NICHOLAS APPLEGATE MUTUAL FUNDS, 485BPOS, 1996-10-25

NICHOLAS APPLEGATE MUTUAL FUNDS
485BPOS, 1996-10-25

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<PAGE>

As filed with the Securities and Exchange Commission
on October 25, 1996

Registration No. 33-56094
811-7428

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. __ [ ]
POST-EFFECTIVE AMENDMENT NO. 36 [X]

AND/OR

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 38

(Check appropriate box or boxes)

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NICHOLAS-APPLEGATE MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)

600 WEST BROADWAY, 30TH FLOOR
SAN DIEGO, CALIFORNIA 92101
(Address of Principal Executive Offices, including Zip Code)

ARTHUR E. NICHOLAS
C/O NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
600 WEST BROADWAY, 30TH FLOOR
SAN DIEGO, CALIFORNIA 92101
(Name and Address of Agent for Service)

COPY TO: ROBERT E. CARLSON
PAUL, HASTINGS, JANOFSKY & WALKER
555 S. FLOWER STREET, TWENTIETH FLOOR
LOS ANGELES, CALIFORNIA 90071

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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE FOLLOWING EFFECTIVE DATE.

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[X] immediately upon filing pursuant to paragraph (b)
[ ] on ______________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on ____________ pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (DATE) pursuant to paragraph (a)(ii), of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment

Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has registered an indefinite number of shares by this Registration Statement.
Registrant filed a Notice under such Rule for its fiscal year ended March 31,
1996 on May 30, 1996. This Registration Statement has been executed by the
trustees and principal officers of the Registrant and of Nicholas-Applegate
Investment Trust.

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<PAGE>

CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
N-1A ITEM NO. LOCATION
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PART A

Item 1. Cover Page Cover Page

Item 2. Synopsis Summary of Expenses;
Prospectus Summary

Item 3. Condensed Financial Information Financial Highlights

Item 4. General Description of Registrant Cover Page; Prospectus
Summary; Investment Objectives
and Policies; Organization and
Management; Appendix

Item 5. Management of Fund Organization and Management

Item 6. Capital Stock and Other Securities Dividends, Distributions and
Taxes; Purchasing Shares

Item 7. Purchase of Securities Being Offered Purchasing Shares; Reducing
Your Sales Charge; Redeeming
Shares; Shareholder Services

Item 8. Redemption of Repurchase Redeeming Shares; Shareholder
Services

Item 9. Pending Legal Proceedings Not Applicable

PART B

Item 10. Cover Page Cover Page

Item 11. Table of Contents Table of Contents

Item 12. General Information and History General Information

Item 13. Investment Objectives and Policies Investment Objectives and
Policies; Investment
Restrictions

Item 14. Management of the Fund Trustees and Officers;
Administrator; Distributor

Item 15. Control Persons and Principal Holders
of Securities Principal Holders of
Securities

Item 16. Investment Advisory and Other Services Administrator; Investment
Adviser; Distributor;
Custodian, Transfer and
Dividend Disbursing Agent,
Independent Auditors and Legal
Counsel

Item 17. Brokerage Allocation and Other
Practices Portfolio Transactions and
Brokerage

Item 18. Capital Stock and Other Securities Miscellaneous

Item 19. Purchase, Redemption and Pricing
of Securities Being Offered Purchase and Redemption of
Portfolio Shares; Shareholder
Services

Item 20. Tax Status Dividends, Distributions and
Taxes

Item 21. Underwriters Distributor

Item 22. Calculation of Performance Data Performance Information

Item 23. Financial Statements Financial Statements

PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to the Registration Statement.

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

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DOMESTIC INSTITUTIONAL PORTFOLIOS
PROSPECTUS

Nicholas-Applegate Mutual Funds is a diversified, open-end management investment
company comprised of a number of investment portfolios, including the five
portfolios ("Portfolios") offered hereby. The Portfolios provide a broad range
of domestic investment opportunities which are suitable for different investors.
They are generally offered to institutional investors, high net worth
individuals, and participants in certain mutual fund asset allocation programs.

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.
- --------------------------------------------------------------------------------

Core Growth Institutional 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 Institutional 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).

Value Institutional Portfolio seeks to provide a total return consisting of
capital appreciation plus dividend and interest income that exceeds the total
return on the Standard & Poor's 500 Stock Price Index. It invests in the
Nicholas-Applegate Value Fund, which in turn invests primarily in a diversified
portfolio of equity securities of issuers with larger market capitalizations.

Income & Growth Institutional 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 Institutional 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.
- --------------------------------------------------------------------------------

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 October , 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.

October , 1996

<PAGE>
NICHOLAS--APPLEGATE MUTUAL FUNDS

-------------------------------------------------
DOMESTIC INSTITUTIONAL PORTFOLIOS

Core Growth Institutional Portfolio
Emerging Growth Institutional Portfolio
Value Institutional Portfolio
Income & Growth Institutional Portfolio
Balanced Growth Institutional 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........................................... 17
Investor Services........................................... 19
Redeeming Shares............................................ 21
Dividends, Distributions and Taxes.......................... 22
General Information......................................... 23
Appendix:
Investment Policies, Strategies
and Risks............................................... 25
Corporate Bond Ratings.................................... 37
Prior Performance of Investment Adviser................... 40

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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.

2
<PAGE>
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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 Core Growth, Emerging
Growth, Income & Growth and Balanced Growth Portfolios for the fiscal year ended
March 31, 1996, and the expected expenses of the Value Portfolio for its first
year of operations. 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
CORE GROWTH GROWTH VALUE GROWTH GROWTH
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<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
- ---------------------------------------------------------------------------------------------------------------------------------
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% 0.75%
12b-1 expenses None None None None None
All Other expenses (after expense deferral)(1) 0.25% 0.17% 0.25% 0.25% 0.25%
Total operating expenses (after expense
deferral)(1) 1.00% 1.17% 1.00% 1.00% 1.00%
</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."
- ---------------------------
(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-1.00%; Emerging Growth- 1.17%; Value-1.00%; Income &
Growth-1.00%; Balanced Growth-1.00%. 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 Portfolios for the fiscal
year ended March 31, 1996 were the following respective percentages of such
Portfolios' average net assets: Core Growth-1.06%; Emerging Growth-1.20%;
Income & Growth-1.53%; Balanced Growth-9.90%. Actual operating expenses for
the Value Portfolio for the fiscal year ended March 31, 1997 are estimated
to be 2.07% of the Portfolio's average net assets (annualized). The various
operating expenses of the Portfolios are further described under
"Organization and Management."

3
<PAGE>
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 Institutional Portfolio $10 $32 $55 $122
Emerging Growth Institutional Portfolio $12 $37 $64 $142
Value Institutional Portfolio $10 $32 $55 $122
Income & Growth Institutional Portfolio $10 $32 $55 $122
Balanced Growth Institutional Portfolio $10 $32 $55 $122
</TABLE>

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

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.

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

Nicholas-Applegate Mutual Funds (the "Trust") is an open-end management
investment company currently comprised of a number of diversified investment
portfolios, including the five Institutional Portfolios ("Portfolios") offered
hereby. The Portfolios are generally offered to institutional investors, high
net worth individuals, and participants in certain mutual fund asset allocation
programs.

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

4
<PAGE>
alternative arrangements such as 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 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.

The Income & Growth and Balanced Growth 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 securities. 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 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.
Such 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 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

5
<PAGE>
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 their 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 Value Fund commenced operation on April 17, 1996 and has a limited operating
history.

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 the Value Fund-0.75% 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. 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.

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.

Purchase of Shares. Shares of the Portfolios are generally offered to
institutional investors, high net worth individuals, and participants in certain
mutual fund asset allocation programs. Purchases may 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

6
<PAGE>
$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 for certain others, and may be waived from time to time by
the Distributor for other investors. 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. 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, Emerging Growth and Value
Portfolios declare and pay annual dividends of net investment income; the
Balanced Growth and Income & Growth Portfolios declare and pay quarterly
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
<PAGE>
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FINANCIAL HIGHLIGHTS

The following financial highlights for the Value Institutional Portfolio have
been prepared by the Trust and are not audited. The following financial
highlights for the other Portfolios 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
Portfolios on the dates indicated below through March 31, 1995. Ernst & Young,
L.L.P. and Coopers & Lybrand 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 and 1996 Semi-Annual Report to Shareholders
incorporated by reference in the Statement of Additional Information.

<TABLE>
<CAPTION>
CORE GROWTH EMERGING GROWTH VALUE
Institutional Portfolio Institutional Portfolio Institutional
4-19-93 4-1-94 4-1-95 10-1-93 4-1-94 4-1-95 4-30-96
to to to to to to to
3-31-94 3-31-95 3-31-96 3-31-94 3-31-95 3-31-96 9-30-96
- ------------------------------------------------------------------------------------------------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of period $12.50 $12.68 $12.62 $12.50 $11.38 $11.58 $12.50
Income from investment
operations:
Net investment income
(deficit) (0.01 ) (0.01 ) (0.03 ) (0.04 ) (0.05 ) (0.11 ) 0.11
Net realized and
unrealized gains
(losses) securities 0.92 0.38 4.47 (0.69 ) 0.95 4.45 1.33
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations 0.91 0.37 4.44 (0.73 ) 0.90 4.34 1.44
Less distributions:
Dividends from net
investment income -- -- -- -- -- -- --
Distributions from
capital gains (0.73 )* (0.43 ) (0.80 ) (0.39 ) (0.70 ) (0.82 ) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of
period $12.68 $12.62 $16.26 $11.38 $11.58 $15.10 $13.94
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL RETURN: 6.84 % 3.30 % 35.81 % (6.06 %) 8.69 % 38.27 % 11.52 %
RATIOS/SUPPLEMENTAL
DATA:
Net assets ($000), end
of period $ 77,947 $ 72,826 $ 149,969 $ 165,940 $ 206,696 $ 224,077 $ 2,340
Ratio of expenses to
average net assets,
after expense
reimbursement**+ 0.97% 0.99 % 0.98 % 1.17 % 1.18 % 1.16 % 1.00 %
Ratio of expenses to
average net assets,
before expense
reimbursement**+ 1.14% 1.07 % 1.06 % 1.18 % 1.24 % 1.20 % 2.35 %
Ratio of net investment
income (deficit) to
average net assets,
after expense
reimbursement**+ (0.07%) (0.06 %) (0.32 %) (0.83 %) (0.58 %) (0.62 %) 2.10 %
Ratio of net investment
income (deficit) to
average net assets,
before expense
reimbursement**+ (0.24%) (0.14 %) (0.40 %) (0.84 %)* (0.64 %) (0.66 %) 2.77 %
Portfolio turnover++ 84.84% 98.09 % 114.48 % 50.51 % 100.46 % 129.59 % 107.55 %
Average commission rate
paid++ N/A N/A $0.0593 N/A N/A $0.0523

<CAPTION>
INCOME & GROWTH BALANCED GROWTH
Institutional Portfolio Institutional Portfolio
4-19-93 4-1-94 4-1-95 10-1-93 4-1-94 4-1-95
to to to to to to
3-31-94 3-31-95 3-31-96 3-31-94 3-31-95 3-31-96
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of period $12.50 $13.39 $11.86 $12.50 $11.71 $12.01
Income from investment
operations:
Net investment income
(deficit) 0.42 0.54 0.53 0.08 0.22 0.37
Net realized and
unrealized gains
(losses) securities 2.12 (0.85 ) 2.59 (0.79 ) 0.30 2.19
---------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations 2.54 (0.31 ) 3.12 (0.71 ) 0.52 2.56
Less distributions:
Dividends from net
investment income (0.42 ) (0.54 ) (0.53 ) (0.08 ) (0.22 ) (0.37 )
Distributions from
capital gains (1.23 )* (0.68 ) -- -- -- --
---------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of
period $13.39 $11.86 $14.45 $11.71 $12.01 $14.20
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
TOTAL RETURN: 20.18 % (2.02 %) 26.69 % (5.66 %) 4.56 % 21.45 %
RATIOS/SUPPLEMENTAL
DATA:
Net assets ($000), end
of period $ 18,332 $12,506 $ 17,239 $ 143 $ 284 $ 625
Ratio of expenses to
average net assets,
after expense
reimbursement**+ 0.99 % 1.00 % 1.00 % 0.99 % 1.00 % 1.00 %
Ratio of expenses to
average net assets,
before expense
reimbursement**+ 1.50 % 1.48 % 1.53 % 43.16 % 20.66 % 9.90 %
Ratio of net investment
income (deficit) to
average net assets,
after expense
reimbursement**+ 3.36 % 4.28 % 3.88 % 1.59 % 2.06 % 2.74 %
Ratio of net investment
income (deficit) to
average net assets,
before expense
reimbursement**+ 2.85 % 3.80 % 3.34 % (40.58 %) (17.60 %) (5.74 %)
Portfolio turnover++ 177.52 % 125.51 % 144.97 % 85.43 % 110.40 % 197.19 %
Average commission rate
paid++ N/A N/A $0.0597 N/A N/A $0.0594
</TABLE>

- ----------------------------------------------
*The initial investors in the Portfolio, who were former investors in a limited
partnership of which the Investment Adviser was the general partner,
transferred assets to the Portfolio at their historical tax basis.
Accordingly, capital gains include $0.10 in respect of the excess of the book
basis of the Portfolio's assets over their tax basis.

**Ratios for periods ended March 31, 1994 and September 30, 1996 are annualized

+Includes expenses allocated from Master Trust Funds
++For the corresponding Funds of the Master Trust

8
<PAGE>
- --------------------------------------------------------------------------------
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.

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

9
<PAGE>
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.

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 Institutional Portfolio. The Core Growth 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 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 (the "S&P 500
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

10
<PAGE>
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.

Emerging Growth Institutional Portfolio. The Emerging Growth Institutional
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 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 Institutional Portfolio" above.

Value Institutional Portfolio. The Value Institutional Portfolio seeks to
provide a total return consisting of capital appreciation plus dividend and
interest income that exceeds the total return realized on the S&P 500 Index. It
invests all of its assets in the Nicholas-Applegate Value Fund, which has the
same investment objective as the Portfolio. Under normal circumstances, the Fund
will invest at least 80% of its total assets in a diversified portfolio of
equity securities, primarily of companies with larger market capitalizations
(e.g., over $5 billion). Such equity securities will include common stocks,
preferred stocks, convertible securities and warrants. The Fund may invest in
equity securities of domestic issuers and in equity securities of foreign
issuers that are traded in the United States and comply with U.S. accounting
standards. The Fund's portfolio is designed to have risk, capitalization and
industry characteristics similar to those of the S&P 500 Index. The remainder of
the Fund's assets will be invested in debt securities of such domestic and
foreign issuers that are considered by the Investment Adviser to be cash
equivalents, as well as in various other securities and instruments described in
"Appendix: Investment Policies, Strategies and Risks".

Income & Growth Institutional Portfolio. The Income & Growth 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 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

11
<PAGE>
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 Institutional 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 Institutional
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 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 Institutional Portfolio. The Balanced Growth 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 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

12
<PAGE>
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 Institutional 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
Institutional Portfolio" above and "Appendix: Investment Policies, Strategies
and Risks" for a discussion of the risks associated with investment in junk
bonds.

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 generally 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

13
<PAGE>
and warrants; closed-end country funds; depository receipts; over-the-counter
securities, when-issued securities and firm commitment agreements; futures
contracts; 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.

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,

14
<PAGE>
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-up 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 13 other partners manage a
staff of approximately 350 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, 1.00%
of the Fund's net assets; for the Value Fund, 0.75% 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 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, 0.67%; Emerging Growth Portfolio, 0.95%; Income & Growth
Portfolio, 0.21%; Balanced Growth Portfolio, (8.15%).

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-Cathrine Somhegyi; Value Fund and 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
1994) and Catherine

15
<PAGE>
Somhegyi (since March 1996). Mr. Wylie, Mr. Marshall and Ms. Somhegyi have
managed similar institutional 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 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 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.

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 0.02% 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-1.00%; Emerging Growth-1.17%; Value-1.00%;
Income & Growth-1.00%; Balanced Growth-1.00%. 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-0.98%
(0.08%); Emerging Growth-1.16% (0.04%); Income & Growth-1.00% (0.53%); Balanced
Growth-1.00% (8.90%).

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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.

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 institutional
investors, high net worth individuals, and participants in mutual fund asset
allocation programs sponsored by certain broker-dealers. Shares of the
Portfolios are also offered to former limited partners and participants of
certain investment partnerships and pooled trusts previously managed by the
Investment Adviser (the "former partners"); to partners, officers and employees
of the Investment Adviser and Distributor and their immediate family members; to
Trustees and officers of the Trust and the Master Trust and their immediate
family members; and to certain other persons determined from time to time by the
Distributor.

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.
Other institutional investors and eligible purchasers must arrange for services
through the Transfer Agent or Distributor by calling (800) 551-8043.

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 for the former
partners and trust participants described above, and may be waived from time to
time by the Distributor for other investors (but not below

17
<PAGE>
$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.

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.

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.

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

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<PAGE>
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.

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 Portfolios. Currently, the Trust has thirteen Institutional Portfolios.
Five domestic Institutional Portfolios are offered pursuant to this Prospectus.
Eight other domestic and global Institutional Portfolios are offered pursuant to
separate prospectuses which can be obtained by calling (800) 551-8643. The
Distributor also offers shares of other portfolios of the Trust which invest in
the same Funds of the Master Trust as the Institutional Portfolios. These other
portfolios have different sales charges and other expenses than the
Institutional Portfolios, which may affect their performance. Information about
these other portfolios can be obtained from your dealer or by calling (800)
551-8045.

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 automatic withdrawals of specified amounts
from their bank account once an automatic investment plan is established.
Individual participants of qualified retirement plans may make regular
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.

Cross-Reinvestment. You may cross-reinvest dividends or dividends and capital
gain distributions paid by one Portfolio into shares of any other Institutional
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 Institutional 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).

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<PAGE>
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.

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 Institutional 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.

Before effecting an exchange, you should obtain the currently effective
prospectus of the series into which the exchange is to be made. All exchanges
will be made on the basis of the relative net asset values of the two series
next determined after a completed request is received. 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.

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.

Automatic Withdrawal Plan. An automatic withdrawal plan may be established by an
investor or 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

20
<PAGE>
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 (for qualified retirement plans,
such statements will be provided by the plan sponsor or administrator).

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 the Transfer Agent of 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.

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

21
<PAGE>
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 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
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.

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 or for whom the minimum initial
investment has been waived. 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.

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The Core Growth, Emerging Growth and Value 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
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

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 (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.

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<PAGE>
Further information about the performance of the Portfolios 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, a diversified, 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 September 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 Portfolio: Balanced Growth Portfolio--Nicholas-Applegate 401k
Profit-Sharing Plan (32.81%); Emerging Growth Portfolio--KPMG Peat Marwick
(32.73%); Value Portfolio--Sherryl A. Nicholas, TTEE Sherryl A. Nicholas
Revocable Trust (93.79%).

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.

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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INSTDOMPRO896
<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 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.

U.S. 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 and Balanced Growth Funds). The Income &
Growth and Balanced Growth 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

25
<PAGE>
tax purposes. Because of these features, such securities may be subject 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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<PAGE>
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 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 established in the

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<PAGE>
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 or below 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 the Income & Growth or Balanced Growth 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 Growth 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-10.78% and 1.93%; BBB-14.14% and 0%; BBB-7.50% and 0%; B-20.20% and 31.98%;
CCC-0.10% and 0%; nonrated-3.28% and 14.98%.

Synthetic Convertible Securities (Income & Growth and Value Funds). The Income &
Growth and Value Funds 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, a 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. A 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 except Value
Fund). Each of the Funds except the Value Fund may invest in certificates issued
by the Government National Mortgage Association 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

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<PAGE>
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 familar 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 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.

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. Such depository receipts may be sponsored by the foreign issuer or may
be unsponsored. The Value Fund may also invest in European and Global Depository
Receipts ("EDRs" and "GDRs"), which, in bearer form, are designed for use in
European 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.

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

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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.

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,
involve 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 (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,

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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.

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

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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 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 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 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.

