funds of portfolio securities to meet redemptions by investors or otherwise may
require the Funds to sell these securities at a discount from market prices, to
sell during periods when such disposition is not desirable, or to make many
small sales over a lengthy period of time.

WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS (ALL FUNDS). The Funds may
purchase securities on a delayed delivery or "when-issued" basis and enter into
firm commitment agreements (transactions in which the payment obligation and
interest rate are fixed at the time of the transaction but the settlement is
delayed). Delivery and payment for these securities typically occur 15 to 45
days after the commitment to purchase. No interest accrues to the purchaser
during the period before delivery. There is a risk in these transactions that
the value of the securities at settlement may be more or less than the agreed
upon price, or that the party with which a Fund enters into such a transaction
may not perform its commitment. The Funds will normally enter into these
transactions with the intention of actually receiving or delivering the
securities. The Funds may sell the securities before the settlement date.

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<PAGE>

cash, U.S. Government securities and other liquid debt or equity securities in
an amount sufficient to meet their payment obligations with respect to these
transactions. A Fund may not purchase when-issued securities or enter into firm
commitments if, as a result, more than 15% of the Fund's net assets would be
segregated to cover such contracts.

SHORT SALES (WORLDWIDE GROWTH AND INTERNATIONAL GROWTH FUNDS). The Investment
Adviser believes that its growth equity management approach, in addition to
identifying equity securities the earnings and prices of which it expects to
grow at a rate above that of the S&P 500, also identifies securities the prices
of which can be expected to decline. Therefore, each of the Worldwide Growth and
International Growth Funds is authorized to make short sales of securities it
owns or has the right to acquire at no added cost through conversion or exchange
of other securities it owns (referred to as short sales "against the box") and
to make short sales of securities which it does not own or have the right to
acquire. A short sale that is not made "against the box" is a transaction in
which the Fund sells a security it does not own in anticipation of a decline in
market price. When the Fund makes a short sale, the proceeds it receives are
retained by the broker until the Fund replaces the borrowed security. In order
to deliver the security to the buyer, the Fund must arrange through a broker to
borrow the security and, in so doing, the Fund becomes obligated to replace the
security borrowed at its market price at the time of replacement, whatever that
price may be.

Short sales by the Worldwide Growth or International Growth Fund that are not
made "against the box" create opportunities to increase the Fund's return but,
at the same time, involve special risk considerations and may be considered a
speculative technique. Since the Fund in effect profits from a decline in the
price of the securities sold short without the need to invest the full purchase
price of the securities on the date of the short sale, the Fund's net asset
value per share, and that of the corresponding Portfolio, will tend to increase
more when the securities it has sold short decrease in value, and to decrease
more when the securities it has sold short increase in value, than would
otherwise be the case if it had not engaged in such short sales. Short sales
theoretically involve unlimited loss potential, as the market price of
securities sold short may continuously increase, although the Fund may mitigate
such losses by replacing the securities sold short before the market price has
increased significantly. Under adverse market conditions a Fund might have
difficulty purchasing securities to meet its short sale delivery obligations,
and might have to sell portfolio securities to raise the capital necessary to
meet its short sale obligations at a time when fundamental investment
considerations would not favor such sales. The value of securities of any issuer
in which a Fund maintains a short position which is "not against the box" may
not exceed the lesser of 2% of the value of the Fund's net assets or 2% of the
securities of such class of the issuer.

If the Worldwide Growth or International Growth Fund makes a short sale "against
the box," the Fund would not immediately deliver the securities sold and would
not receive the proceeds from the sale. The seller is said to have a short
position in the securities sold until it delivers the securities sold, at which
time it receives the proceeds of the sale. A Fund's decision to make a short
sale "against the box" may be a technique to hedge against market risks when the
Investment Adviser believes that the price of a security may decline, causing a
decline in the value of a security owned by the Fund or a security convertible
into or exchangeable for such security. In such case, any future losses in the
Fund's long position would be reduced by a gain in the short position.

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<PAGE>

broker), or unless the Fund's obligation to deliver the securities sold short is
"covered" by placing in a segregated account (not with the broker) cash, U.S.
Government securities or other liquid debt or equity securities in an amount
equal to the difference between the market value of the securities sold short at
the time of the short sale and any such collateral required to be deposited as
collateral with a broker in connection with the sale (not including the proceeds
from the short sale), which difference is adjusted daily for changes in the
value of the securities sold short. The total value of the cash, U.S. Government
securities or other liquid debt or equity securities deposited with the broker
and otherwise segregated may not at any time be less than the market value of
the securities sold short at the time of the short sale. Each Fund will comply
with these requirements. In addition, as a matter of policy, the Master Trust's
Board of Trustees has determined that no Fund will make short sales of
securities or maintain a short position if to do so could create liabilities or
require collateral deposits and segregation of assets aggregating more than 25%
of the Fund's total assets, taken at market value.