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 (All Funds except Value Fund). Each of the Funds except the Value Fund
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

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(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
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, Value and Income & Growth
Funds). The Core Growth, Emerging Growth, Value and Income & Growth 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 Value Funds may purchase and sell financial and currency
futures contracts as a hedge against changes in interest rates, and the Income &
Growth Fund may also 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

34
<PAGE>
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.

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. See "Investment Objectives, Policies and
Risks-Futures Contracts and Related Options" in the Statement of Additional
Information.

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, 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.

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

35
<PAGE>
requirements until the position is closed. See "Investment Objectives, Policies
and Risks-Options on Securities and Securities Indices" and "-Futures Contracts
and Related Options" in the Statement of Additional Information.

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 "Taxes" in the
Statement of Additional Information.

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.

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 has
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

36
<PAGE>
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 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.

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.

37
<PAGE>
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.

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.

38
<PAGE>
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 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.

39
<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 dates indicated, that have
investment objectives, policies, strategies and risks substantially similar to
those of the Value and Balanced Growth Portfolios. 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 Value or Balanced Growth Portfolios.
Investors should not consider this performance data as an indication of future
performance of the Value or Balanced Growth Portfolios 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 the federal or state income taxes.
Custodial fees, if any, were not included in the calculation. The Investment
Adviser's composites include 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
Value and Balanced Growth Portfolios. 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 each 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
composites are not subject to the same types of expenses to which the Value and
Balanced Growth Portfolios are subject nor to the diversification requirements,
specific tax restrictions and investment limitations imposed on the Balanced
Growth and Value Portfolios by the Investment Company Act or Subchapter M of the
Internal Revenue Code. Consequently, the performance results for the Investment
Adviser's composites could have been adversely affected if the institutional
private accounts included in the composites had been regulated as investment
companies under the federal securities laws.

The investment results of the Investment Adviser's composites presented are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the Value or Balanced Growth Portfolios or an individual investor
investing in such Portfolios. 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.

- ------------------------
* 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.

40
<PAGE>

<TABLE>
<CAPTION>
Balanced Growth Performance
---------------------------------------------------------------------------------
60% S&P 500 Index
Investment Adviser's Lehman Bros. Lehman Bros.
Balanced Growth S&P 500 Govt./Corp. 40% Govt./Corp.
Year Composite Index(1) Index(2) 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% 24.81%
1992...................... 9.40% 7.62% 7.57% 7.67%
1993...................... 20.14% 10.07% 11.06% 10.52%
1994(3)................... (5.37%) 1.32% (3.51%) (0.57%)
1995...................... 29.23% 37.60% 19.24% 30.02%
1996(4)................... 9.72% 13.49% (0.14%) 7.90%
Last year(4).............. 14.68% 20.32% 4.52% 13.82%
Last five years(4)........ 12.04% 15.23% 7.65% 12.23%
Since inception(4)........ 14.03% 15.65% 8.79% 12.99%

Value Performance
-------------------------------------
Investment Adviser's S&P 500
Year Value Composite Index(1)
- -------------------------- ----------------------- ------------
<S> <C> <C>
1988(3)...................
1989......................
1990......................
1991......................
1992......................
1993......................
1994(3)................... 3.79% 5.32%
1995...................... 30.79% 37.60%
1996(4)................... 18.49% 13.09%
Last year(4).............. 22.94% 20.32%
Last five years(4)........ -- --
Since inception(4)........ 20.96% 22.04%
</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 as follows: Balanced Growth
Composite -- April 1, 1988; Value Composite -- April 1, 1994.

(4)Through September 30, 1996.

<PAGE>

NICHOLAS-APPLEGATE-Registered Trademark- MUTUAL FUNDS
SERIES A, B, C AND INSTITUTIONAL PORTFOLIOS
600 West Broadway, 30th Floor
San Diego, California 92101
(800) 551-8043

STATEMENT OF ADDITIONAL INFORMATION

October , 1996

Nicholas-Applegate Mutual Funds (the "Trust") is an open-end
management investment company currently offering a number of separate
diversified portfolios. This Statement of Additional Information contains
information regarding 33 of these portfolios (each a "Portfolio" and
collectively the "Portfolios"): Nicholas-Applegate Core Growth Portfolio A,
Portfolio B, Portfolio C and Institutional Portfolio (the "Core Growth
Portfolios"); Nicholas-Applegate Emerging Growth Portfolio A, Portfolio B,
Portfolio C and Institutional Portfolio (the "Emerging Growth Portfolios");
Nicholas-Applegate Income & Growth Portfolio A, Portfolio B, Portfolio C and
Institutional Portfolio (the "Income & Growth Portfolios"); Nicholas-Applegate
Balanced Growth Portfolio A, Portfolio B, Portfolio C and Institutional
Portfolio (the "Balanced Portfolios"); Nicholas-Applegate Worldwide Growth
Portfolio A, Portfolio B, Portfolio C and Institutional Portfolio (the
"Worldwide Portfolios"); Nicholas-Applegate International Growth Portfolio A,
Portfolio B, Portfolio C and Institutional Portfolio (the "International Growth
Portfolios"); Nicholas-Applegate Emerging Countries Portfolio A, Portfolio B,
Portfolio C and Institutional Portfolio (the "Emerging Countries Portfolios");
Nicholas-Applegate Government Income Portfolio A, Portfolio B and Portfolio C
(the "Government Portfolios"); Nicholas-Applegate Money Market Portfolio (the
"Money Market Portfolio"); and Nicholas-Applegate Value Institutional Portfolio
(the "Value Portfolio").

This Statement of Additional Information is not a prospectus, but
contains information in addition to and more detailed than that set forth in the
Portfolios' Prospectuses and should be read in conjunction with each such
Prospectus. Each Portfolio Prospectus may be obtained without charge by calling
or writing the Trust at the address and phone number given above.

TABLE OF CONTENTS

Page
----
General Information B-2
Investment Objectives, Policies and Risks B-2
Investment Restrictions B-25
Principal Holders of Securities B-29
Trustees and Principal Officers B-33
Investment Adviser B-36
Administrator B-38
Distributor B-40
Portfolio Transactions and Brokerage B-44
Purchase and Redemption of Portfolio Shares B-46
Shareholder Services B-48
Net Asset Value B-50
Taxes B-52
Performance Information B-57
Custodian, Transfer and Dividend Disbursing Agent,
Independent Auditors and Legal Counsel B-69
Miscellaneous B-70
Appendix A - Description of Securities Ratings A-1
Appendix B - Financial Statements of Value
Institutional Portfolio B-1

B-1

<PAGE>

GENERAL INFORMATION

The Trust and the Master Trust were organized in December 1992 as
business trusts under the laws of Delaware. Information regarding 37 of the
portfolios of the Trust is included in this Statement of Additional Information.
Nine Portfolios (each a "Series A Portfolio" and collectively the "Series A
Portfolios") have an initial sales charge and lower annual distribution fees;
nine Portfolios (each a "Series B Portfolio" and collectively the "Series B
Portfolios") have a contingent deferred sales charge and annual distribution
fees; nine Portfolios (each a "Series C Portfolio" and collectively the "Series
C Portfolios") have a different contingent deferred sales charge and annual
distribution fees; one Money Market Portfolio has no initial or contingent
deferred sales charges and lower annual distribution fees; and nine Portfolios
are offered to institutional investors and high net worth individuals and other
eligible purchasers without any sales charge or distribution fees (each an
"Institutional Portfolio" and collectively the "Institutional Portfolios").

The various Portfolios of the Trust seek to achieve their respective
investment objectives by investing all of their assets in corresponding series
of the Nicholas-Applegate Investment Trust (the "Master Trust"), a diversified
open-end management investment company organized as a Delaware business trust.
The Master Trust offers shares of thirteen separate series (each a "Fund" and
collectively the "Funds") to the Portfolios and other investment companies and
institutional investors: the Nicholas-Applegate Core Growth Fund (the "Core
Growth Fund"), in which the Core Growth Portfolios invest; the Nicholas-
Applegate Emerging Growth Fund (the "Emerging Growth Fund"), in which the
Emerging Growth Portfolios invest; the Nicholas-Applegate Income & Growth Fund
(the "Income & Growth Fund"), in which the Income & Growth Portfolios invest;
the Nicholas-Applegate Balanced Fund (the "Balanced Fund"), in which the
Balanced Growth Portfolios invest; the Nicholas-Applegate Worldwide Growth Fund
(the "Worldwide Fund"), in which the Worldwide Portfolios invest; the Nicholas-
Applegate International Growth Fund (the "International Growth Fund"), in which
the International Growth Portfolios invest; the Nicholas-Applegate Emerging
Countries Fund (the "Emerging Countries Fund"), in which the Emerging Countries
Portfolios invest; the Nicholas-Applegate Government Income Fund (the
"Government Fund"), in which the Government Portfolios invest; and the Nicholas-
Applegate Money Market Fund (the "Money Market Fund"), in which the Money Market
Portfolio invests; and the Nicholas-Applegate Value Fund (the "Value Fund"), in
which the Value Portfolio invests.

INVESTMENT OBJECTIVES, POLICIES AND RISKS

The following discussion supplements the discussion of each
Portfolio's investment objective and policies as set forth in the Portfolios'
Prospectus. As each Portfolio seeks to achieve its investment objective by
investing all of its assets in a corresponding Fund with the same investment
objective as the Portfolio, the following discussion describes the various
investment policies and techniques employed by the Funds. There can be no
assurance that the investment objective of any of the Funds or Portfolios can be
achieved.

EQUITY SECURITIES OF GROWTH COMPANIES

Each of the Core Growth, Emerging Growth, Income & Growth, Balanced,
Worldwide, International Growth and Emerging Countries Funds invests in equity
securities of domestic and foreign companies, the earnings and stock prices of
which are expected by the Master Trust's Investment Adviser to grow at an
above-average rate. Such investments will be diversified

B-2

<PAGE>

over a cross-section of industries and individual companies. Some of these
companies will be organizations with market capitalizations of $500 million or
less or companies that have limited product lines, markets and financial
resources and are dependent upon a limited management group. Examples of
possible investments include emerging growth companies employing new technology,
cyclical companies, initial public offerings of companies offering high growth
potential, or other corporations offering good potential for high growth in
market value. The securities of such companies may be subject to more abrupt or
erratic market movements than larger, more established companies both because
the securities typically are traded in lower volume and because the issuers
typically are subject to a greater degree to changes in earnings and prospects.

CONVERTIBLE SECURITIES AND WARRANTS

The Core Growth, Emerging Growth, Income & Growth, Balanced,
Worldwide, International Growth, Emerging Countries, Government and Value Funds
each may invest in convertible securities and warrants. A convertible security
is a fixed income security (a bond or preferred stock) which may be converted at
a stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible securities are
senior to common stocks in an issuer's capital structure, but are usually
subordinated to similar non-convertible securities. While providing a fixed
income stream (generally higher in yield than the income derivable from common
stock but lower than that afforded by a similar nonconvertible security), a
convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation attendant upon a
market price advance in the convertible security's underlying common stock.

A warrant gives the holder a right to purchase at any time during a
specified period a predetermined number of shares of common stock at a fixed
price. Unlike convertible debt securities or preferred stock, warrants do not
pay a fixed dividend. Investments in warrants involve certain risks, including
the possible lack of a liquid market for resale of the warrants, potential price
fluctuations as a result of speculation or other factors, and 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 the
Fund's entire investment therein).

OTHER CORPORATE DEBT SECURITIES

The Core Growth, Emerging Growth, Income & Growth, Balanced,
Worldwide, International Growth, Emerging Countries, Government, and Value Funds
invest in non-convertible debt securities of foreign and domestic companies over
a cross-section of industries. The debt securities in which such Funds may
invest will be of varying maturities and may include corporate bonds,
debentures, notes and other similar corporate debt instruments. The value of a
longer-term debt security fluctuates more widely in response to changes in
interest rates than do shorter-term debt securities.

RISKS OF INVESTING IN DEBT SECURITIES

There are a number of risks generally associated with an investment in
debt securities (including convertible securities). Yields on short,
intermediate, and long-term securities depend on a variety of factors, including
the general condition of the money and bond markets, the size of a particular
offering, the maturity of the obligation, and the rating of the issue. Debt
securities with longer maturities tend to produce higher yields and are
generally subject to potentially greater

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capital appreciation and depreciation than obligations with short maturities and
lower yields. The market prices of debt securities usually vary, depending upon
available yields. An increase in interest rates will generally reduce the value
of such portfolio investments, and a decline in interest rates will generally
increase the value of such portfolio investments. The ability of the Funds to
achieve their investment objectives also depends on the continuing ability of
the issuers of the debt securities in which the Funds invest to meet their
obligations for the payment of interest and principal when due.

RISKS OF INVESTING IN LOWER-RATED DEBT SECURITIES

As set forth in the applicable Prospectuses, the Income & Growth and
Balanced Funds may invest a portion of their net assets in debt securities rated
below "Baa" by Moody's or "BBB" by S&P or below investment grade by other
recognized rating agencies or in unrated securities of comparable quality under
certain circumstances. Securities with ratings below "Baa" and/or "BBB" are
commonly referred to as "junk bonds." Such bonds are subject to greater market
fluctuations and risk of loss of income and principal than higher rated bonds
for a variety of reasons, including the following:

SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. The economy and
interest rates affect high yield securities differently from other securities.
For example, the prices of high yield bonds have been found to be less sensitive
to interest rate changes than higher-rated investments, but more sensitive to
adverse economic changes or individual corporate developments. Also, during an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress which would adversely affect
their ability to service their principal and interest obligations, to meet
projected business goals, and to obtain additional financing. If the issuer of
a bond defaults, the Funds may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices of high yield bonds and the Funds'
asset values.

PAYMENT EXPECTATIONS. High yield bonds present certain risks based on
payment expectations. For example, high yield bonds may contain redemption and
call provisions. If an issuer exercises these provisions in a declining interest
rate market, a Fund would have to replace the security with a lower yielding
security, resulting in a decreased return for investors. Conversely, a high
yield bond's value will decrease in a rising interest rate market, as will the
value of the Fund's assets. If a Fund experiences unexpected net redemptions,
it may be forced to sell its high yield bonds without regard to their investment
merits, thereby decreasing the asset base upon which the Fund's expenses can be
spread and possibly reducing the Fund's rate of return.

LIQUIDITY AND VALUATION. To the extent that there is no established
retail secondary market, there may be thin trading of high yield bonds, and this
may impact the Investment Adviser's ability to accurately value high yield bonds
and the Fund's assets and hinder the Fund's ability to dispose of the bonds.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield bonds, especially
in a thinly traded market.

CREDIT RATINGS. Credit ratings evaluate the safety of principal and
interest payments, not the market value risk of high yield bonds. Also, since
credit rating agencies may fail to timely change the credit ratings to reflect
subsequent events, the Investment Adviser must monitor the issuers of high yield
bonds in the Funds' portfolios to determine if the issuers will have sufficient
cash flow and profits to meet required principal and interest payments, and to
assure the bonds'

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<PAGE>

liquidity so the Funds can meet redemption requests. The Funds will not
necessarily dispose of a portfolio security when its rating has been changed.

SHORT-TERM INVESTMENTS

Each of the Funds invests in any of the following securities and
instruments:

BANK CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS.
Each Fund may acquire certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Funds will be
dollar-denominated obligations of domestic or foreign banks or financial
institutions which at the time of purchase have capital, surplus and undivided
profits in excess of $100 million (including assets of both domestic and foreign
branches), based on latest published reports, or less than $100 million if the
principal amount of such bank obligations are fully insured by the U.S.
Government.

A Fund holding instruments of foreign banks or financial institutions
may be subject to additional investment risks that are different in some
respects from those incurred by a fund which invests only in debt obligations of
U.S. domestic issuers. See "Foreign Investments" below. Such risks include
future political and economic developments, the possible imposition of
withholding taxes by the particular country in which the issuer is located on
interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities.

Domestic banks and foreign banks are subject to different governmental
regulations with respect to the amount and types of loans which may be made and
interest rates which may be charged. In addition, the profitability of the
banking industry depends largely upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important part
in the operations of the banking industry.

As a result of federal and state laws and regulations, domestic banks
are, among other things, required to maintain specified levels of reserves,
limited in the amount which they can loan to a single borrower, and subject to
other regulations designed to promote financial soundness. However, such laws
and regulations do not necessarily apply to foreign bank obligations that a Fund
may acquire.

In addition to purchasing certificates of deposit and bankers'
acceptances, to the extent permitted under their respective investment
objectives and policies stated above and in their Prospectuses, a Fund may make
interest-bearing time or other interest-bearing deposits in commercial or
savings banks. Time deposits are non-negotiable deposits maintained at a
banking institution for a specified period of time at a specified interest rate.

SAVINGS ASSOCIATION OBLIGATIONS. The Funds may invest in certificates
of deposit (interest-bearing time deposits) issued by savings banks or savings
and loan associations that have

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<PAGE>

capital, surplus and undivided profits in excess of $100 million, based on
latest published reports, or less than $100 million if the principal amount of
such obligations is fully insured by the U.S. Government.

COMMERCIAL PAPER, SHORT-TERM NOTES AND OTHER CORPORATE OBLIGATIONS.
The Funds may invest a portion of their assets in commercial paper and
short-term notes. Commercial paper consists of unsecured promissory notes issued
by corporations. Issues of commercial paper and short-term notes will normally
have maturities of less than nine months and fixed rates of return, although
such instruments may have maturities of up to one year.

Commercial paper and short-term notes will consist of issues rated at
the time of purchase "A-2" or higher by S&P, "Prime-l" or "Prime-2" by Moody's,
or similarly rated by another nationally recognized statistical rating
organization or, if unrated, will be determined by the Investment Adviser to be
of comparable quality. These rating symbols are described in Appendix A.

Corporate obligations include bonds and notes issued by corporations
to finance longer-term credit needs than supported by commercial paper. While
such obligations generally have maturities of ten years or more, the Funds may
purchase corporate obligations which have remaining maturities of one year or
less from the date of purchase and which are rated "AA" or higher by S&P or "Aa"
or higher by Moody's.

MONEY MARKET FUNDS

The Funds may under certain circumstances invest a portion of their
assets in money market funds. The Investment Company Act prohibits the Funds
from investing more than 5% of the value of their total assets in any one
investment company, or more than 10% of the value of their total assets in
investment companies as a group, and also restricts their investment in any
investment company to 3% of the voting securities of such investment company.
The Investment Adviser will not impose an advisory fee on assets of a Fund
invested in a money market mutual fund. (This restriction does not apply to
assets of the Money Market Portfolio invested in the Money Market Fund.)
However, an investment in a money market mutual fund will involve payment by a
Fund of its pro rata share of advisory and administrative fees charged by such
fund.

GOVERNMENT OBLIGATIONS

Each Fund may make short-term investments in U.S. Government
obligations. Such obligations include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of such entities as the Government
National Mortgage Association ("GNMA"), Export-Import Bank of the United States,
Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation, and the Student Loan Marketing Association.

Some of these obligations, such as those of the GNMA, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the FNMA, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S.

B-6
<PAGE>

Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law.

Certain Funds may invest in sovereign debt obligations of foreign
countries. A sovereign debtor's willingness or ability to repay principal and
interest in a timely manner may be affected by a number of factors, including
its cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which it
may be subject. Emerging market governments could default on their sovereign
debt. Such sovereign debtors also may be dependent on expected disbursements
from foreign governments, multilateral agencies and other entities abroad to
reduce principal and interest arrearages on their debt. The commitments on the
part of these governments, agencies and others to make such disbursements may be
conditioned on a sovereign debtor's implementation of economic reforms and/or
economic performance and the timely service of such debtor's obligations.
Failure to meet such conditions could result in the cancellation of such third
parties' commitments to lend funds to the sovereign debtor, which may further
impair such debtor's ability or willingness to service its debt in a timely
manner.

ZERO COUPON SECURITIES

The Income & Growth, Balanced, and Government Funds may each invest in
zero coupon securities issued by the U.S. Treasury on up to 35% of their
respective net assets. Zero coupon Treasury securities are U.S. Treasury notes
and bonds which have been stripped of their unmatured interest coupons and
receipts, or certificates representing interests in such stripped debt
obligations or coupons. Because a zero coupon security pays no interest to its
holder during its life or for a substantial period of time, it usually trades at
a deep discount from its face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest.

VARIABLE AND FLOATING RATE INSTRUMENTS

The Funds may acquire variable and floating rate instruments. Such
instruments are frequently not rated by credit rating agencies; however, unrated
variable and floating rate instruments purchased by a Fund will be determined by
the Investment Adviser under guidelines established by the Master Trust's Board
of Trustees to be of comparable quality at the time of the purchase and rated
instruments eligible for purchase by the Fund. In making such determinations,
the Investment Adviser will consider the earning power, cash flow and other
liquidity ratios of the issuers of such instruments (such issuers include
financial, merchandising, bank holding and other companies) and will monitor
their financial condition. An active secondary market may not exist with respect
to particular variable or floating rate instruments purchased by the Fund. The
absence of such an active secondary market could make it difficult for the Fund
to dispose of the variable or floating rate instrument involved in the event of
the issuer of the instrument defaulting on its payment obligation or during
periods in which the Fund is not entitled to exercise its demand rights, and the
Fund could, for these or other reasons, suffer a loss to the extent of the
default. Variable and floating rate instruments may be secured by bank letters
of credit.

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<PAGE>

MORTGAGE-RELATED SECURITIES

The Government Fund invests in mortgage-related securities.
Mortgage-related securities are derivative interests in pools of mortgage loans
made to U.S. residential home buyers, including mortgage loans made by savings
and loan institutions, mortgage bankers, commercial banks and others. Pools of
mortgage loans are assembled as securities for sale to investors by various
governmental, government-related and private organizations. The Government Fund
may also invest in debt securities which are secured with collateral consisting
of U.S. mortgage-related securities, and in other types of U.S. mortgage-related
securities.

U.S. MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their residential mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by repayments of principal resulting from the
sale of the underlying residential property, refinancing or foreclosure, net of
fees or costs which may be incurred. Some mortgage-related securities (such as
securities issued by the Government National Mortgage Association) are described
as "modified pass-throughs." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
at the scheduled payment dates regardless of whether or not the mortgagor
actually makes the payment.

The principal governmental guarantor of U.S. mortgage-related
securities is the Government National Mortgage Association ("GNMA"). GNMA is a
wholly owned United States Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the United States Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of mortgages insured by the Federal Housing Agency or
guaranteed by the Veterans Administration.

Government-related guarantors include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders and subject to general regulation by the Secretary of Housing and
Urban Development. FNMA purchases conventional residential mortgages not
insured or guaranteed by any government agency from a list of approved
seller/services which include state and federally chartered savings and loan
associations, mutual savings banks, commercial banks and credit unions and
mortgage bankers. FHLMC is a government-sponsored corporation created to
increase availability of mortgage credit for residential housing and owned
entirely by private stockholders. FHLMC issues participation certificates which
represent interests in conventional mortgages from FHLMC's national portfolio.
Pass-through securities issued by FNMA and participation certificates issued by
FHLMC are guaranteed as to timely payment of principal and interest by FNMA and
FHLMC, respectively, but are not backed by the full faith and credit of the
United States Government.

Although the underlying mortgage loans in a pool may have maturities
of up to 30 years, the actual average life of the pool certificates typically
will be substantially less because the mortgages will be subject to normal
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average

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<PAGE>

life of the pool certificates. Conversely, when interest rates are rising, the
rate of prepayments tends to decrease, thereby lengthening the actual average
life of the certificates. Accordingly, it is not possible to predict accurately
the average life of a particular pool.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A domestic or foreign
CMO in which the Government Fund may invest is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Like a bond,
interest is paid, in most cases, semiannually. CMOs may be collateralized by
whole mortgage loans, but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by GNMA, FHLMC, FNMA or equivalent
foreign entities.

CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal and
interest received from the pool of underlying mortgages, including prepayments,
is first returned to the class having the earliest maturity date or highest
seniority. Classes that have longer maturity dates and lower seniority will
receive principal only after the higher class has been retired.

FOREIGN MORTGAGE-RELATED SECURITIES. Foreign mortgage-related
securities are interests in pools of mortgage loans made to residential home
buyers domiciled in a foreign country. These include mortgage loans made by
trust and mortgage loan companies, credit unions, chartered banks, and others.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related, and private organizations (e.g.,
Canada Mortgage and Housing Corporation and First Australian National Mortgage
Acceptance Corporation Limited). The mechanics of these mortgage-related
securities are generally the same as those issued in the United States.
However, foreign mortgage markets may differ materially from the U.S. mortgage
market with respect to matters such as the sizes of loan pools, pre-payment
experience, and maturities of loans.

FOREIGN INVESTMENTS

The Funds may invest in securities of foreign issuers that are not
publicly traded in the United States. The Funds (other than the Money Market
Fund) may also invest in depository receipts, and the Worldwide, International
Growth, Emerging Countries, and Value Funds may invest in foreign currency
futures contracts.

The United States government has from time to time imposed
restrictions, through taxation or otherwise, on foreign investments by U.S.
entities such as the Funds. If such restrictions should be reinstituted, it
might become necessary for such Funds to invest substantially all of their
assets in United States securities. In such event, the Board of Trustees of the
Trust would consider alternative arrangements, including reevaluation of the
Portfolios' investment objectives and policies, investment of all of the
Portfolios' assets in another investment company with different investment
objectives and policies than the Funds, or hiring an investment adviser to
manage the Portfolios' assets. However, a Portfolio would adopt any revised
investment objective and fundamental policies only after approval by the
shareholders holding a majority (as defined in the Investment Company Act) of
the shares of the Portfolio.

DEPOSITORY RECEIPTS. American Depository Receipts ("ADRs") may be
listed on a national securities exchange or may trade in the over-the-counter
market. ADR prices are denominated in the United States dollars; the underlying
security may be denominated in a foreign

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<PAGE>

currency, although the underlying security may be subject to foreign government
taxes which would reduce the yield on such securities.

RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign
securities involve certain inherent risks, including the following:

POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of
certain countries may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency, diversification and balance of
payments position. The internal politics of certain foreign countries may not
be as stable as those of the United States. Governments in certain foreign
countries also continue to participate to a significant degree, through
ownership interest or regulation, in their respective economies. Action by
these governments could include restrictions on foreign investment,
nationalization, expropriation of goods or imposition of taxes, and could have a
significant effect on market prices of securities and payment of interest. The
economies of many foreign countries are heavily dependent upon international
trade and are accordingly affected by the trade policies and economic conditions
of their trading partners. Enactment by these trading partners of protectionist
trade legislation could have a significant adverse effect upon the securities
markets of such countries.

CURRENCY FLUCTUATIONS. All of the Funds other than the Money Market
Fund may invest in securities denominated in foreign currencies. Accordingly, a
change in the value of any such currency against the U.S. dollar will result in
a corresponding change in the U.S. dollar value of a Fund's assets denominated
in that currency. Such changes will also affect the Fund's income. The value
of the Fund's assets may also be affected significantly by currency restrictions
and exchange control regulations enacted from time to time.

MARKET CHARACTERISTICS. The Investment Adviser expects that most
foreign securities in which the Funds invest will be purchased in
over-the-counter markets or on exchanges located in the countries in which the
principal offices of the issuers of the various securities are located, if that
is the best available market. Foreign exchanges and markets may be more
volatile than those in the United States. While growing in volume, they usually
have substantially less volume than U.S. markets, and the Funds' portfolio
securities may be less liquid and more volatile than U.S. Government securities.
Moreover, settlement practices for transactions in foreign markets may differ
from those in United States markets, and may include delays beyond periods
customary in the United States. Foreign security trading practices, including
those involving securities settlement where Fund assets may be released prior to
receipt of payment or securities, may expose the Fund to increased risk in the
event of a failed trade or the insolvency of a foreign broker-dealer.

Transactions in options on securities, futures contracts, futures
options and currency contracts may not be regulated as effectively on foreign
exchanges as similar transactions in the United States, and may not involve
clearing mechanisms and related guarantees. The value of such positions also
could be adversely affected by the imposition of different exercise terms and
procedures and margin requirements than in the United States. The value of a
Fund's positions may also be adversely impacted by delays in its ability to act
upon economic events occurring in foreign markets during non-business hours in
the United States.

LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.

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TAXES. The interest payable on certain of the Funds' foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to the Portfolios'
shareholders. A shareholder otherwise subject to United States federal income
taxes may, subject to certain limitations, be entitled to claim a credit or
deduction of U.S. federal income tax purposes for his proportionate share of
such foreign taxes paid by the Funds.

COSTS. The expense ratios of the Funds are likely to be higher than
those of investment companies investing in domestic securities, since the cost
of maintaining the custody of foreign securities is higher.

In considering whether to invest in the securities of a foreign
company, the Investment Adviser considers such factors as the characteristics of
the particular company, differences between economic trends and the performance
of securities markets within the U.S. and those within other countries, and also
factors relating to the general economic, governmental and social conditions of
the country or countries where the company is located. The extent to which a
Fund (other than the International and Emerging Countries Funds) will be
invested in foreign companies and countries and depository receipts will
fluctuate from time to time within the limitations described in the
Prospectuses, depending on the Investment Adviser's assessment of prevailing
market, economic and other conditions.

OPTIONS ON SECURITIES AND SECURITIES INDICES

PURCHASING PUT AND CALL OPTIONS. The Core Growth, Emerging Growth,
Income & Growth, Balanced, Worldwide, International Growth and Emerging
Countries Funds are each authorized to purchase covered "put" and "call" options
with respect to securities which are otherwise eligible for purchase by the
Funds and with respect to various stock indices subject to certain restrictions.
Such Funds will engage in trading of such derivative securities exclusively for
hedging purposes.

If a Fund purchases a put option, the Fund acquires the right to sell
the underlying security at a specified price at any time during the term of the
option (for "American-style" options) or on the option expiration date (for
"European-style" options). Purchasing put options may be used as a portfolio
investment strategy when the Investment Adviser perceives significant short-term
risk but substantial long-term appreciation for the underlying security. The
put option acts as an insurance policy, as it protects against significant
downward price movement while it allows full participation in any upward
movement. If the Fund is holding a stock which it feels has strong
fundamentals, but for some reason may be weak in the near term, the Fund may
purchase a put option on such security, thereby giving itself the right to sell
such security at a certain strike price throughout the term of the option.
Consequently, the Fund will exercise the put only if the price of such security
falls below the strike price of the put. The difference between the put's
strike price and the market price of the underlying security on the date the
Fund exercises the put, less transaction costs, will be the amount by which the
Fund will be able to hedge against a decline in the underlying security. If
during the period of the option the market price for the underlying security
remains at or above the put's strike price, the put will expire worthless,
representing a loss of the price the Fund paid for the put, plus transaction
costs. If the price of the underlying security increases, the profit the Fund
realizes on the sale of the security will be reduced by the premium paid for the
put option less any amount for which the put may be sold.

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<PAGE>

If a Fund purchases a call option, it acquires the right to purchase
the underlying security at a specified price at any time during the term of the
option. The purchase of a call option is a type of insurance policy to hedge
against losses that could occur if the Fund has a short position in the
underlying security and the security thereafter increases in price. The Fund
will exercise a call option only if the price of the underlying security is
above the strike price at the time of exercise. If during the option period the
market price for the underlying security remains at or below the strike price of
the call option, the option will expire worthless, representing a loss of the
price paid for the option, plus transaction costs. If the call option has been
purchased to hedge a short position of the Fund in the underlying security and
the price of the underlying security thereafter falls, the profit the Fund
realizes on the cover of the short position in the security will be reduced by
the premium paid for the call option less any amount for which such option may
be sold.

Prior to exercise or expiration, an option may be sold when it has
remaining value by a purchaser through a "closing sale transaction," which is
accomplished by selling an option of the same series as the option previously
purchased. The Funds generally will purchase only those options for which the
Investment Adviser believes there is an active secondary market to facilitate
closing transactions.

WRITING CALL OPTIONS. The Core Growth, Emerging Growth, Income &
Growth, Worldwide, International Growth and Emerging Countries Funds may write
covered call options. A call option is "covered" if the Fund owns the security
underlying the call or has an absolute right to acquire the security without
additional cash consideration (or, if additional cash consideration is required,
cash or cash equivalents in such amount as are held in a segregated account by
the Custodian). The writer of a call option receives a premium and gives the
purchaser the right to buy the security underlying the option at the exercise
price. The writer has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price during the option
period. If the writer of an exchange-traded option wishes to terminate his
obligation, he may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. A writer may not effect a closing purchase transaction after it has
been notified of the exercise of an option.

Effecting a closing transaction in the case of a written call option
will permit a Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. Also, effecting a
closing transaction will permit the cash or proceeds from the concurrent sale of
any securities subject to the option to be used for other investments of the
Fund. If the Fund desires to sell a particular security from its portfolio on
which it has written a call option, it will effect a closing transaction prior
to or concurrent with the sale of the security.

A Fund will realize a gain from a closing transaction if the cost of
the closing transaction is less than the premium received from writing the
option or if the proceeds from the closing transaction are more than the premium
paid to purchase the option. A Fund will realize a loss from a closing
transaction if the cost of the closing transaction is more than the premium
received from writing the option or if the proceeds from the closing transaction
are less than the premium paid to purchase the option. However, because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss to the Fund resulting
from the repurchase of a call option is likely to be offset in whole or in part
by appreciation of the underlying security owned by the Fund.

STOCK INDEX OPTIONS. The Funds (other than the Government and Money
Market Funds) may also purchase put and call options with respect to the S&P 500
and other stock indices.

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Such options may be purchased as a hedge against changes resulting from market
conditions in the values of securities which are held in a Fund's portfolio or
which it intends to purchase or sell, or when they are economically appropriate
for the reduction of risks inherent in the ongoing management of the Fund.

The distinctive characteristics of options on stock indices create
certain risks that are not present with stock options generally. Because the
value of an index option depends upon movements in the level of the index rather
than the price of a particular stock, whether the Fund will realize a gain or
loss on the purchase or sale of an option on an index depends upon movements in
the level of stock prices in the stock market generally rather than movements in
the price of a particular stock. Accordingly, successful use by a Fund of
options on a stock index would be subject to the Investment Adviser's ability to
predict correctly movements in the direction of the stock market generally.
This requires different skills and techniques than predicting changes in the
price of individual stocks.

Index prices may be distorted if trading of certain stocks included in
the index is interrupted. Trading of index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this were to occur, the Fund would not be able
to close out options which it had purchased, and if restrictions on exercise
were imposed, the Fund might be unable to exercise an option it holds, which
could result in substantial losses to the Fund. It is the policy of the Funds
to purchase put or call options only with respect to an index which the
Investment Adviser believes includes a sufficient number of stocks to minimize
the likelihood of a trading halt in the index.

RISKS OF INVESTING IN OPTIONS. There are several risks associated
with transactions in options on securities and indices. Options may be more
volatile than the underlying instruments and, therefore, on a percentage basis,
an investment in options may be subject to greater fluctuation than an
investment in the underlying instruments themselves. There are also significant
differences between the securities and options markets that could result in an
imperfect correlation between these markets, causing a given transaction not to
achieve its objective. In addition, a liquid secondary market for particular
options may be absent for reasons which include the following: there may be
insufficient trading interest in certain options; restrictions may be imposed by
an exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of option of underlying securities; unusual or
unforeseen circumstances may interrupt normal operations on an exchange; the
facilities of an exchange or clearing corporation may not at all times be
adequate to handle current trading volume; or one or more exchanges could, for
economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist, although outstanding options that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.

A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events. The
extent to which a Fund may enter into options transactions may be limited by the
Internal Revenue Code requirements for qualification of the corresponding
Portfolio as a regulated investment company. See "Dividends, Distributions and
Taxes."

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In addition, when trading options on foreign exchanges, many of the
protections afforded to participants in United States option exchanges will not
be available. For example, there may be no daily price fluctuation limits in
such exchanges or markets, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, a Fund as an option writer
could lose amounts substantially in excess of its initial investment, due to the
margin and collateral requirements typically associated with such option
writing. See "Dealer Options" below.

DEALER OPTIONS. The Core Growth, Emerging Growth, Worldwide,
International Growth and Emerging Countries Funds will engage in transactions
involving dealer options as well as exchange-traded options. Certain risks are
specific to dealer options. While the Funds might look to a clearing
corporation to exercise exchange-traded options, if a Fund were to purchase a
dealer option it would need to rely on the dealer from which it purchased the
option to perform if the option were exercised. Failure by the dealer to do so
would result in the loss of the premium paid by the Fund as well as loss of the
expected benefit of the transaction.

Exchange-traded options generally have a continuous liquid market
while dealer options may not. Consequently, a Fund may generally be able to
realize the value of a dealer option it has purchased only by exercising or
reselling the option to the dealer who issued it. Similarly, when a Fund writes
a dealer option, the Fund may generally be able to close out the option prior to
its expiration only by entering into a closing purchase transaction with the
dealer to whom the Fund originally wrote the option. While the Fund will seek
to enter into dealer options only with dealers who will agree to and which are
expected to be capable of entering into closing transactions with the Fund,
there can be no assurance that the Fund will at any time be able to liquidate a
dealer option at a favorable price at any time prior to expiration. Unless the
Fund, as a covered dealer call option writer, is able to effect a closing
purchase transaction, it will not be able to liquidate securities (or other
assets) used as cover until the option expires or is exercised. In the event of
insolvency of the other party, the Fund may be unable to liquidate a dealer
option. With respect to options written by the Fund, the inability to enter
into a closing transaction may result in material losses to the Fund. For
example, since the Fund must maintain a secured position with respect to any
call option on a security it writes, the Fund may not sell the assets which it
has segregated to secure the position while it is obligated under the option.
This requirement may impair the Portfolio's ability to sell portfolio securities
at a time when such sale might be advantageous.

The Staff of the Securities and Exchange Commission (the "Commission")
has taken the position that purchased dealer options are illiquid securities. A
Fund may treat the cover used for written dealer options as liquid if the dealer
agrees that the Fund may repurchase the dealer option it has written for a
maximum price to be calculated by a predetermined formula. In such cases, the
dealer option would be considered illiquid only to the extent the maximum
purchase price under the formula exceeds the intrinsic value of the option.
Accordingly, the Fund will treat dealer options as subject to the Fund's
limitation on unmarketable securities. If the Commission changes its position
on the liquidity of dealer options, the Fund will change its treatment of such
instruments accordingly.

FOREIGN CURRENCY OPTIONS

The Worldwide, International Growth and Emerging Countries Funds may
buy or sell put and call options on foreign currencies. A put or call option on
a foreign currency gives the purchaser of the option the right to sell or
purchase a foreign currency at the exercise price until the option expires. The
Funds will use foreign currency options separately or in combination to control

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<PAGE>

currency volatility. Among the strategies employed to control currency
volatility is an option collar. An option collar involves the purchase of a put
option and the simultaneous sale of call option on the same currency with the
same expiration date but with different exercise (or "strike") prices.
Generally, the put option will have an out-of-the-money strike price, while the
call option will have either an at-the-money strike price or an in-the-money
strike price. Foreign currency options are derivative securities. Currency
options traded on U.S. or other exchanges may be subject to position limits
which may limit the ability of the Funds to reduce foreign currency risk using
such options.

As with other kinds of option transactions, the writing of an option
on foreign currency will constitute only a partial hedge, up to the amount of
the premium received. The Funds could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movement adverse to a Fund's position, the Fund may forfeit the entire amount of
the premium plus related transaction costs.

FORWARD CURRENCY CONTRACTS

The Worldwide, International Growth and Emerging Countries Funds may
enter into forward currency contracts in anticipation of changes in currency
exchange rates. A forward currency contract is an obligation to purchase or
sell a specific currency at a future date, which may be any fix 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 might 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, it might
sell a particular currency on either a spot or forward basis to hedge against an
anticipated decline in the dollar value of securities it intends to or has
contracted to sell. Although this strategy could minimize the risk of loss due
to a decline in the value of the hedged currency, it could also limit any
potential gain from an increase in the value of the currency.