FOREIGN EXCHANGE CONTRACTS (ALL FUNDS). Since each Fund may invest primarily in
securities denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the values of its portfolio
securities and the unrealized appreciation or depreciation of its investments.
The rate of exchange between the U.S. dollar and other currencies is determined
by forces of supply and demand in the foreign exchange markets. These forces are
affected by the international balance of payments and other economic and
financial conditions, government intervention, speculation and other factors.

A Fund may enter into derivative positions such as foreign exchange forward
contracts or currency futures or options contracts for the purchase or sale of
foreign currency to "lock in" the U.S. dollar price of the securities
denominated in a foreign currency or the U.S. dollar equivalent of interest and
dividends to be paid on such securities, or to hedge against the possibility
that the currency of a foreign country in which the Fund has investments may
suffer a decline against the U.S. dollar. A forward currency contract is an
obligation to purchase or sell 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. For example, a Fund may
purchase a particular currency or enter into a forward currency contract to
preserve the U.S. dollar price of securities it intends to or has contracted to
purchase. Alternatively, a Fund might sell a particular currency on either a
spot (cash) basis at the rate then prevailing in the currency exchange market or
on a forward basis by entering into a forward contract to purchase or sell
currency, to hedge against an anticipated decline in the U.S. dollar value of
securities it intends or has contracted to sell. This method of attempting to
hedge the value of a Fund's portfolio securities against a decline in the value
of a currency does not eliminate fluctuations in the underlying prices of the
securities. No such Fund is obligated to engage in any such currency hedging
operations, and there can be no assurance as to the success of any hedging
operations which a Fund may implement. Although the strategy of engaging in
foreign currency transactions could reduce the risk of loss due to a decline in
the value of the hedged currency, it could also limit the potential gain from an
increase in the value of the currency. No such Fund intends to maintain a net
exposure to

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such contracts where the fulfillment of the Fund's obligations under such
contracts would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency.

OPTIONS (ALL FUNDS). Each of the Funds may purchase listed covered "put" and
"call" options with respect to securities which are otherwise eligible for
purchase by such Fund and with respect to various stock indices, for hedging
purposes, subject to the following restrictions: the aggregate premiums on call
options purchased by a Fund may not exceed 5% of the market value of net assets
of the Fund as of the date the call options are purchased, and the aggregate
premiums on put options may not exceed 5% of the market value of the net assets
of the Fund as of the date such options are purchased. In addition, a Fund will
not purchase or sell options if, immediately thereafter, more than 25% of its
net assets would be hedged. A "put" gives a holder the right, in return for the
premium paid, to require the writer of the put to purchase from the holder a
security at a specified price. A "call" gives a holder the right, in return for
the premium paid, to require the writer of the call to sell a security to the
holder at a specified price. An option on a securities index (such as a stock
index) gives the holder the right, in return for the premium paid, to require
the writer to pay cash equal to the difference between the closing price of the
index and the exercise price of the option, expressed in dollars, times a
specified multiplier.

Put and call options are derivative securities traded on United States and
foreign exchanges, including the American Stock Exchange, Chicago Board Options
Exchange, Philadelphia Stock Exchange, Pacific Stock Exchange and New York Stock
Exchange. Additionally, the Funds may purchase options not traded on a
securities exchange, which may bear a greater risk of nonperformance than
options traded on a securities exchange. Options not traded on an exchange are
considered dealer options and generally lack the liquidity of an exchange traded
option. Accordingly, dealer options may be subject to the Funds' restriction on
investment in illiquid securities, as described below. Dealer options may also
involve the risk that the securities dealers participating in such transactions
will fail to meet their obligations under the terms of the option.

Each Fund may also write listed covered options on up to 25% of the value of
their respective net assets. Call options written by a Fund give the holder the
right to buy the underlying securities from the Fund at a stated exercise price;
put options written by a Fund give the holder the right to sell the underlying
security to the Fund. A call option is covered if the Fund owns the security
underlying the call or has an absolute and immediate right to acquire that
security without additional cash consideration upon conversion or exchange of
securities currently held by the Fund. A put option is covered if the Fund
maintains cash or cash equivalents equal to the exercise price in a segregated
amount with its Custodian. If an option written by a Fund expires unexercised,
the Fund realizes a gain equal to the premium received at the time the option
was written. If an option purchased by a Fund expires unexercised, the Fund
realizes a capital loss equal to the premium paid.

FUTURES CONTRACTS (ALL FUNDS). Each Fund may purchase and sell stock index
futures contracts as a hedge against changes in market conditions. A stock index
futures contract is a bilateral

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agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of the last trading day of the contract and
the price at which the futures contract is originally struck. No physical
delivery of the underlying stocks in the index is made.