FUTURES CONTRACTS AND RELATED OPTIONS

Each of the Funds other than the Balanced and Money Market Funds may
invest in futures contracts and options on futures contracts as a hedge against
changes in market conditions or interest rates. Such Funds will trade in such
derivative securities for bona fide hedging purposes and otherwise in accordance
with the rules of the Commodity Futures Trading Commission ("CFTC"). Each such
Fund will segregate liquid assets in a separate account with its Custodian when
required to do so by CFTC guidelines in order to cover its obligation in
connection with futures and options transactions.

No price is paid or received by a Fund upon the purchase or sale of a
futures contract. When it enters into a domestic futures contract, the Fund
will be required to deposit in a segregated account with its Custodian an amount
of cash or U.S. Treasury bills equal to approximately 5% of the contract amount.
This amount is known as initial margin. The margin requirements for foreign
futures contracts may be different.

The nature of initial margin in futures transactions is different from
that of margin in securities transactions. Futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination of the
futures contract, assuming all contractual obligations have been satisfied.
Subsequent payments (called variation margin) to and from the broker will be
made on a daily basis as the price of the underlying

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<PAGE>

stock index fluctuates, to reflect movements in the price of the contract making
the long and short positions in the futures contract more or less valuable. For
example, when the Fund has purchased a stock index futures contract and the
price of the underlying stock index has risen, that position will have increased
in value and the Fund will receive from the broker a variation margin payment
equal to that increase in value. Conversely, when the Fund has purchased a
stock index futures contract and the price of the underlying stock index has
declined, the position will be less valuable and the Fund will be required to
make a variation margin payment to the broker.

At any time prior to expiration of a futures contract, the Fund may
elect to close the position by taking an opposite position, which will operate
to terminate the Fund's position in the futures contract. A final determination
of variation margin is made on closing the position. Additional cash is paid by
or released to the Fund, which realizes a loss or a gain.

STOCK INDEX FUTURES CONTRACTS. The Core Growth, Emerging Growth,
Income & Growth, Balanced, Worldwide, International Growth, Emerging Countries,
and Value Funds may invest in futures contracts on stock indices. Currently,
stock index futures contracts can be purchased or sold with respect to the S&P
500 Stock Price Index on the Chicago Mercantile Exchange, the Major Market Index
on the Chicago Board of Trade, the New York Stock Exchange Composite Index on
the New York Futures Exchange and the Value Line Stock Index on the Kansas City
Board of Trade. Foreign financial and stock index futures are traded on foreign
exchanges including the London International Financial Futures Exchange, the
Singapore International Monetary Exchange, the Sydney Futures Exchange Limited
and the Tokyo Stock Exchange.

INTEREST RATE OR FINANCIAL FUTURES CONTRACTS. The Income & Growth,
Worldwide, International Growth, Emerging Countries, Government and Value Funds
may invest in interest rate or financial futures contracts. Bond prices are
established in both the cash market and the futures market. In the cash market,
bonds are purchased and sold with payment for the full purchase price of the
bond being made in cash, generally within five business days after the trade.
In the futures market, a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have generally tended to move in the
aggregate in concert with cash market prices, and the prices have maintained
fairly predictable relationships.

The sale of an interest rate or financial futures sale by a Fund would
create an obligation by the Fund, as seller, to deliver the specific type of
financial instrument called for in the contract at a specific future time for a
specified price. A futures contract purchased by a Fund would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.

Although interest rate or financial futures contracts by their terms
call for actual delivery or acceptance of securities, in most cases the
contracts are closed out before the settlement date without delivery of
securities. Closing out of a futures contract sale is effected by the Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund's entering
into a futures contract sale. If the

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<PAGE>

offsetting sale price exceeds the purchase price, the Fund realizes a gain, and
if the purchase price exceeds the offsetting sale price, the Fund realizes a
loss.

The Funds deal only in standardized contracts on recognized exchanges.
Each exchange guarantees performance under contract provisions through a
clearing corporation, a nonprofit organization managed by the exchange
membership. Domestic interest rate futures contracts are traded in an auction
environment on the floors of several exchanges - principally, the Chicago Board
of Trade and the Chicago Mercantile Exchange. A public market now exists in
domestic futures contracts covering various financial instruments including
long-term United States Treasury bonds and notes; Government National Mortgage
Association (GNMA) modified pass-through mortgage-backed securities; three-month
United States Treasury bills; and 90-day commercial paper. A Fund may trade in
any futures contract for which there exists a public market, including, without
limitation, the foregoing instruments. International interest rate futures
contracts are traded on the London International Financial Futures Exchange, the
Singapore International Monetary Exchange, the Sydney Futures Exchange Limited
and the Tokyo Stock Exchange.

FOREIGN CURRENCY FUTURES CONTRACTS. The Worldwide, International
Growth, Emerging Countries and Value Funds may use foreign currency future
contracts for hedging purposes. A foreign currency futures contract provides
for the future sale by one party and purchase by another party of a specified
quantity of a foreign currency at a specified price and time. A public market
exists in futures contracts covering several foreign currencies, including the
Australian dollar, the Canadian dollar, the British pound, the German mark, the
Japanese yen, the Swiss franc, and certain multinational currencies such as the
European Currency Unit ("ECU"). Other foreign currency futures contracts are
likely to be developed and traded in the future. The Funds will only enter into
futures contracts and futures options which are standardized and traded on a
U.S. or foreign exchange, board of trade, or similar entity, or quoted on an
automated quotation system.

RISKS OF TRANSACTIONS IN FUTURES CONTRACTS. There are several risks
related to the use of futures as a hedging device. One risk arises because of
the imperfect correlation between movements in the price of the futures contract
and movements in the price of the securities which are the subject of the hedge.
The price of the future may move more or less than the price of the securities
being hedged. If the price of the future moves less than the price of the
securities which are the subject of the hedge, the hedge will not be fully
effective, but if the price of the securities being hedged has moved in an
unfavorable direction, a Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on the
future. If the price of the future moves more than the price of the hedged
securities, the Fund will experience either a loss or a gain on the future which
will not be completely offset by movements in the price of the securities which
are subject to the hedge.

To compensate for the imperfect correlation of movements in the price
of securities being hedged and movements in the price of the futures contract, a
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the historical volatility of the
prices of such securities has been greater than the historical volatility over
such time period of the future. Conversely, the Fund may buy or sell fewer
futures contracts if the historical volatility of the price of the securities
being hedged is less than the historical volatility of the futures contract
being used. It is possible that, when the Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance while the
value of securities held in the Fund's portfolio may decline. If this occurs,
the Fund will lose money on the future and also experience a decline in value in
its portfolio securities. However, the Investment Adviser believes that

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<PAGE>

over time the value of a diversified portfolio will tend to move in the same
direction as the market indices upon which the futures are based.

Where futures are purchased to hedge against a possible increase in
the price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead. If the Fund then decides not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, it will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.

In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the stock index or cash market due to certain market distortions.
All participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions, which could distort the normal relationship between the index or
cash market and futures markets. In addition, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures market
may also cause temporary price distortions. As a result of price distortions in
the futures market and the imperfect correlation between movements in the cash
market and the price of securities and movements in the price of futures, a
correct forecast of general trends by the Investment Adviser may still not
result in a successful hedging transaction over a very short time frame.

Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures position, and in the event of adverse price
movements, the Funds would continue to be required to make daily cash payments
of variation margin. When futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the futures contract can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, as described above, there is no guarantee that the price of the
securities will in fact correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract.

Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.

Successful use of futures by a Fund is also subject to the Investment
Adviser's ability to predict correctly movements in the direction of the market.
For example, if the Fund has

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<PAGE>

hedged against the possibility of a decline in the market adversely affecting
stocks held in its portfolio and stock prices increase instead, the Fund will
lose part or all of the benefit of the increased value of the stocks which it
has hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. The Fund may have to sell securities at a time when
it may be disadvantageous to do so.

In the event of the bankruptcy of a broker through which a Fund
engages in transactions in futures contracts or options, the Fund could
experience delays and losses in liquidating open positions purchased or sold
through the broker, and incur a loss of all or part of its margin deposits with
the broker.

OPTIONS ON FUTURES CONTRACTS. As described above, certain of the
Funds may purchase options on the futures contracts they can purchase or sell,
as described above. 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, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder or writer of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss. There is no guarantee that such closing transactions can be
effected.

Investments in futures options involve some of the same considerations
as investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the risk
that changes in the value of the underlying futures contract will not be fully
reflected in the value of the option. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contracts. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Funds because the
maximum amount at risk is limited to the premium paid for the options (plus
transaction costs).

RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND RELATED OPTIONS. A
Fund will not engage in transactions in futures contracts or related options for
speculation, but only as a hedge against changes resulting from market
conditions in the values of securities held in the Fund's portfolio or which it
intends to purchase and where the transactions are economically appropriate to
the reduction of risks inherent in the ongoing management of the Funds. A Fund
may not purchase or sell futures or purchase related options if, immediately
thereafter, more than 25% of its net assets would be hedged. A Fund also may
not purchase or sell futures or purchase 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.

Upon the purchase of futures contracts by a Fund, an amount of cash
and cash equivalents, equal to the market value of the futures contracts, will
be deposited in a segregated

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<PAGE>

account with the Custodian or in a margin account with a broker to collateralize
the position and thereby insure that the use of such futures is unleveraged.

These restrictions, which are derived from current federal and state
regulations regarding the use of options and futures by mutual funds, are not
"fundamental restrictions" and may be changed by the Trustees of the Master
Trust if applicable law permits such a change and the change is consistent with
the overall investment objective and policies of the Fund.

The extent to which a Fund may enter into futures and options
transactions may be limited by the Internal Revenue Code requirements for
qualification of the corresponding Portfolio as a regulated investment company.
See "Taxes."

REPURCHASE AGREEMENTS

Each Fund may enter into repurchase agreements with respect to its
portfolio securities. Pursuant to such agreements, the Fund acquires securities
from financial institutions such as banks and broker-dealers as are deemed to be
creditworthy by the Investment Adviser, subject to the seller's agreement to
repurchase and the Fund's agreement to resell such securities at a mutually
agreed upon date and price. The repurchase price generally equals the price
paid by the Fund plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the underlying portfolio
security). Securities subject to repurchase agreements will be held by the
Custodian or in the Federal Reserve/Treasury Book-Entry System or an equivalent
foreign system. The seller under a repurchase agreement will be required to
maintain the value of the underlying securities at not less than 102% of the
repurchase price under the agreement. If the seller defaults on its repurchase
obligation, the Fund holding the repurchase agreement will suffer a loss to the
extent that the proceeds from a sale of the underlying securities is less than
the repurchase price under the agreement. Bankruptcy or insolvency of such a
defaulting seller may cause the Fund's rights with respect to such securities to
be delayed or limited. Repurchase agreements are considered to be loans under
the Investment Company Act.

WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS

Each of the Funds may purchase securities on a "when-issued," forward
commitment or delayed settlement basis. In this event, the Custodian will set
aside cash or liquid portfolio securities equal to the amount of the commitment
in a separate account. Normally, the Custodian will set aside portfolio
securities to satisfy a purchase commitment. In such a case, a Fund may be
required subsequently to place additional assets in the separate account in
order to assure that the value of the account remains equal to the amount of the
Fund's commitment. It may be expected that the Fund's net assets will fluctuate
to a greater degree when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash.

The Funds do not intend to engage in these transactions for
speculative purposes but only in furtherance of their investment objectives.
Because a Fund will set aside cash or liquid portfolio securities to satisfy its
purchase commitments in the manner described, the Fund's liquidity and the
ability of the Investment Adviser to manage it may be affected in the event the
Fund's forward commitments, commitments to purchase when-issued securities and
delayed settlements ever exceeded 15% of the value of its net assets.

A Fund will purchase securities on a when-issued, forward commitment
or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a

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<PAGE>

matter of investment strategy, however, a Fund may dispose of or renegotiate a
commitment after it is entered into, and may sell securities it has committed to
purchase before those securities are delivered to the Fund on the settlement
date. In these cases the Fund may realize a taxable capital gain or loss. When
a Fund engages in when-issued, forward commitment and delayed settlement
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in a Fund's incurring a loss or missing an
opportunity to obtain a price credited to be advantageous.

The market value of the securities underlying a when-issued purchase,
forward commitment to purchase securities, or a delayed settlement and any
subsequent fluctuations in their market value is taken into account when
determining the market value of a Fund starting on the day the Fund agrees to
purchase the securities. A Fund does not earn interest on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date.

BORROWING

Each of the Funds is authorized to borrow money from time to time for
temporary, extraordinary or emergency purposes or for clearance of transactions
in amounts up to 20% of the value of its total assets at the time of such
borrowings. The use of borrowing by a Fund involves special risk considerations
that may not be associated with other funds having similar objectives and
policies. Since substantially all of a Fund's assets fluctuate in value,
whereas the interest obligation resulting from a borrowing will be fixed by the
terms of the Fund's agreement with its lender, the asset value per share of the
Fund will tend to increase more when its portfolio securities increase in value
and to decrease more when its portfolio assets decrease in value than would
otherwise be the case if the Fund did not borrow funds. In addition, interest
costs on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds. Under adverse
market conditions, the 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.

The Trust has entered into a Credit Agreement on behalf of its various
Portfolios with several banks and Chemical Bank, as administrative agent for the
lenders, to borrow up to $50,000,000 from time to time for purposes of meeting
shareholder redemption requests without the necessity of requiring the Funds to
sell portfolio securities, at times when the Investment Adviser believes such
sales are not in the best interests of the Portfolios' shareholders, in order to
provide the Portfolios with cash to meet such redemption requests. The Credit
Agreement expires on April 10, 1997, unless renewed by the parties.

Under the Credit Agreement, each Portfolio may borrow, repay and
reborrow amounts (collectively, the "Revolving Credit Loans") in increments of
$50,000, provided the Revolving Credit Loans outstanding at any time aggregate
at least $350,000 (the "Credit Facility"). The Trust will pay a commitment fee
at the rate of 0.10% per annum of the average daily unused portion of the Credit
Facility, and may at any time terminate the Credit Agreement or reduce the
lenders' commitment thereunder in increments of $2,500,000.

While outstanding, the Revolving Credit Loans will bear interest,
fluctuating daily and payable monthly, at either of the following rates or a
combination thereof, at the Trust's option: (i) at the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, plus 0.625% per annum; or (ii)
the prime rate of interest of Chemical Bank. If, as a result of changes in
applicable laws, regulations or guideline

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with respect to the capital adequacy of any lender, the return on such lender's
capital is reduced, the Trust may be required to adjust the rate of interest to
compensate such lender for such reduction. Each Revolving Credit Loan is
payable in thirty days, and may be prepaid at any time in increments of $100,000
without premium or penalty. No Portfolio is liable for repayment of a Revolving
Credit Loan to any other Portfolio.

The Credit Agreement contains, among other things, covenants that
require each Portfolio to maintain certain minimum ratios of debt to net worth;
limit the ability of the Trust to incur other indebtedness and create liens on
its assets or guarantee obligations of others; merge or consolidate with, or
sell its assets to, others; make material changes in its method of conducting
business; make distributions to shareholders in excess of the requirements of
Subchapter M of the Internal Revenue Code in the event of a default under the
Credit Agreement; or make changes in fundamental investment policies. The
Credit Agreement also contains other terms and conditions customary in such
agreements, including various events of default.

LENDING PORTFOLIO SECURITIES

Each of the Funds may lend its portfolio securities in an amount not
exceeding 30% of its total assets to financial institutions such as banks and
brokers if the loan is collateralized in accordance with applicable regulations.
Under the present regulatory requirements which govern loans of portfolio
securities, the loan collateral must, on each business day, at least equal the
value of the loaned securities and must consist of cash, letters of credit of
domestic banks or domestic branches of foreign banks, or securities of the U.S.
Government or its agencies. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. Such terms and the issuing bank would have to be
satisfactory to the Fund. Any loan might be secured by any one or more of the
three types of collateral. The terms of the Fund's loans must permit the Fund
to reacquire loaned securities on five days' notice or in time to vote on any
serious matter and must meet certain tests under the Internal Revenue Code.

SHORT SALES

The Investment Adviser's growth equity management approach is aimed
principally at identifying equity securities the earnings and prices of which it
expects to grow at a rate above that of the S&P 500. However, the Investment
Adviser believes that its approach also identifies securities the prices of
which can be expected to decline. Therefore, the Core Growth, Emerging Growth,
Worldwide and International Growth Funds are authorized to make short sales of
securities they own or have the right to acquire at no added cost through
conversion or exchange of other securities they own (referred to as short sales
"against the box") and to make short sales of securities which they do not own
or have the right to acquire.

In a short sale that is not "against the box," a Fund sells a security
which it does not own, in anticipation of a decline in the market value of the
security. To complete the sale, the Fund must borrow the security generally
from the broker through which the short sale is made) in order to make delivery
to the buyer. The Fund is then obligated to replace the security borrowed by
purchasing it at the market price at the time of replacement. The Fund is said
to have a "short position" in the securities sold until it delivers them to the
broker. The period during which the Fund has a short
position can range from one day to more than a year. Until the security is
replaced, the proceeds of the short sale are retained by the broker, and the
Fund is required to pay to the broker a negotiated portion of any dividends or
interest which accrue during the period of the loan. To meet

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<PAGE>

current margin requirements, the Fund is also required to deposit with the
broker additional cash or securities so that the total deposit with the broker
is maintained daily at 150% of the current market value of the securities sold
short (100% of the current market value if a security is held in the account
that is convertible or exchangeable into the security sold short within 90 days
without restriction other than the payment of money).

Short sales by a Fund that are not made "against the box" create
opportunities to increase the Fund's return but, at the same time, involve
specific 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 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. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of any premium, dividends or interest the Fund may be required to pay
in connection with the short sale. Furthermore, under adverse market conditions
the 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.

If a 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. To secure its obligation to deliver securities sold short, a Fund
will deposit in escrow in a separate account with the Custodian an equal amount
of the securities sold short or securities convertible into or exchangeable for
such securities. The Fund can close out its short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund might want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short.

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. The extent to which such
gains or losses in the long position are reduced will depend upon the amount of
securities sold short relative to the amount of the securities the Fund owns,
either directly or indirectly, and, in the case where the Fund owns convertible
securities, changes in the investment values or conversion premiums of such
securities.

The extent to which a Fund may enter into short sales transactions may
be limited by the Internal Revenue Code requirements for qualification of the
corresponding Portfolio as a regulated investment company. See "Taxes."

ILLIQUID SECURITIES

No Fund may invest more than 15% (10% in the case of the Money Market
Fund) of the value of its net assets in securities that at the time of purchase
have legal or contractual restrictions on resale or are otherwise illiquid. The
Investment Adviser will monitor the amount of

B-23
<PAGE>

illiquid securities in the Fund's portfolio, under the supervision of the Master
Trust's Board of Trustees, to ensure compliance with the Fund's investment
restrictions.

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, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placement or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these 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 be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemption within seven days. The Fund might also have to register such
restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.

In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act,
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 Commission under the Securities
Act, the Master Trust's Board of Trustees has determine that such securities are
not illiquid securities notwithstanding their legal or contractual restrictions
on resale. In all other cases, however, securities subject to restrictions on
resale will be deemed illiquid.

The Emerging Countries Fund may invest in foreign securities that are
restricted against transfer within the United States or to United States
persons. Although securities subject to such transfer restrictions may be
marketable abroad, they may be less liquid than foreign securities of the same
class that are not subject to such restrictions. Unless these securities are
acquired directly from the issuer or its underwriter, the Fund treats such
foreign securities whose principal market is abroad as not subject to the
investment limitation on securities subject to legal or contractual restrictions
on resale.

INVESTMENT TECHNIQUES AND PROCESSES

The Investment Adviser's investment techniques and processes, which it
has used in managing institutional portfolios for many years, are described
generally in the Portfolios' prospectuses under "Investment Objectives and
Policies -- Investment Techniques and Processes." In making decisions with
respect to equity securities for the Funds, GROWTH OVER TIME-Registered
Trademark- is the Investment Adviser's underlying goal. It's how the Investment
Adviser built its reputation. Over the past ten years, the Investment Adviser
has built a record as one of the finest performing investment managers in the
United States. It has successfully delivered growth over time to many
institutional investors, pension plans, foundations, endowments and high net
worth individuals. The Investment Adviser's methods have proven their ability
to achieve growth over time through a variety of investment vehicles.

B-24

<PAGE>

The Investment Adviser emphasizes growth over time through investment
in securities of companies with earnings growth potential. The Investment
Adviser's style is a "bottom-up" growth approach that focuses on the growth
prospects of individual companies rather than on economic trends. It builds
portfolios stock by stock. The Investment Adviser's decision-making is guided
by three critical questions: Is there a positive change? Is it sustainable? Is
it timely? The Investment Adviser uses these three factors because it focuses
on discovering positive developments when they first show up in an issuer's
earnings, but before they are fully reflected in the price of the issuer's
securities. The Investment Adviser is always looking for companies that are
driving change and surpassing analysts' expectations. It seeks to identify
companies poised for rapid growth. The Investment Adviser focuses on
recognizing successful companies, regardless of their capitalization or whether
they are domestic or foreign companies.

As indicated in the Portfolios' prospectuses, the Investment Adviser's
techniques and processes include relationships with an extensive network of
brokerage research firms located throughout the world. These analysts are often
located in the same geographic regions as the companies they follow, have
followed those companies for a number of years, and have developed excellent
sources of information about them. The Investment Adviser does not employ
in-house analysts other than the personnel actually engaged in managing
investments for the Funds and the Investment Adviser's other clients. However,
information obtained from a brokerage research firm is confirmed with other
research sources or the Investment Adviser's computer-assisted quantitative
analysis (including "real time" pricing data) of a substantial universe of
potential investments.

As indicated in the Portfolios' prospectuses, the equity investments
of a Portfolio are diversified, as with respect to at least 75% of each Fund's
assets no Fund may invest more than 5% of its total assets in the equity
securities of any one issuer. The equity securities of each issuer that are
included in the investment portfolio of a Fund are purchased by the Investment
Adviser in approximately equal amounts, and the Investment Adviser attempts to
stay fully invested within the applicable percentage limitations set forth in
the prospectus. In addition, for each issuer whose securities are added to an
investment portfolio, the Investment Adviser sells the securities of one of the
issuers currently included in the portfolio.

INVESTMENT RESTRICTIONS

The Trust, on behalf of the Portfolios, and the Master Trust, on
behalf of the corresponding Funds, have adopted the following fundamental
policies that cannot be changed without the affirmative vote of a majority of
the outstanding shares of the appropriate Portfolio or Fund, respectively (as
defined in the Investment Company Act). Whenever a Portfolio is requested to
vote on a change in the investment restrictions of a Fund, the Trust will hold a
meeting of its shareholders and will cast its vote as instructed by the
shareholders. If the investment restrictions of a Fund are changed, the
corresponding Portfolio may withdraw its investment in the Fund if the Trust's
Board of Trustees determines that withdrawal is in the best interests of the
Portfolio and its shareholders, but only upon shareholder approval. Upon such
withdrawal, the Trust's Board would consider alternative investments, including
investing all of the Portfolio's assets in another investment company with the
same investment objective, policies and restrictions as the Portfolio or hiring
an investment adviser to manage the Portfolio's assets in accordance with the
investment objectives, policies and restrictions of the Portfolio described in
the Portfolio's Prospectus and in this Statement of Additional Information.

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<PAGE>

All percentage limitations set forth below apply immediately after a
purchase or initial investment, and any subsequent change in any applicable
percentage resulting from market fluctuations will not require elimination of
any security from the relevant portfolio.

No Portfolio or Fund:

1. May invest in securities of any one issuer if more than 5% of the
market value of its total assets would be invested in the securities of such
issuer, except that up to 25% of a Portfolio or Fund's total assets may be
invested without regard to this restriction and a Portfolio will be permitted to
invest all or a portion of its assets in a corresponding Fund or other
diversified, open-end management investment company with substantially the same
investment objective, policies and restrictions as the Portfolio. This
restriction also does not apply to investments by a Portfolio or Fund in
securities of the U.S. Government or any of its agencies and instrumentalities.

2. May purchase more than 10% of the outstanding voting securities,
or of any class of securities, of any one issuer, or purchase the securities of
any issuer for the purpose of exercising control or management, except that a
Portfolio will be permitted to invest all or a portion of its assets in a
corresponding Fund or other diversified, open-end management investment company
with substantially the same investment objective, policies and restrictions as
the Portfolio.

3. May invest 25% or more of the market value of its total assets in
the securities of issuers in any one particular industry, except that a
Portfolio will be permitted to invest all or a portion of its assets in a
corresponding Fund or other diversified, open-end management investment company
with substantially the same investment objective, policies and restrictions as
the Portfolio. This restriction does not apply to investments by a Portfolio or
Fund in securities of the U.S. Government or its agencies and instrumentalities,
or to investments by the Money Market Portfolio or Money Market Fund in
obligations of domestic branches of U.S. banks and U.S. branches of foreign
banks which are subject to the same regulation as U.S. banks.

4. May purchase or sell real estate. However, a Portfolio or Fund
may invest in securities secured by, or issued by companies that invest in, real
estate or interests in real estate.

5. May make loans of money, except that a Portfolio or Fund may
purchase publicly distributed debt instruments and certificates of deposit and
enter into repurchase agreements. Each Portfolio and Fund reserves the
authority to make loans of its portfolio securities in an aggregate amount not
exceeding 30% of the value of its total assets.

6. May borrow money on a secured or unsecured basis, except for
temporary, extraordinary or emergency purposes or for the clearance of
transactions in amounts not exceeding 20% of the value of its total assets at
the time of the borrowing, provided that, pursuant to the Investment Company
Act, borrowings will only be made from banks and 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 (including the proposed
borrowing). If such asset coverage of 300% is not maintained, the Portfolio or
Fund will take prompt action to reduce its borrowings as required by applicable
law.

7. May pledge or in any way transfer as security for indebtedness
any securities owned or held by it, except to secure indebtedness permitted by
restriction 6 above. This restriction shall not prohibit the Portfolios or
Funds from engaging in options, futures and foreign currency transactions.

B-26

<PAGE>

8. May underwrite securities of other issuers, except insofar as it
may be deemed an underwriter under the Securities Act in selling portfolio
securities.

9. May invest more than 15% (10% in the case of each of the Money
Market Portfolio or the Money Market Fund) of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid.

10. May purchase securities on margin, except for initial and
variation margin on options and futures contracts, and except that a Portfolio
or Fund may obtain such short-term credit as may be necessary for the clearance
of Purchases and sales of securities.

11. May engage in short sales (other than the Core Growth Portfolios
and Fund, the Emerging Growth Portfolios and Fund, the Worldwide Portfolios and
Fund and the International Growth Portfolios and Fund), except that a Portfolio
or Fund may use such short-term credits as are necessary for the clearance of
transactions.

12. May invest in securities of other investment companies, except
(a) that a Portfolio may invest all or a portion of its assets in a
corresponding Fund or other diversified, open-end management investment company
with the same investment objective policies and restrictions as the Portfolio;
(b) in compliance with the Investment Company Act and applicable state
securities laws, or (c) as part of a merger, consolidation, acquisition or
reorganization involving the Portfolio or Fund.

13. May issue senior securities, except that a Portfolio or Fund may
borrow money as permitted by restrictions 6 and 7 above. This restriction shall
not prohibit the Portfolios or Funds from engaging in short sales, options,
futures and foreign currency transactions.

14. May enter into transactions for the purpose of arbitrage, or
invest in commodities and commodities contracts, except that a Fund or Portfolio
may invest in stock index, currency and financial futures contracts and related
options in accordance with any rules of the Commodity Futures Trading
Commission.

15. May purchase or write options on securities, except for hedging
purposes and then only if (i) aggregate premiums on call options purchased by a
Fund do not exceed 5% of its net assets, (ii) aggregate premiums on put options
purchased by a Fund do not exceed 5% of its net assets, (iii) not more than 25%
of a Fund's net assets would be hedged, and (iv) not more than 25% of a Fund's
net assets are used as cover for options written by the Fund.

MONEY MARKET FUND RESTRICTIONS

Investment by the Money Market Portfolio and Fund are subject to
limitations imposed under regulations adopted by the Commission. These
regulations generally require the Money Market Portfolio and Fund to acquire
only U.S. dollar denominated obligations maturing in 397 days or less and to
maintain a dollar-weighted average portfolio maturity of 90 days or less. In
addition, the Money Market Portfolio and Fund may acquire only obligations that
present minimal credit risks and that are "eligible securities" which means they
are (i) rated, at the time of investment, by at least two nationally recognized
security rating organizations (one if it is the only organization rating such
obligation) in the highest short-term rating category or, if unrated, determined
to be of comparable quality (a "first tier security"), or (ii) rated according
to the foregoing criteria in the second highest short-term rating category or,
if unrated, determined to be of comparable quality ("second tier

B-27

<PAGE>

security"). A security is not considered to be unrated if its issuer has
outstanding obligations of comparable priority and security that have a
short-term rating. The Investment Adviser will determine that an obligation
presents minimal credit risks or that unrated instruments are of comparable
quality in accordance with guidelines established by the Boards of Trustees of
the Trust and Master Trust. The Trustees must also approve or ratify the
acquisition of unrated securities or securities rated by only one rating
organization. In addition, investments in second tier securities are subject to
the further constraints that (i) no more than 5% of the Money Market Portfolio's
or Fund's assets may be invested in such securities in the aggregate, and (ii)
any investment in such securities of one issuer is limited to the greater of 1%
of the Portfolio's or Fund's total assets or $1 million. In addition, the
Portfolio or Fund may only invest up to 25% of its total assets in the first
tier securities of a single issuer for three business days.

OPERATING RESTRICTIONS

As a matter of operating (not fundamental) policy adopted by the
Boards of Trustees of the Trust, no Portfolio or Fund:

1. May invest in interests in oil, gas or other mineral exploration
or development programs or leases, or real estate limited partnerships, although
a Portfolio or a Fund may invest in the securities of companies which invest in
or sponsor such programs.

2. May purchase any security if as a result the Portfolio or Fund
would then have more than 5% of its total assets (taken at current value)
invested in securities of companies (including predecessors) having a record of
less than three years of continuous operation, except (a) that a Portfolio may
invest all or a portion of its assets in a corresponding Fund or other
diversified, open-end management investment company with the same investment
objective, policies and restrictions as the Portfolio in compliance with the
Investment Company Act or (b) as part of a merger, consolidation, acquisition or
reorganization involving the Portfolio or Fund.

3. May purchase securities of any issuer if any officer or trustee
of the Portfolio or Fund, or any officer or director of the Administrator, or
the Distributor, or Investment Adviser, owning more than 1/2 of 1% of the
outstanding securities of such issuer, own in the aggregate more than 5% of the
outstanding securities of such issuer.

4. May lend any securities from its portfolio unless the value of
the collateral received therefor is continuously maintained in an amount not
less than 100% of the value of the loaned securities by marking to market daily.

5. May invest in warrants, valued at the lower of cost or market, in
excess of 5% of the market value of the Portfolio's or Fund's net assets, or in
excess of 2% of the market value of the Portfolio's or Fund's net assets if such
warrants are not listed on the New York Stock Exchange or the American Stock
Exchange, as of the date of investment.

In addition, the Value Fund may not purchase or write options on
securities.

BLUE SKY RESTRICTIONS

In order to permit the sale of shares of a Portfolio in certain
states, the Boards of Trustees of the Trust and the Master Trust may, in its
sole discretion, adopt additional restrictions on investment policies more
restrictive than those described above. Should either of such Boards

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<PAGE>

determine that any such restrictive policy is no longer in the best interests of
such respective trust or its investors, the Trust may cease offering shares of a
Portfolio in the state involved and the Boards of Trustees may revoke such
restrictive policy. Moreover, if the states involved no longer require any such
restrictive policy, the Board of Trustees may, at their sole discretion, revoke
such policy.

The Master Trust has agreed, in connection with certain undertakings
given by the Trust to the State of South Dakota, that (i) no Fund will invest
more than 10% of its total assets in interests in real estate investment trusts,
(ii) no Fund will invest more than 15% of its total assets in equity securities
of issuers which are not readily marketable, in securities of issuers which the
Portfolio or Fund is restricted from selling without registration under the
Securities Act (other than restricted securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933 that have been determined by the
Master Trust's Board of Trustees to be liquid based upon the trading markets for
the securities), and securities of unseasoned issuers referred to in restriction
2 above (these restrictions will not affect the ability of a Portfolio to invest
in securities of a corresponding Fund or other diversified, open-end management
investment companies with the same investment objectives, policies and
restrictions as the Portfolio), and (iii) the Master Trust will provide adequate
notice to the Trust of changes in such restrictions to enable the Trust to
provide at least 30 days advance notice of such changes to its shareholders.

The Master Trust has agreed, in connection with certain undertakings
given by the Trust to the State of Texas, that the International Growth Fund
will not 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 net assets.

The Master Trust has agreed, in connection with certain undertakings
given by the Trust to the State of Ohio, that no Fund will invest more than 50%
of its total assets in the securities of issuers which together with any
predecessors have a record of less than three years continuous operation or
securities of issuers which are restricted as to disposition (including without
limitation securities issued pursuant to Rule 144A under the Securities Act of
1933).

PRINCIPAL HOLDERS OF SECURITIES

As of August 31, 1996, the following persons held of record more than
5% of the outstanding shares of the Portfolios:

CORE GROWTH PORTFOLIO A: Merrill Lynch Pierce Fenner & Smith ("Merrill Lynch"),
Mutual Fund Operations, Attn: Bank Reconciliations, 4800 Deer Lake Drive East,
Jacksonville, Florida 32246 ("Merrill Lynch") (71.41%).

EMERGING GROWTH PORTFOLIO A: Merrill Lynch (76.62%).

INCOME & GROWTH PORTFOLIO A: Merrill Lynch (57.18%); First Union National Bank
of Florida, Custodian for Attorney Title Insurance Fund Corp., Jacksonville,
Florida 32231 (26.09%).

BALANCED GROWTH PORTFOLIO A: Merrill Lynch (54.26%); Van Dijk, Pace Westlake &
Partners Profit Sharing Plan & Trust dated 12/27/94, 700 West St. Clair, Suite
400, Cleveland, Ohio 44113 (8.36%); Van Dijk, Pace Westlake & Partners Profit
Sharing Plan & Trust Dated December 27, 1994, Attn: Richard Pace, 700 West St.
Clair, Suite 400, Cleveland, Ohio 44113-1230 (13.63%).

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<PAGE>

WORLDWIDE GROWTH PORTFOLIO A: Merrill Lynch (80.40%).

INTERNATIONAL GROWTH PORTFOLIO A: Merrill Lynch (87.84%); Mark A. Warren,
Trustee, Arnetta F. Warren Irrevocable Life Insurance Trust, 650 College Street,
Milton, Wisconsin 53563 (7.62%).

EMERGING COUNTRIES PORTFOLIO A: Merrill Lynch (17.95%).

GOVERNMENT INCOME PORTFOLIO A: Merrill Lynch (49.81%); PaineWebber for the
Benefit of Helen E. Lawson, Todd Paul E. Lawson and John A. Lawson, 739 Birch
Street, Anoka, Minnesota 55303 (18.93%); Nicholas-Applegate 401K Profit Sharing
Plan c/o Thomas Pindelski, Trustee, 600 West Broadway, San Diego, California
92101 (7.97%); Van Dijk, Pace Westlake & Partners Profit Sharing Plan & Trust
dated 12/27/94, 700 West St. Clair, Suite 400, Cleveland, Ohio 44113 (11.25%).

CORE GROWTH PORTFOLIO B: Merrill Lynch (38.33%).

INCOME & GROWTH PORTFOLIO B: Merrill Lynch (31.46%);

BALANCED GROWTH PORTFOLIO B: Merrill Lynch (15.44%); Doylene Stidman, Lela M.
Collier Trustees, Lela M. Collier Intervivos Trust, 18757 Wood Drive, Nagalia,
California 95954 (7.17%); J.J.B. Hilliard W.L., Lyons Inc., Custodian for
William C. Matthews IRA, 2739 Blaney Road, Chester, South Carolina 29706-8414
(7.20%); PaineWebber for the Benefit of Dorthe B. Calimbas IRA, P.O. Box 321,
Weehawken, New Jersey 07087-8154 ( 15.69%).

GOVERNMENT INCOME PORTFOLIO B: Merrill Lynch (50.03%); PaineWebber for the
benefit of John S. Jose, 309 West 7th, 1300 Oil & Gas Building, Fort Worth,
Texas 76102 6900 (7.79%); PaineWebber for the benefit of Whitten Engineering
Defined Benefits Pension Plan & trust Account #1, P.O. Box 830610, Richardson,
Texas 75083-0610 (17.93%).

WORLDWIDE GROWTH PORTFOLIO B: Merrill Lynch (42.94%).

INTERNATIONAL GROWTH PORTFOLIO B: Merrill Lynch (9.96%); Donaldson Lufkin
Jenrette Securities Corporation Inc., P.O. Box 2052, Jersey City, New Jersey
07303 (16.93%).

EMERGING GROWTH PORTFOLIO B: Merrill Lynch (65.75%).

EMERGING COUNTRIES PORTFOLIO B: Merrill Lynch (40.28%).

CORE GROWTH PORTFOLIO C: Merrill Lynch (84.75%).

EMERGING GROWTH PORTFOLIO C: Merrill Lynch (88.23%).

INCOME & GROWTH PORTFOLIO C: Merrill Lynch (89.40%).

BALANCED GROWTH PORTFOLIO C: Merrill Lynch (87.05%).

WORLDWIDE GROWTH PORTFOLIO C: Merrill Lynch (86.35%)

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<PAGE>

INTERNATIONAL GROWTH PORTFOLIO C: Merrill Lynch (9.29%); PaineWebber for the
benefit of Thomas H. Mallory Trustee Mallory 1993a QTIP Trust Account FBO
National City Bank, 720 East Broad Street, Columbus, Ohio 43215-3947 (9.29%).

EMERGING COUNTRIES PORTFOLIO C: Merrill Lynch (70.74%). ^^

GOVERNMENT INCOME PORTFOLIO C: Merrill Lynch (82.37%). ^^

CORE GROWTH INSTITUTIONAL PORTFOLIO: Metz Baking Co. Pension Trust, Attn:
William K. Stoneburg, 1014 Nebraska St., P.O. Box 448, Sioux City, Iowa 51102
(5.27%); Robert Bosch Corp., Master Retirement Trust, Attn: RBUS/TRS, 2800 S.
25th Avenue, Broadview, Illinois 60153 (11.42%); U.S. National Bank of Oregon
FBO Ford Family Foundation, Security Processing, P.O. Box 3168, Portland, Oregon
97208 (7.36%); LIBCO Liberty Bank & Trust Co. of Oklahoma City, P.O. Box 25848,
Oklahoma City, Oklahoma 73125 (8.97%); NBD Bank Trustee Consumers Power Co.
Employees' Savings Plan, P.O. Box 771072, Detroit, Michigan, 48277 (9.70%);
Pacificorp Veba Trust, 700 North East Multnomah, Suite 1600, Portland, Oregon
97232 (7.04%); Northern Trust Company Custody FBO Advocate Health Care Network,
P.O. Box 92956, Chicago, IL 60675-2956 (10.05%).

EMERGING GROWTH INSTITUTIONAL PORTFOLIO: KPMG Peat Marwick, Attn: Allan Johnson,
Partner & Employee Benefits, 3 Chestnut Ridge Road, Bldg. 3, Floor 2, Montvale,
New Jersey 07645 (32.73%); U.S. National Bank of Oregon FBO The Ford Family
Foundation, c/o Trust Group, P.O. Box 3168, Portland, Oregon 97208 (7.45%); City
of Sarasota General Employees' Pension Fund, P.O. Box 1058, Sarasota, Florida
34230 (7.25%); Operating Engineers Local 101, Fringe Benefit Funds, Attn:
Patrick Donohue, 301 East Armour Blvd., Suite 610, Kansas City, Missouri 64111-
1252 (6.89%); Trussal & Company FBO Lake Forest College #608440302, C/O NBD Bank
NA, P.O. Box 771072, Detroit, Michigan 48277-1072 (5.78%).