The Funds may also purchase and sell financial futures contracts as a hedge
against changes in interest rates. Additionally, the Funds may purchase and sell
currency futures contracts to hedge against foreign currency fluctuations, and
may purchase and sell related options on futures contracts. A financial or
currency futures contract obligates the seller of the contract to deliver and
the purchaser of the contract to take delivery of the type of financial
instrument or currency called for in the contract at a specified future time
(the settlement date) for a specified price. Although the terms of a contract
call for actual delivery or acceptance of the financial instrument or currency,
the contracts will be closed out before the delivery date without delivery or
acceptance taking place. Futures options possess many of the same
characteristics as options on securities and indices. A futures option gives the
holder, in return for the premium paid, the right to buy (call) from or sell
(put) to the writer of the option a futures contract at a specified price at any
time during the period of the option. Upon exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true. A
futures option may be closed out before exercise or expiration by an offsetting
purchase or sale of a futures option of the same series.

Financial, currency and stock index futures contracts are derivative instruments
traded on United States commodities and futures exchanges, including the Chicago
Mercantile Exchange, the New York Futures Exchange, the Kansas City Board of
Trade, the Chicago Board of Trade and the International Monetary Market, as well
as commodity and securities exchanges located outside the United States,
including the London International Financial Futures Exchange, the Singapore
International Monetary Exchange, the Sydney Futures Exchange Limited and the
Tokyo Stock Exchange.

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Adviser is incorrect in its forecasts regarding market values, currency
fluctuations, interest rate trends or other relevant factors, a Fund may be in a
worse position than if the Fund had not engaged in options or futures
transactions. The potential loss incurred by a Fund in writing options on
futures and engaging in futures transactions is unlimited. The Investment
Adviser is experienced in the use of options and futures contracts as an
investment technique.

REPURCHASE AGREEMENTS (ALL FUNDS). Each Fund may on occasion enter into
repurchase agreements, in which the Fund purchases securities and the seller
agrees to repurchase them from the Fund at a mutually agreed-upon time and
price. The period of maturity is usually overnight or a few days, although it
may extend over a number of months. The resale price is in excess of the
purchase price, reflecting an agreed-upon rate of return effective for the
period of time the Fund's money is invested in the security. Each Fund's
repurchase agreements will at all times be fully collateralized in an amount at
least equal to 102% of the purchase price, including accrued interest earned on
the underlying securities. The instruments held as collateral are valued daily
and, if the value of the instruments declines, the Fund will require additional
collateral. If the seller defaults and the value of the collateral securing the
repurchase agreement declines, the Fund may incur a loss. If bankruptcy
proceedings are commenced with respect to the seller, realization upon the
collateral by a Fund may be delayed or limited. A Fund will only enter into
repurchase agreements involving securities in which it could otherwise invest
and with selected financial institutions and brokers and dealers which meet
certain creditworthiness and other criteria.

In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act of 1933, including
repurchase agreements,

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commercial paper, foreign securities, municipal securities and corporate bonds
and notes. Institutional investors depend on an efficient institutional market
in which the unregistered security can be readily resold or on an issuer's
ability to honor a demand for repayment. The fact that there are contractual or
legal restrictions on resale to the general public or to certain institutions
may not be indicative of the liquidity of such investments. If such securities
are subject to purchase by institutional buyers in accordance with Rule 144A
promulgated by the Securities and Exchange Commission under the Securities Act
of 1933, the Investment Adviser may determine, pursuant to guidelines
established by the Master Trust's Board of Trustees, that such securities are
not illiquid securities notwithstanding their legal or contractual restrictions
on resale, based on factors such as the frequency of trades and quotes for the
securities, the number of dealers and others wishing to purchase and sell the
securities, and the nature of the security and the marketplace trades. In all
other cases, however, securities subject to restrictions on resale will be
deemed illiquid. Investing in restricted securities eligible for resale under
Rule 144A could have the effect of increasing the level of illiquidity in the
Funds to the extent that qualified institutional buyers become for a time
uninterested in purchasing such securities.

SECURITIES LENDING (ALL FUNDS). To increase its income, each Fund may lend its
portfolio securities to financial institutions such as banks and brokers if the
loan is collateralized in accordance with applicable regulatory requirements.
The Master Trust's Board of Trustees has adopted an operating policy that limits
the amount of loans made by a Fund to not more than 30% of the value of the
total assets of the Fund. During the time portfolio securities are on loan, the
borrower pays the Fund an amount equivalent to any dividends or interest paid on
such securities, and the Fund may invest the cash collateral and earn additional
income, or it may receive an agreed-upon amount of interest income from the
borrower who has delivered equivalent collateral or secured a letter of credit.
Such loans involve risks of delay in receiving additional collateral or in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially. However, such securities
lending will be made only when, in the Investment Adviser's judgment, the income
to be earned from the loans justifies the attendant risks. Loans are subject to
termination at the option of the Fund or the borrower.

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