INCOME & GROWTH INSTITUTIONAL PORTFOLIO: Dalton L. Knauss, Trustee Elaine V.
Knauss Revocable Trust dated 7/21/89, P.O. Box 2173, Carefree, Arizona 85377
(8.60%); Edyth Bush Charitable Foundation Inc., P.O. Box 1967, Winter Park,
Florida 32790 (19.76%); Nicholas-Applegate 401K Profit Sharing Plan, c/o Thomas
Pindelski, Trustee, 600 West Broadway, San Diego, California 92101 (5.19%);
Butler Family Fund 501(c)(3) Exempt Private Foundation, 1600 20th Street NW,
Washington, D.C. 20009 (20.49%); Dalton L. Knauss Trustee Dalton L. Knauss
Revocable Trust dated 7/21/89, P.O. Box 2173, Carefree, Arizona 85377 (8.62%).

BALANCED GROWTH INSTITUTIONAL PORTFOLIO: Nicholas-Applegate Capital Management,
Attention Thomas Pindelski, 600 West Broadway, San Diego, California 92101
(21.92%); Nicholas-Applegate 401K Profit Sharing Plan, c/o Thomas Pindelski
Trustee, 600 West Broadway, San Diego, California 92101 (32.81%); Neil F.
Marley, MD, Dianne Wylie Marley Trustees N. Marley MD PS Keogh Plan, 732
Grimswood Court, San Jose, California 95120 (12.88%); Nicholas Applegate Pension
Plan, c/o Thomas Pindelski Trustee, 600 West Broadway, San Diego, CA 92101
(12.18%); New Orleans Museum of Art, P.O. Box 19123, New Orleans, Louisiana
70179 (12.16%).

WORLDWIDE GROWTH INSTITUTIONAL PORTFOLIO: Nicholas-Applegate 401K Profit
Sharing Plan, c/o Thomas Pindelski Trustee, 600 West Broadway, San Diego,
California 92101 (22.33%); Panpipes International Ltd., c/o A.H. Haynes & Co.,
245 Park Avenue, New York, New York 10167 (16.69%); Nicholas-Applegate Pension
Plan, c/o Thomas Pindelski, Trustee, 600 West Broadway, San Diego, California
92101 (13.26%); Panpipes Offshore Ltd., 48 Par-la-Ville Road, Suite 464,
Hamilton, NMI Bermuda (11.47%).

B-31
<PAGE>

INTERNATIONAL GROWTH INSTITUTIONAL PORTFOLIO: Arthur E. Nicholas, P.O. Box 2169,
Del Mar, California 92014 (8.46%); Sherryl A. Nicholas, P.O. Box 2295, Rancho
Santa Fe, California 92067 (5.50%); Austin Fire Fighters Relief & Retirement
Fund, 3305 Northland Drive, Ste. 203, Austin, Texas 78731 (25.74%); The Bank of
New York, FBO Mary Kay Cosmetics, Inc. Employees PSP & Savings Plan & Money
Purchase Plan, 16251 Dallas Parkway, Attention: Terry Smith, Dallas, Texas
75248-2603 (7.47%); First Tennessee Bank, D/F City of Chattanooga General
Pension Plan, 701 Market Street, Chattanooga, Tennessee 37402-4804 (16.58%);
Boatsman Trust Company Custody Blue Cross Blue Shield of Montana, Attn: Mutual
Funds, P.O. Box 14737; Saint Louis, Missouri 63178-4737 (15.45%); Methodist Home
Texas Non-Profit Corporation, 1111 Herring Ave., Waco, Texas 76708-3642 (6.90%).

EMERGING COUNTRIES INSTITUTIONAL PORTFOLIO: Sherryl A. Nicholas, P.O. Box 2295,
Rancho Santa Fe, California 92067 (8.83%); Arthur E. Nicholas, P.O. Box 2169,
Del Mar, California 92014 (13.22%); Nicholas-Applegate 401K Profit Sharing Plan,
c/o Thomas Pindelski, Trustee, 600 West Broadway, San Diego, California 92101
(5.56%); University of South Dakota FND, P.O. Box 5555, Vermillion, South Dakota
57069-5555 (7.74%); First Tennessee Bank, F/F City of Chattanooga General
Pension Plan, 701 Market Street, Chattanooga, Indiana 37402-4804 (17.24%);
Methodist Home, Texas Non-Profit Corporation, 1111 Herring Avenue, Waco, Texas
76708-3642 ( 32.32%).

VALUE INSTITUTIONAL PORTFOLIO: Sherryl A. Nicholas Trustee Sherryl A. Nicholas
Revocable Trust U/A Dated December 8, 1995, P.O. Box 2295, Rancho Santa Fe,
California 92067-2295 (93.79%)

MONEY MARKET PORTFOLIO: Bruce T. Hart, 110 North Second Street, St. Clair,
Philadelphia 17970-1030 (7.40%); State Street Bank & Trust Company, C/F The IRA
of James Leonard Lee, 22811 Trigger Street, Chatsworth, California 91311-2658
(6.81%); Walter G. Haider Catherine A Haider Joint Tenants, 10512 Hopkins Road,
Bloomington, Minnesota 55420- 5515 (11.30%); Ameritrad, Inc. FBO 451-000129,
P.O. Box 2226, Omaha, Nebraska 68103-2226 (7.28%); Raymond James & Associates
Inc. Custodian for Dennis B. Green IRA, 6750 Lange Circle, Colorado Sprints,
Colorado 80918-1627 (5.84%); PaineWebber for the Benefit of Aida Sorianoi MD, 9
Clyde Road, Suite 102, Somerset, New Jersey 08873-3489 (17.75%); Gruntal &
Company, FBO 253-83037-16; 14 Wall Street, New York, New York 10005-
2101(10.03%); Gruntal & Company, FBO 253-83038-15, 14 Wall Street, New York, New
York 10005-2101; PaineWebber FBO Michael J. Henry, 309 West 7th, 1300 Oil & Gas
Building, Fort Worth, Texas 76102-6900 (76.37%); Citicorp USA Inc., Custodian
for Limited Partnership Marlboro Equity Partners LP, C/O Summit Advisors, Inc.,
100 Wilshire Blvd., Suite 1960, Santa Monica, California 90401-1114 (13.25%);
Jefferies & Company, Inc. Attn: Craig A. Johnson, 11100 Santa Monica Blvd.,
10th Floor, Los Angeles, California 90025-3347 (12.28%); Jeffrey R. Thompson POA
Charles G. Koch, 4111 East 37th Street North, Wichita, Kansas 67220 (6.52%);
Bernard Selz C/O Furman Selz, 230 Park Avenue, New York, New York 10169-0005
(8.35%); Citicorp USA Inc. Trustee C/F Wilshire Associates, Inc., 153 East 53rd
Street, New York, New York 10043-0001 (10.42%); John M. Dquinn, 4401 Louisiana,
2300 Lyric Center, Houston, Texas 77002 ( 8.17); Rauscher, Pierce Refsnes FBO
John M O'Quinn Foundation, 440 Louisiana, 2300 Lyrick Center, Houston, Texas
77002-1638 (17.35%).

As of such date, the Trustees and officers of the Trust, as a group,
owned beneficially and of record less than 1% of the outstanding shares of each
of the Portfolios, except as follows: Government Income Portfolio A - 7.97%;
Income & Growth Institutional Portfolio, 5.19%; Balanced Growth Institutional
Portfolio, 54.73%; Emerging Countries Institutional Portfolio, 18.78%; Worldwide
Growth Institutional Portfolio, 35.59%; International Growth Institutional
Portfolio, 8.46%.

B-32

<PAGE>

The Portfolios currently own beneficially and of record substantially all of the
outstanding shares of the corresponding Funds.

TRUSTEES AND PRINCIPAL OFFICERS

TRUST

The names and addresses of the Trustees and principal officers of the
Trust, including their positions and principal occupations during the past five
years, are shown below. Trustees whose names are followed by an asterisk are
"interested persons" of the Trust (as defined by the Investment Company Act).
Unless otherwise indicated, the address of each Trustee and officer is 600 West
Broadway, 30th Floor, San Diego, California 92101.

FRED C. APPLEGATE, TRUSTEE AND CHAIRMAN OF THE BOARD OF TRUSTEES. 885
La Jolla Corona Court, La Jolla, California. President, Hightower Management
Co., a financial management firm (since January 1992); formerly President,
Nicholas-Applegate Capital Management (from August 1984 to December 1991).
Director of Nicholas-Applegate Fund, Inc. (since 1987). Mr. Applegate's
interests in Nicholas-Applegate Capital Management, Inc., the general partner of
the Investment Adviser, were acquired by Mr. Nicholas in 1991 and 1992.

ARTHUR B. LAFFER, TRUSTEE.*/ 5405 Morehouse Drive, Suite 340, San
Diego, California. Chairman, A.B. Laffer, V.A. Canto & Associates, an economic
consulting firm (since 1979); Chairman, Laffer Advisers Incorporated, economic
consultants (since 1981); Director, Nicholas-Applegate Fund, Inc. (since 1987);
Director, U.S. Filter Corporation (since March 1991), MasTec Inc., construction
(since 1994), and Coinmach Laundry Corporation (since 1996); Chairman, Calport
Asset Management, Inc. (since 1992); formerly Distinguished University Professor
and Director, Pepperdine University (from September 1985 to May 1988) and
Professor of Business Economics, University of Southern California (1976 to
1984). Mr. Laffer is considered to be an "interested person" of the Trust
because A.B. Laffer, V.A. Canto & Associates or its affiliates received $100,000
in 1995 and $100,000 in 1996 from the Investment Adviser as compensation for
consulting services provided from time to time to the Investment Adviser.

CHARLES E. YOUNG, TRUSTEE. UCLA, 2147 Murphy Hall, Los Angeles,
California. Chancellor, UCLA (since 1968); Director, Nicholas-Applegate Fund,
Inc. (since 1992); Director, Intel Corp. (since 1974), Academy of Television
Arts and Sciences Foundation (since October 1988), Los Angeles World Affairs
Council (since 1977) and Town Hall of California (since 1982).

JOHN D. WYLIE, PRESIDENT. Partner (since January 1994), Chief
Investment Officer - Investor Services Group (since December 1995), and
Portfolio Manager (since January 1990), Nicholas-Applegate Capital Management.
Mr. Wylie is also the President of the Master Trust.

THOMAS PINDELSKI, CHIEF FINANCIAL OFFICER. Partner (since January
1996) and Chief Financial Officer, Nicholas-Applegate Capital Management (since
January 1993), and Chief Financial Officer, Nicholas-Applegate Securities (since
January 1993), formerly Chief Financial Officer, Aurora Capital Partners/WSGP
Partners L.P., an investment partnership (from November 1988 to January 1993),
and Vice President and Controller, Security Pacific Merchant Banking Group (from
November 1986 to November 1988). Mr. Pindelski is also the Chief Financial
Officer of the Master Trust.

B-33

<PAGE>

PETER J. JOHNSON, VICE PRESIDENT. Partner and Director-Client
Services/Marketing, Nicholas-Applegate Capital Management (since January 1992)
and Vice President, Nicholas-Applegate Securities (since December 1995);
formerly, Marketing Director, Pacific Financial Asset Management Company, an
investment management firm (from July 1989 to December 1991), and Senior
Marketing Representative, Fidelity Investments Institutional Services (from
August 1987 to July 1989). Mr. Johnson is also the Vice President of the Master
Trust.

E. BLAKE MOORE, JR., SECRETARY. General Counsel and Secretary,
Nicholas-Applegate Capital Management and Nicholas-Applegate Securities (since
1993); formerly Attorney, Luce, Forward, Hamilton & Scripps (from 1989 to 1993).
Mr. Moore is also the Secretary of the Master Trust.

Each Trustee of the Trust who is not an officer or affiliate of the
Trust, the Investment Adviser or the Distributor receives an aggregate annual
fee of $14,000 for services rendered as a Trustee of the Trust, and $1,000 for
each meeting attended ($2,000 per Committee meeting for Committee chairmen).
Each Trustee is also reimbursed for out-of-pocket expenses incurred as a
Trustee.

The following table sets forth the aggregate compensation paid by the
Trust for the fiscal year ended March 31, 1996, to the Trustees who are not
affiliated with the Investment Adviser and the aggregate compensation paid to
such Trustees for service on the Trust's board and that of all other funds in
the "Trust complex" (as defined in Schedule 14A under the Securities Exchange
Act of 1934):
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Benefits Estimated Annual Total Compensation from
Compensation from Accrued as Part of Benefits Upon Trust and Trust Complex
Name Trust Trust Expenses Retirement Paid to Trustee
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fred C. Applegate $ 15,000 None N/A $ 29,000 (45*)

Arthur B. Laffer $ 15,500 None N/A $ 31,500 (45*)

Charles E. Young $ 15,000 None N/A $ 31,500 (45*)

</TABLE>

* Indicates total number of funds in Trust complex, including the Portfolios.

MASTER TRUST

The names and addresses of the Trustees and principal officers of the
Master Trust, including their positions and principal occupations during the
past five years, are shown below. The positions and principal occupations of
the officers during the past five years, are set forth above. Trustees whose
names are followed by an asterisk are "interested persons" of the Trust (as
defined by the Investment Company Act). Unless otherwise indicated, the address
of each Trustee and officer is 600 West Broadway, 30th Floor, San Diego,
California 92101.

B-34

<PAGE>

ARTHUR E. NICHOLAS, TRUSTEE AND CHAIRMAN OF THE BOARD OF TRUSTEES.*/
Managing Partner and Chief Investment Officer, Nicholas-Applegate Capital
Management (since 1984), and Chairman / President Nicholas-Applegate Securities.
Director and Chairman of the Board of Directors of Nicholas-Applegate Fund,
Inc., a registered open-end investment company, since 1987.

DANN V. ANGELOFF, TRUSTEE. 727 West Seventh Street, Los Angeles,
California. President, The Angeloff Company, corporate financial advisers
(since 1976); Director, Nicholas-Applegate Fund, Inc. (since 1987); Trustee
(1979 to 1987) and University Counselor to the President (since 1987),
University of Southern California (since 1987); Director, Public Storage, Inc.,
a real estate investment trust (since 1980), Storage Properties, a real estate
investment trust (since 1989), Datametrics Corporation, a producer of computer
peripherals and communication products (since 1993), SEDA Specialty Packaging,
Inc. (since 1993) and Bonded Motors, Inc., an automotive engine remanufacturer
(since 1996).

WALTER E. AUCH, TRUSTEE. 6001 North 62nd Place, Paradise Valley,
Arizona. Director, Geotech Communications, Inc., a mobile radio communications
company (since 1987); Express America Corporation, a mortgage banking company
(since 1992); Fort Dearborn Fund (since 1987); Brinson Funds (since 1994), Smith
Barney Trak Fund (since 1992), registered investment companies; Pimco L.P., an
investment manager (since 1994); and Banyan Realty Fund (since 1987), Banyan
Strategic Land Fund (since 1987), Banyan Strategic Land Fund II (since 1988),
and Banyan Mortgage Fund (since 1988), real estate investment trusts. Formerly
Chairman and Chief Executive Officer, Chicago Board Options Exchange (1979 to
1986) and Senior Executive Vice President, Director and Member of the Executive
Committee, PaineWebber, Inc. (until 1979).

THEODORE J. COBURN, TRUSTEE. 17 Cotswold Road, Brookline,
Massachusetts. Partner, Brown Coburn & Co. an investment banking firm (since
1991), and student, Harvard Graduate School of Education (since September 1991).
Director, Nicholas-Applegate Fund, Inc. (since 1987), Emerging Germany Fund
(since 1991), Premiere Radio Networks, Inc. (since 1991); Sage Analytics
International (since 1991), Tonights Feature Ltd. (since 1995). Formerly
Managing Director of Global Equity Transactions Group and member of Board of
Directors, Prudential Securities (from 1986 to June 1991).

DARLENE DEREMER, TRUSTEE.* 155 South Street, Wrentham, Massachusetts.
President and Founder, DeRemer Associates, a marketing consultant for the
financial services industry (since 1987); formerly Vice President and Director,
Asset Management Division, State Street Bank and Trust Company (from 1982 to
1987), and Vice President, T. Rowe Price & Associates (1979 to 1982); Director,
Jurika & Voyles Fund Group (since 1994), Nicholas-Applegate Strategic
Opportunities Ltd. (since 1994), Nicholas-Applegate Securities International
(since 1994), and King's Wood Montessori School (since 1995); Member of Advisory
Board, Financial Women's Association (since 1995). Mr. DeRemer is considered to
be an "interested person" of the Master Trust under the 1940 Act because DeRemer
Associates received $100,736 in 1995 and $54,247 in 1994 from the Investment
Adviser as compensation for consulting services provided in connection with its
institutional business.

GEORGE F. KEANE, TRUSTEE.* 450 Post Road East, Westport, Connecticut.
President Emeritus and Senior Investment Adviser, The Common Fund, a non-profit
investment management organization representing educational institutions (since
1993), after serving as its President (from 1971 to 1992); Member of Investment
Advisory Committee, New York State Common Retirement Fund (since 1982); Director
and Chairman of the Investment Committee, United Negro College Fund (since
1987); Director, United Educators Risk Retention Group (since 1989); Director,
RCB Trust Company (since 1991); Director, School, College and University
Underwriters Ltd. (since 1986); Trustee, Fairfield University (since 1993);
Director, The Bramwell Funds, Inc. (since 1994); Chairman of the Board, Trigen
Energy Corporation (since

B-35

<PAGE>

1994); Director Universal Stainless & Alloy Products Inc. (since 1994).
Formerly President, Endowment Advisers, Inc. (from August 1987 to December
1992). Mr. Keane is considered to be an "interested person" of the Master Trust
under the 1940 Act because he is a registered representative of a broker-dealer.

JOHN D. WYLIE, PRESIDENT.

THOMAS PINDELSKI, CHIEF FINANCIAL OFFICER.

PETER J. JOHNSON, VICE PRESIDENT.

E. BLAKE MOORE, JR., SECRETARY.

Each Trustee of the Trust (or Master Trust) who is not an officer or
affiliate of the Master Trust, the Investment Adviser or the Distributor
receives an aggregate annual fee of $14,000 for services rendered as a Trustee
of the Trust (or Master Trust), and $1,000 for each meeting attended ($2,000 per
Committee meeting for Committee chairmen). Each Trustee is also reimbursed for
out-of-pocket expenses incurred as a Trustee.

The following table sets for the aggregate compensation paid by the Master
Trust for the fiscal year ended March 31, 1996, to the Trustees who are not
affiliated with the Investment Adviser and the aggregate compensation paid to
such Trustees for service on the Master Trust's board and that all other funds
in the "Master Trust complex" (as defined in Schedule 14A under the Securities
Exchange Act of 1934):

Pension or
Retirement Benefits Total Compensation
Aggregate Accrued as Part of Estimated Annual from Master Trust and
Compensation from Master Trust Benefits Upon Master Trust Complex
Name Master Trust Expenses Retirement Paid to Trustee
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

Dann V. Angeloff $ 15,500 None N/A $ 32,500 (13*)
Walter E. Auch $ 15,000 None N/A $ 15,000 (12*)
Theodore J. Coburn $ 15,000 None N/A $ 29,000 (13*)
Darlene Deremer $ 15,000 None N/A $ 15,000 (12*)
George F. Keane $ 15,000 None N/A $ 15,000 (12*)

</TABLE>

* Indicates total number of funds in Master Trust complex, including the Master
Trust Funds.

INVESTMENT ADVISER

The Trust has not engaged the services of an investment adviser with
respect to the Portfolios because the Portfolios invest all of their assets in
corresponding Funds. The Investment Adviser to the Master Trust is
Nicholas-Applegate Capital Management, a California limited partnership, with
offices at 600 West Broadway, 30th Floor, San Diego, California 92101.

B-36
<PAGE>

The Investment Adviser was organized in August 1984 to manage
discretionary accounts investing primarily in publicly traded equity securities
and securities convertible into or exercisable for publicly traded equity
securities, with the goal of capital appreciation. Its general partner is
Nicholas-Applegate Capital Management Holdings, L.P., a California limited
partnership, the general partner of which is Nicholas-Applegate Capital
Management Holdings, Inc., a California corporation owned by Mr. Nicholas. The
Investment Adviser currently has fourteen partners (including Mr. Nicholas) who
manage a staff of approximately 350 employees, including 28 portfolio managers.

Personnel of the Investment Adviser may invest in securities for their
own accounts pursuant to a Code of Ethics that sets forth all partners' and
employees' fiduciary responsibilities regarding the Funds, establishes
procedures for personal investing, and restricts certain transactions. For
example, all personal trades in most securities require pre-clearance, and
participation in initial public offerings is prohibited. In addition,
restrictions on the timing of personal investing in relation to trades by the
Funds and on short-term trading having been adopted.

THE INVESTMENT ADVISORY AGREEMENT

Under the Investment Advisory Agreement between the Master Trust and
the Investment Adviser with respect to the Funds, the Master Trust retains the
Investment Adviser to manage the Funds' investment portfolios, subject to the
direction of the Master Trust's Board of Trustees. The Investment Adviser is
authorized to determine which securities are to be bought or sold by the Funds
and in what amounts.

The Investment Advisory Agreement provides that the Investment Adviser
will not be liable for any error of judgment or for any loss suffered by a Fund
or the Master Trust in connection with the matters to which the Investment
Advisory Agreement relates, except for liability resulting from willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of the Investment Adviser's reckless disregard of its duties and
obligations under the Investment Advisory Agreement. The Master Trust has agreed
to indemnify the Investment Adviser against liabilities, costs and expenses that
the Investment Adviser may incur in connection with any action, suit,
investigation or other proceeding arising out of or otherwise based on any
action actually or allegedly taken or omitted to be taken by the Investment
Adviser in connection with the performance of its duties or obligations under
the Investment Advisory Agreement or otherwise as an investment adviser of the
Master Trust. The Investment Adviser is not entitled to indemnification with
respect to any liability to the Master Trust or its shareholders by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or of its reckless disregard of its duties and obligations under the
Investment Advisory Agreement.

B-37
<PAGE>

The amounts of the advisory fees paid to the Investment Adviser for
the fiscal year ended March 31, 1996, and the amounts of the reductions in fees
(or recoupment of fees previously deferred) as a result of the expense
limitations and fee waivers described below under "Expense Limitation" were as
follows:

Fund Advisory Fees Fee Reductions
---- ------------- --------------

Core Growth Fund $2,563,061 $ -0-

Emerging Growth Fund 5,190,853 -0-

Income & Growth Fund 723,032 (4,263)

Balanced Growth Fund 75,048 94,371

Worldwide Growth Fund 922,328 58,228

International Growth Fund 69,849 117,278

Government Fund -0- 80,735
Money Market Fund -0- 93,976

Emerging Countries Fund 49,827 57,853

The Investment Advisory Agreement provides that it will terminate in
the event of its assignment (as defined in the Investment Company Act). The
Investment Advisory Agreement may be terminated with respect to any Fund by the
Master Trust (by the Board of Trustees of the Master Trust or vote of a majority
of the outstanding voting securities of the Fund, as defined in the Investment
Company Act) or the Investment Adviser upon not more than 60 days' written
notice, without payment of any penalty. The Investment Advisory Agreement
provides that it will continue in effect with respect to each Fund for a period
of more than two years from its execution only so long as such continuance is
specifically approved at least annually in conformity with the Investment
Company Act.

EXPENSE LIMITATION

Under the Investment Advisory Agreement, the Investment Adviser has
agreed to defer its fees, and to absorb other expenses of each Portfolio
(including administrative fees and distribution expenses for the Portfolio, and
the Portfolio's allocable share of the operating expenses of the corresponding
Fund, but excluding interest, taxes, brokerage commissions and other costs
incurred in connection with portfolio securities transactions, organizational
expenses and other capitalized expenditures and extraordinary expenses), to
ensure that the operating expenses for the Series A Portfolios do not exceed the
amounts specified in the Portfolios' prospectuses.

In addition, each of the Portfolios is subject to certain limitations
on expenses imposed by state securities laws. At present, the only expense
limitation in effect is in California. Under California law, each Portfolio
will be subject to an annual expense limitation equal to the sum of 2.5% of the
first $30 million of the Portfolio's average net assets, 2.0% of the next $70
million of average net assets, and 1.5% of the remaining average net assets. If
a Portfolio's expenses (excluding interest, brokerage commissions litigation
expenses and

B-38
<PAGE>

certain other items), including its allocable share of the expenses incurred by
the corresponding Fund, were to exceed such limit in any fiscal year, the
Investment Adviser has agreed to bear the amount of such excess to the extent
required by such limitations.

ADMINISTRATOR

The Administrator of the Trust is Investment Company Administration
Corporation, 4455 East Camelback Road, Suite 261-E, Phoenix, Arizona 85018.

Pursuant to an Administration Agreement with the Trust, the
Administrator is responsible for performing all administrative services required
for the daily business operations of the Trust, subject to the supervision of
the Board of Trustees of the Trust. The Administrator has no supervisory
responsibility over the investment operations of the Portfolios. The management
or administrative services of the Administrator for the Trust are not exclusive
under the terms of the Administration Agreement and the Administrator is free
to, and does, render management and administrative services to others.
Investment Company Administration Corporation also serves as the Administrator
for the Master Trust.

For its services, the Administrator receives under the Administration
Agreement $35,000 for each grouping of five similar portfolios (e.g., Core
Growth Portfolio A, Portfolio B, Portfolio C, Institutional and Qualified
Portfolios), $25,000 for each grouping of three similar portfolios, $20,000 for
a grouping of two similar portfolios and $5,000 for one portfolio, except as
follows: The Administrator receives $15,000 for its services with respect to
the Emerging Growth Portfolios. As a result, the Administrator currently
receives aggregate compensation at the rate of $250,000 per year for all of the
series of the Trust. Such fees will be allocated among the series in each
grouping based on relative net asset values. For its services to the Master
Trust, the Administrator receives, pursuant to an Administration Agreement, a
monthly fee at the following annual rates: 0.05% on the first $100 million of
aggregate net assets of the Funds, 0.04% on the next $150 million, 0.03% on the
next $300 million, 0.02% on the next $300 million, and 0.01% on the portion of
aggregate net assets of the Funds in excess of $850 million. The Administrator
will receive a minimum of $150,000 per year allocated among the Funds based on
average net assets.

In connection with its management of the corporate affairs of the
Trust, the Administrator pays the salaries and expenses of all its personnel and
pays all expenses incurred in connection with managing the ordinary course of
the business of the Trust, other than expenses assumed by the Trust as described
below.

Under the terms of the Administration Agreement, the Trust is
responsible for the payment of the following expenses: (a) the fees and
expenses incurred by the Trust in connection with the management of the
investment and reinvestment of their assets, (b) the fees and expenses of
Trustees and officers of the Trust who are not affiliated with the
Administrator, the Investment Adviser, (c) out-of-pocket travel expenses for the
officers and Trustees of the Trust and other expenses of Board of Trustees'
meetings, (d) the fees and certain expenses of the Custodian, (e) the fees and
expenses of the Transfer and Dividend Disbursing Agent that relate to the
maintenance of each shareholder account, (f) the charges and expenses of the
Trust's legal counsel and independent accountants, (g) brokerage commissions and
any issue or transfer taxes chargeable to Trustees and officers of the Trust in
connection with securities transactions, (h) all taxes and corporate fees
payable by the

B-39
<PAGE>

Trust to federal, state and other governmental agencies, (i) the fees of any
trade association of which the Trust may be a member, (j) the cost of
maintaining the Trust's existence, taxes and interest, (k) the cost of fidelity
and liability insurance, (l) the fees and expenses involved in registering and
maintaining the registration of the Trust and of its shares with the Commission
and registering the Trust as a broker or dealer and qualifying their shares
under state securities laws, including the preparation and printing of the
Trust's registration statement, prospectuses and statements of additional
information, (m) allocable communication expenses with respect to investor
services and all expenses of shareholders' and Board of Trustees' meetings and
of preparing, printing and mailing prospectuses and reports to shareholders, (n)
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the business of the Trust, and (o) expenses
assumed by the Trust pursuant to any plan of distribution adopted in conformity
with Rule 12b-1 under the Investment Company Act.

The Administration Agreement provides that the Administrator will not
be liable for any error of judgment or for any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from the Administrator's willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties. The Administration
Agreement will terminate automatically if assigned, and may be terminated
without penalty by either the Administrator or the Trust (by the Board of
Trustees of the Trust or vote of a majority of the outstanding voting securities
of the Trust, as defined in the Investment Company Act), upon 60 days' written
notice. The Administration Agreement will continue in effect only so long as
such continuance is specifically approved at least annually in conformity with
the Investment Company Act.

DISTRIBUTOR

Nicholas-Applegate Securities (the "Distributor"), 600 West Broadway,
30th Floor, San Diego, California 92101, is the principal underwriter and
distributor for the Trust and, in such capacity, is responsible for distributing
shares of the Portfolios. The Distributor is a California limited partnership
organized in 1992 to distribute shares of registered investment companies. Its
general partner is Nicholas-Applegate Capital Management Holdings, L.P., the
general partner of the Investment Adviser.

DISTRIBUTION AGREEMENT

Pursuant to its Distribution Agreement with the Trust, the Distributor
has agreed to use its best efforts to effect sales of shares of the Portfolios,
but is not obligated to sell any specified number of shares. The Distribution
Agreement contains provisions with respect to renewal and termination similar to
those in the Investment Advisory Agreement discussed above. Pursuant to the
Distribution Agreement, the Trust has agreed to indemnify the Distributor to the
extent permitted by applicable law against certain liabilities under the
Securities Act.

Sales charges on sales of Series A Portfolio shares are payable only
with respect to purchases of less than $1,000,000. However, the Distributor pays
an initial commission to broker-dealers and others on purchases of Series A
Portfolios of $1 million or more, and on purchases made at net asset value by
certain retirement plans. See "Purchase and Redemption of Portfolio Shares --
Dealer Commissions."

B-40
<PAGE>

The aggregate commissions received by the Distributor in connection
with sales of the Portfolios for the fiscal year ended March 31, 1996 were
$1,446,918, and the aggregate payments received by the Distributor pursuant to
the Distribution Plan for the fiscal year ended March 31, 1996, were as follows:

Payments under
Distribution
Portfolio Plan
- --------- ---------------

Core Growth Portfolio A 175,655
Core Growth Portfolio B 27,248
Core Growth Portfolio C 1,210,723
Emerging Growth Portfolio A 305,011
Emerging Growth Portfolio B 40,174
Emerging Growth Portfolio C 1,354,501
Income & Growth Portfolio A 77,118
Income & Growth Portfolio B 5,372
Income & Growth Portfolio C 447,785
Balanced Portfolio A 13,884
Balanced Portfolio B 2,587
Balanced Portfolio C 122,238
Worldwide Portfolio A 59,962
Worldwide Portfolio B 3,870
Worldwide Portfolio C 531,203
International Portfolio A 2,087
International Portfolio B 2,108
International Portfolio C 2,574
Emerging Countries Portfolio A 6,256
Emerging Countries Portfolio B 6,687
Emerging Countries Portfolio C 11,112
Government Portfolio A 2,846
Government Portfolio B 205
Government Portfolio C 17,881
Money Market Portfolio 5,585

DISTRIBUTION PLAN

Under a plan of distribution for the Trust with respect to the
Series A Portfolios, Series B Portfolios and Series C Portfolios (the
"Distribution Plan") adopted pursuant to Rule 12b-1 under the Investment Company
Act and distribution agreement (the "Distribution Agreement"), the Distributor
incurs the expense of distributing shares of the Portfolios. The Distribution
Plan provides for compensation to the Distributor for the services it provides,
and the costs and expenses it incurs, related to marketing shares of the
Portfolios. The Distributor is paid for: (a) expenses incurred in connection
with advertising and marketing shares of the Portfolios including but not
limited to any advertising by radio, television, newspapers, magazines,
brochures, sales literature, telemarketing or direct mail solicitations; (b)
periodic payments of fees or commissions for distribution assistance made to one
or more securities brokers, dealers or other industry professionals such as
investment advisers, accountants, estate planning firms and the Distributor
itself in respect of the average

B-41
<PAGE>

daily value of shares owned by clients of such service organizations, and (c)
expenses incurred in preparing, printing and distributing the Portfolios'
prospectuses and statements of additional information.

The Distribution Plan continues in effect from year to year, provided
that each such continuance is approved at least annually by a vote of the Board
of Trustees of the Trust, including a majority vote of the Rule 12b-1 Trustees,
cast in person at a meeting called for the purpose of voting on such
continuance. The Distribution Plan may be terminated with respect to any
Portfolio at any time, without penalty, by the vote of a majority of the Rule
12b-1 Trustees or by the vote of the holders of a majority of the outstanding
shares of the Portfolio. The Distribution Plan may not be amended to increase
materially the amounts to be paid by a Portfolio for the services described
therein without approval by the shareholders of the Portfolio, and all material
amendments are required to be approved by the Board of Trustees in the manner
described above. The Distribution Plan will automatically terminate in the
event of its assignment. A Portfolio will not be contractually obligated to pay
expenses incurred under the Distribution Plan if the Plan is terminated or not
continued with respect to the Portfolio.

Under the Distribution Plan, the Distributor is compensated for
distribution-related expenses with respect to the Portfolios at the following
annual rates, payable monthly, based on the average daily net assets of each
Portfolio: for the Series A Portfolios, 0.25%; for the Money Market Portfolio,
0.15%; for the Series B and C Portfolios (other than the Government Portfolio B
and C), 0.75%; for the Government Portfolio B and C, 0.50%. The Distributor
recovers the distribution expenses it incurs through the receipt of compensation
payments from the Trust under the Distribution Plan and the receipt of that
portion of initial sales charges on purchases of shares of the Portfolios
remaining after the Distributor's reallowance to selected dealers. No separate
compensation is paid to the Distributor for distributing shares of the
Institutional Portfolios.

If the Distributor incurs expenses greater than the maximum
distribution fees payable under the Distribution Plan, as described above, with
respect to a Portfolio, the Portfolio will not reimburse the Distributor for the
excess in the subsequent fiscal year. However, because the Distribution Plan is
a "compensation-type" plan, the distribution fees are payable even if the
Distributor's actual distribution related expenses are less than the percentages
described above.

The Distributor pays broker-dealers and others out of its distribution
fees quarterly trail commissions of up to the following annual percentages of
the average daily net assets attributable to shares of respective Portfolios
held in the accounts of their customers: 0.25% for the Series A and B
Portfolios; 0.15% for the Money Market Portfolio; 0.75% for the Series C Core
Growth, Emerging Growth, Income & Growth, Balanced, Worldwide, International
Growth and Emerging Countries Portfolios; and 0.50% for the Series C Government
Portfolio.

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<PAGE>

SHAREHOLDER SERVICE PLAN

The Trust has also adopted a Shareholder Service Plan with respect to
the Portfolios. Under the Shareholder Service Plan, the Distributor is
compensated at the annual rate of 0.10% of each Series A Portfolio's average
daily net assets, 0.10% of the Money Market Portfolio's average daily net
assets, and 0.25% of each Series B and C Portfolio's average daily net assets,
for certain shareholder service expenses provided by the Distributor and fees
paid to broker-dealers and others for the provision of support services to their
clients who are beneficial owners of shares of the Portfolios.

Support services include, among other things, establishing and
maintaining accounts and records relating to their clients that invest in
Portfolio shares; processing dividend and distribution payments from the
Portfolios on behalf of clients; preparing tax reports; arranging for bank
wires; responding to client inquiries concerning their investments in Portfolio
shares; providing the information to the Portfolios necessary for accounting and
subaccounting; preparing tax reports, forms and related documents; forwarding
shareholder communications from the Trust (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to clients; assisting in processing exchange and redemption requests
from clients; assisting clients in changing dividend options, account
designations and addresses; and providing such other similar services.

The Shareholder Service Plan continues in effect from year to year,
provided that each such continuance is approved at least annually by a vote of
the Board of Trustees of the Trust, including a majority of the Trustees who
have no direct or indirect financial interest in the operation of the
Shareholder Service Plan or in any agreement related to the Shareholder Service
Plan (the "Independent Trustees"), cast in person at a meeting called for the
purpose of voting on such continuance. The Shareholder Service Plan may be
amended at any time by the Board, provided that any material amendments of the
terms of the Plan will become effective only upon the approval by a majority of
the Board and a majority of the Independent Trustees pursuant to a vote cast in
person at a meeting called for the purpose of voting on the Plan. The
Shareholder Service Plan may be terminated with respect to any Portfolio at any
time, without penalty, by the Board.

Under the Shareholder Service Plan, the Distributor pays
broker-dealers and others an account servicing fee of up to 0.25% annually of
the average daily net assets of the Series C Portfolios, attributable to shares
in the accounts of their customers, as compensation for providing certain
shareholder-related services.

MISCELLANEOUS

Pursuant to the Distribution Plan and Shareholder Service Plan, the
Board of Trustees will review at least quarterly a written report of the
distribution and service expenses incurred on behalf of shares of the Portfolios
by the Distributor. The report will include an itemization of the distribution
and service expenses and the purposes of such expenditures. In addition, as
long as the Plans remain in effect, the selection and nomination of Trustees who
are not interested persons of the Trust will be committed to the Trustees who
are not interested persons of the Trust.

B-43
<PAGE>

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to policies established by the Master Trust's Board of
Trustees, the Investment Adviser is primarily responsible for the execution of
the Funds' portfolio transactions and the allocation of the brokerage business.
In executing such transactions, the Investment Adviser will seek to obtain the
best price and execution for the Funds, taking into account such factors as
price, size of order, difficulty and risk of execution and operational
facilities of the firm involved. Securities in which the Funds invest may be
traded in the over-the-counter markets, and the Funds deal directly with the
dealers who make markets in such securities except in those circumstances where
better prices and execution are available elsewhere. Commission rates are
established pursuant to negotiation with brokers or dealers based on the quality
or quantity of services provided in light of generally prevailing rates, and
while the Investment Adviser generally seeks reasonably competitive commission
rates, the Funds do not necessarily pay the lowest commissions available. The
allocation of orders among brokers and the commission rates paid are reviewed
periodically by the Board of Trustees of the Master Trust.

The Funds have no obligation to deal with any broker or group of
brokers in executing transactions in portfolio securities. Subject to obtaining
the best price and execution, brokers who sell shares of the Portfolios or
provide supplemental research, market and statistical information and other
research services and products to the Investment Adviser may receive orders for
transactions by the Funds. Such information, services and products are those
which brokerage houses customarily provide to institutional investors, and
include items such as statistical and economic data, research reports on
particular companies and industries, and computer software used for research
with respect to investment decisions. Information, services and products so
received are in addition to and not in lieu of the services required to be
performed by the Investment Adviser under the Investment Advisory Agreement, and
the expenses of the Investment Adviser are not necessarily reduced as a result
of the receipt of such supplemental information, services and products. Such
information, services and products may be useful to the Investment Adviser in
providing services to clients other than the Master Trust, and not all such
information, services and products are used by the Investment Adviser in
connection with the Funds. Similarly, such information, services and products
provided to the Investment Adviser by brokers and dealers through whom other
clients of the Investment Adviser effect securities transactions may be useful
to the Investment Adviser in providing services to the Funds. The Investment
Adviser is authorized to pay higher commission on brokerage transactions for the
Funds to brokers in order to secure the information, services and products
described above, subject to review by the Master Trust's Board of Trustees from
time to time as to the extent and continuation of this practice.

Although investment decisions for the Master Trust are made
independently from those of the other accounts managed by the Investment
Adviser, investments of the kind made by the Funds may often also be made by
such other accounts. When a purchase or sale of the same security is made at
substantially the same time on behalf of the Funds and one or more other
accounts managed by the Investment Adviser, available investments are allocated
in the discretion of the Investment Adviser by such means as, in its judgment,
result in fair treatment. The Investment Adviser aggregates orders for
purchases and sales of securities of the same issuer on the same day among the
Funds and its other managed accounts, and the price paid to or received by the
Funds and those accounts is the average obtained in those

B-44
<PAGE>

orders. In some cases, such aggregation and allocation procedures may affect
adversely the price paid or received by the Funds or the size of the position
purchased or sold by the Funds.

In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's commission or discount. On occasion, certain
money market instruments and agency securities may be purchased directly from
the issuer, in which case no commissions or discounts are paid.

During the fiscal year ended March 31, 1996, the following Funds
acquired securities of their regular brokers or dealers (as defined in Rule
10b-1 under the Investment Company Act) or their parents: Income & Growth
Fund -- Merrill, Lynch & Co., Inc., Donaldson, Lufkin & Jenrette, and J.P.
Morgan & Co., Inc.; Balanced Growth Fund -- Bear, Stearns, Inc., Salomon
Brothers, Inc., Lehman Brothers, Inc., and Morgan Stanley Group, Inc.; Core
Growth Fund -- Lehman Brothers, Inc., Bear Stearns, Inc., Alex Brown, Inc.,
Morgan Stanley Group, Inc., and J.P. Morgan & Co., Inc.; Government Income
Fund -- J.P. Morgan & Co., Inc.; Worldwide Growth Fund -- Morgan Stanley Group,
Inc., and Lehman Brothers, Inc.; International Growth Fund -- J.P. Morgan & Co.,
Inc.; and Money Market Fund -- J.P. Morgan & Co., Inc. The holdings of
securities of such brokers and dealers were as follows as of March 31, 1996:
Core Growth Fund - J.P. Morgan & Co., Inc. ($8,197,548); Money Market
Fund - J.P. Morgan & Co., Inc. ($1,962,750); Balanced Growth Fund - Salomon,
Inc. ($150,000), Bear Stearns ($150,975), Lehman Bros. ($139,100); Worldwide
Growth Fund - Lehman Bros. ($358,450), Morgan Stanley ($372,600); Government
Income Fund - J.P. Morgan & Co., Inc. ($103,846).

The aggregate dollar amount of brokerage commissions paid by the Funds during
the last three fiscal years of the Trust were as follows:

Year Ended
-----------------------------------------------
March 31, 1996 March 31, 1995 March 31, 1994
-----------------------------------------------

Worldwide Fund $ 484,310 $ 344,167 $ 390,163
International Growth Fund 116,735 69,187 3,146
Core Growth Fund 862,396 728,347 698,807
Emerging Growth Fund 1,038,140 649,053 525,555
Income & Growth Fund 83,459 174,247 131,675
Balanced Fund 51,038 44,386 51,142
Government Fund 3 0 516
Money Market Fund 0 0 0
Emerging Countries Fund 169,728 20,701 N/A

Of the total commissions paid during the fiscal year ended March 31, 1996,
$2,136,382 (75.1%) were paid to firms which provided research, statistical or
other services to the Investment Adviser.

B-45
<PAGE>

PURCHASE AND REDEMPTION OF PORTFOLIO SHARES

Shares of the Portfolios may be purchased and redeemed at their net
asset value without any initial or deferred sales charge by former partners of
Whitehall Partners and Coventry Partners, California limited partnerships, who
received shares of the Core Growth Institutional Portfolio and Income & Growth
Institutional Portfolio, respectively, in the reorganization and conversion of
such partnerships into such Portfolios. Similarly, shares of the Portfolios may
be purchased and redeemed at their net asset value without any initial or
deferred sales charge by former partners and participants of Stratford Partners
and Nicholas-Applegate Emerging Growth Pooled Trust who received shares of the
Emerging Growth Institutional Portfolio in the reorganization and conversion of
such partnerships and pooled trust into such Portfolio.

The price paid for purchase and redemption of shares of the Portfolios
is based on the net asset value per share, which is calculated once daily at the
close of trading (currently 4:00 P.M. New York time) each day the New York Stock
Exchange is open. The New York Stock Exchange is currently closed on weekends
and on the following holidays: New Year's Day, Washington's Birthday, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas
Day. The offering price is effective for orders received by the Transfer Agent
prior to the time of determination of net asset value. Dealers are responsible
for promptly transmitting purchase orders to the Transfer Agent. The Trust
reserves the right in its sole discretion to suspend the continued offering of
the Portfolios' shares and to reject purchase orders in whole or in part when
such rejection is in the best interests of the Trust and the affected
Portfolios.

REDUCED SALES CHARGES

Sales charges on purchases of Series A Portfolio shares are subject to
a reduction in certain circumstances, as indicated in the Prospectuses for the
Series A Portfolios.

RIGHTS OF ACCUMULATION. Each Series A Portfolio makes available to
its shareholders the ability to aggregate the value (at the current maximum
offering price on the date of the purchase) of their existing holdings of all
Series A Portfolio shares to determine the reduced sales charge, provided the
shares are held in a single account. The value of existing holdings for
purposes of determining the reduced sales charge is calculated using the maximum
offering price (net asset value plus sales charge) as of the previous business
day. The Transfer Agent must be notified at the time of purchase that the
shareholder is entitled to a reduced sales charge. The reduced sales charges
will be granted subject to confirmation of the investor's holdings.

CONCURRENT PURCHASES. Purchasers may combine concurrent purchases of
shares of two or more Series A Portfolios to qualify for a reduced sales charge.
If the shares of the Portfolios purchased concurrently are subject to different
sales charges, the concurrent purchases are aggregated to determine the reduced
sales charge applicable to each Portfolio purchased, and each separate reduced
sales charge is imposed on the amount of shares purchased for that Portfolio.

To illustrate, suppose an investor concurrently purchases $40,000 of
the Series A Core Growth Portfolio and $20,000 of the Series A Government Income
Portfolio, for

B-46
<PAGE>

an aggregate concurrent purchase of $60,000. Because the sales charges are
reduced for purchases of $50,000 or more and because concurrent purchases can be
combined, the applicable sales charge imposed on the $40,000 purchase of shares
of the Core Growth Portfolio would be reduced to 4.50% (from 5.25%), and the
sales charge imposed on the concurrent $20,000 purchase of shares of the
Government Income Portfolio would be reduced to 4.00% (from 4.75%).

LETTER OF INTENT. Reduced sales charges are available to purchasers
of Series A Portfolio shares who enter into a written Letter of Intent providing
for the purchase, within a 13-month period, of shares of the Series A
Portfolios, provided the shares are held in a single account. All shares of the
Series A Portfolios which were previously purchased and are still owned are also
included in determining the applicable reduction. The Letter of Intent
privilege may be withdrawn by the Distributor or the Transfer Agent for future
purchases upon receipt of information that any shares subject to the Letter of
Intent have been transferred or redeemed during the 13-month Period.

A Letter of Intent permits a purchaser to establish a total investment
goal to be achieved by any number of investments over a 13-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Investors should refer to their Letter of Intent when placing
orders for shares of a Series A Portfolio. During the 13-month period, an
investor may increase his or her Letter of Intent goal and all subsequent
purchases will be treated as a new Letter of Intent except as to the 13-month
period, which does not change. The sales charge paid on purchases made before
the increase to the Letter of Intent goal will be retroactively reduced at the
end of the period.

Shares of the Series A Portfolios totaling 5% of the dollar amount of
the Letter of Intent will be held in escrow by the Transfer Agent in the name of
the purchaser. Any dividends and capital gains distributions on the escrowed
shares will be paid to the investor or as otherwise directed by the investor.
The effective date of a Letter of Intent may be back-dated up to 90 days, in
order that any investments made during this 90-day period, valued at the
purchaser's cost, can be applied to the fulfillment of the Letter of Intent
goal. Upon completion of the Letter of Intent goal within the 13-month period,
the escrowed shares will be promptly delivered to the investor or as otherwise
directed by the investor.

The Letter of Intent does not obligate the investor to purchase, or
any Series A Portfolio to sell, the indicated amount. In the event the Letter
of Intent goal is not achieved within the 13-month period, the investor is
required to pay the difference between the sales charge otherwise applicable to
the purchases made during this period and sales charges actually paid. Such
payment may be made directly to the Transfer Agent or, if not paid within 20
days after written request, the Transfer Agent will liquidate sufficient
escrowed shares to obtain such difference. If the redemption or liquidation
proceeds are inadequate to cover the differences, investors will be liable for
the extent of the inadequacy. By executing the Letter of Intent, investors
irrevocably appoint the Transfer Agent as attorney in fact with full power of
substitution in the premises to surrender for redemption any or all escrowed
shares. If the goal Letter of Intent is exceeded in an amount which qualified
for a lower sales charge, a price adjustment is made by refunding to the
purchaser the amount of excess sales charge, if any, paid during the 13-month
period.

B-47
<PAGE>

DEALER COMMISSIONS

The following commissions will be paid by the Distributor to dealers
who initiate and are responsible for purchases of Portfolio shares of $1 million
or more and for purchases made at net asset value by certain retirement plans of
organizations with 50 or more eligible employees. Such commissions are paid
twice monthly at the following annual rates:

Current Market Value
of Accounts at
Commission Rate Time of Purchase
--------------- --------------------
1.00% $1,000,000 up to $2,000,000.
.80% over $2,000,000 up to $5,000,000.
.50% over $5,000,000 up to $25,000,000.
.25% over $25,000,000.

For this purpose, exchanges between Portfolios are not considered to be
purchases. The Distributor reserves the right to require reimbursement of any
such commissions paid with respect to such purchases if such shares are redeemed
within twelve months after purchase. Dealers requesting further information may
call (800) 551-8045.

SHAREHOLDER SERVICES

SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of shares of a Portfolio, a Shareholder
Investment Account is established for each investor under which the shares are
held for the investor by the Transfer Agent. If a share certificate is desired,
it must be requested in writing for each transaction. Certificates are issued
only for full shares and may be redeposited in the Account at any time. There
is no charge to the investor for issuance of a certificate. Whenever a
transaction takes place in the Shareholder Investment Account, the shareholder
will be mailed a statement showing the transaction and the status of the
Account. No certificates will be issued for shares of the Money Market or
Institutional Portfolios.

AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS

For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the applicable
Portfolio at net asset value. An investor may direct the Transfer Agent in
writing not less than five full business days prior to the record date to have
subsequent dividends and/or distributions sent in cash rather than reinvested.
In the case of recently purchased shares for which registration instructions
have not been received on the record date, cash payment will be made directly to
the dealer. Any shareholder who receives a cash payment representing a dividend
or distribution may reinvest such distribution at net asset value by returning
the check or the proceeds to the Transfer Agent within 30 days after the payment
date. Such investment will be made at the net asset value per share next
determined after receipt of the check or proceeds by the Transfer Agent.

B-48
<PAGE>

AUTOMATIC INVESTMENT PLAN

Under the Automatic Investment Plan, an investor may arrange to have a
fixed amount automatically invested in shares of a Portfolio on a monthly or
quarterly basis on any day of the month or quarter by authorizing his or her
bank account to be debited to invest specified dollar amounts in shares of the
Portfolio. The investor's bank must be a member of the Automatic Clearing House
System. Stock certificates are not issued to participants of the Automatic
Investment Plan. Participation in the Plan will begin within 30 days after
receipt of the account application. If the investor's bank account cannot be
charged due to insufficient funds, a stop-payment order or closing of the
account, the investor's Plan may be terminated and the related investment
reversed. The investor may change the amount of the investment or discontinue
the Plan at any time by writing to the Transfer Agent. Further information
about this program and an application form can be obtained from the Transfer
Agent or the Distributor.

CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS

A shareholder in one Portfolio may elect to cross-reinvest dividends
or dividends and capital gain distributions paid by that Portfolio (the "paying
Portfolio") into any other Portfolio (the "receiving Portfolio") subject to the
following conditions: (i) the aggregate value of the shareholder's account(s)
in the paying Portfolio(s) must equal or exceed $5,000 (this condition is waived
if the value of the account in the receiving Portfolio equals or exceeds that
Portfolio's minimum initial investment requirement), (ii) as long as the value
of the account in the receiving Portfolio is below that Portfolio's minimum
initial investment requirement, dividends and capital gain distributions paid by
the receiving Portfolio must be automatically reinvested in the receiving
Portfolio, (iii) there is no cross-reinvestment from a Portfolio of one series
to a Portfolio of another series, and (iv) if this privilege is discontinued
with respect to a particular receiving Portfolio, the value of the account in
that Portfolio must equal or exceed the Fund's minimum initial investment
requirement or the Portfolio will have the right, if the shareholder fails to
increase the value of the account to such minimum within 90 days after being
notified of the deficiency, automatically to redeem the account and send the
proceeds to the shareholder. These cross-reinvestments of dividends and capital
gain distributions will be at net asset value (without a sales charge).

AUTOMATIC WITHDRAWAL

The Transfer Agent arranges for the redemption by the Portfolio of
sufficient shares, deposited by the shareholder with the Transfer Agent, to
provide the withdrawal payment specified. Withdrawal payments should not be
considered as dividends, yield or income. Automatic investments may not be made
into a shareholder account from which there are automatic withdrawals.
Withdrawals of amounts exceeding reinvested dividends and distributions and
increases in share value will reduce the aggregate value of the shareholder's
account.

REDEMPTION IN KIND

The Trust intends to pay in cash for all shares of a Portfolio
redeemed, but when the Master Trust makes payment to a Portfolio in readily
marketable investment securities, the Trust reserves the right to make payment
wholly or partly in shares of such

B-49
<PAGE>

securities. In such cases, a shareholder may incur brokerage costs in
converting such securities to cash. However, the Trust has elected to be
governed by the provisions of Rule 18f-1 under the Investment Company Act,
pursuant to which it is obligated to pay in cash all requests for redemptions by
any shareholder of record, limited in amount with respect to each shareholder
during any 90-day period to the lesser of $250,000 or 1% of the net asset value
of the Trust at the beginning of such period.

INSTITUTIONAL PORTFOLIOS

The services offered by the Trust to shareholders of the Institutional
Portfolios can vary, depending on the needs of the qualified retirement plan or
other institutional investor, and should be arranged by contacting the Trust,
the Distributor, the Administrator or the Transfer Agent.

NET ASSET VALUE

The net asset value of a share of a Portfolio is calculated by
dividing (i) the value of the securities held by the Portfolio (I.E., the value
of its investments in a Fund), plus any cash or other assets, minus all
liabilities (including accrued estimated expenses on an annual basis), by (ii)
the total number of shares of the Portfolio outstanding. The net asset value of
an interest in a Fund is calculated in the same manner. The value of the
investments and assets of the Portfolio or a Fund is determined each business
day.

Investment securities, including ADRs and EDRs, that are traded on a
stock exchange or on the NASDAQ National Market System are valued at the last
sale price as of the close of business on the New York Stock Exchange (normally
4:00 P.M. New York time) on the day the securities are being valued, or lacking
any sales, at the mean between the closing bid and asked prices. Securities
listed or traded on certain foreign exchanges whose operations are similar to
the United States over-the-counter market are valued at the price within the
limits of the latest available current bid and asked prices deemed by the
Investment Adviser best to reflect fair value. A security which is listed or
traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security by the Investment Adviser.
Listed securities that are not traded on a particular day and other over-the-
counter securities are valued at the mean between the closing bid and asked
prices.

In the event that the New York Stock Exchange or the national
securities exchange on which stock or stock options are traded adopt different
trading hours on either a permanent or temporary basis, the Boards of Trustees
of the Trust and the Master Trust will reconsider the time at which net asset
value is computed. In addition, the asset value of the Portfolio or the Fund
may be computed as of any time permitted pursuant to any exemption, order or
statement of the Commission or its staff.

Long-term debt obligations are valued at the mean of representative
quoted bid and asked prices for such securities or, if such prices are not
available, at prices for securities of comparable maturity, quality and type;
however, when the Investment Adviser deems it appropriate, prices obtained for
the day of valuation from a bond pricing service will be used, as discussed
below. Debt securities with maturities of 60 days or less are valued at
amortized cost if their term to maturity from date of purchase is less than 60
days, or by

B-50
<PAGE>

amortizing, from the sixty-first day prior to maturity, their value on the
sixty-first day prior to maturity if their term to maturity from date of
purchase by the Portfolio or the Fund is more than 60 days, unless this is
determined by the Board of Trustees of the Master Trust not to represent fair
value. Repurchase agreements are valued at cost plus accrued interest.

U.S. Government securities are traded in the over-the-counter market
and are valued at the mean between the last available bid and asked prices,
except that securities with a demand feature exercisable within one to seven
days are valued at par. Such valuations are based on quotations of one or more
dealers that make markets in the securities as obtained from such dealers, or on
the evaluation of a pricing service.

Options, futures contracts and options thereon, which are traded on
exchanges, are valued at their last sale or settlement price as of the close of
such exchanges or, if no sales are reported, at the mean between the last
reported bid and asked prices. If an options or futures exchange closes later
than 4:00 p.m. New York time, the options or futures traded on it are valued
based on the sale price, or on the mean between the bid and ask prices, as the
case may be, as of 4:00 p.m. New York time.

Trading in securities on foreign securities exchanges and
over-the-counter markets is normally completed well before the close of business
day in New York. In addition, foreign securities trading may not take place on
all business days in New York, and may occur in various foreign markets on days
which are not business days in New York and on which net asset value is not
calculated. The calculation of net asset value may not take place
contemporaneously with the determination of the prices of portfolio securities
used in such calculation. Events affecting the values of portfolio securities
that occur between the time their prices are determined and the close of the New
York Stock Exchange will not be reflected in the calculation of net asset value
unless the Board of Trustees of the Master Trust deems that the particular event
would materially affect net asset value, in which case an adjustment will be
made. Assets or liabilities initially expressed in terms of foreign currencies
are translated prior to the next determination of the net asset value into U.S.
dollars at the spot exchange rates at 1:00 p.m. New York time or at such other
rates as the Investment Adviser may determine to be appropriate in computing net
asset value.

Securities and assets for which market quotations are not readily
available, or for which the Master Trust's Board of Trustees or persons
designated by the Board determine that the foregoing methods do not accurately
reflect current market value, are valued at fair value as determined in good
faith by or under the direction of the Master Trust's Board of Trustees. Such
valuations and procedures will be reviewed periodically by the Board of
Trustees.

The Master Trust may use a pricing service approved by its Board of
Trustees. Prices provided by such a service represent evaluations of the mean
between current bid and asked market prices, may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, yield, quality, coupon
rate, maturity, type of issue, individual trading characteristics, indications
of values from dealers and other market data. Such services may use electronic
data processing techniques and/or a matrix system to determine valuations. The
procedures of such services are reviewed periodically by the officers of the
Master Trust under the general supervision and responsibility of its Board of
Trustees, which may replace a service at any time if it determines that it is in
the best interests of the Funds to do so.

B-51
<PAGE>

MONEY MARKET PORTFOLIO

The calculation of the net asset value per share of the Money Market
Portfolio, as well as the Money Market Fund, is based upon the penny-rounding
method of pricing pursuant to Rule 2a-7 under the Investment Company Act. Under
the rule, the Money Market Portfolio and its corresponding Fund must maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase
instruments having remaining maturities of 13 months or less only (25 months or
less in the case of U.S. Government securities), and invest only in securities
determined by the Board of Trustees to be of high quality with minimal credit
risks. The net asset value per share of the Money Market Portfolios and Fund
will normally remain constant at $1.00.

The Money Market Fund determines the value of its portfolio securities by
the amortized cost method. This method involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Money Market Fund would receive if it sold
the instrument. During these periods, the yield to an existing shareholder may
differ somewhat from that which could be obtained from a similar fund which
marks its portfolio securities to market each day.

TAXES

MASTER TRUST'S TAX STATUS

Each Fund of the Master Trust will be treated as a partnership rather
than as a regulated investment company or a corporation under the Internal
Revenue Code (the "Code"). As a partnership under the Code, any interest,
dividends and gains or losses of the Master Trust attributable to each Fund will
be deemed to have been "passed through" to the Trust and other investors in such
Fund, regardless of whether such interest, dividends or gains have been
distributed by the Fund or such losses have been realized and recognized by the
Trust and other investors. Therefore, to the extent a Fund were to accrue but
not distribute any interest, dividends or gains, the Trust and other investors
in the Fund would be deemed to have realized and recognized their proportionate
shares of interest, dividends, gains or losses realized and recognized by the
Fund without receipt of any corresponding distribution. However, the Master
Trust will seek to minimize recognition by investors in the Funds of interest,
dividends, gains or losses allocable to the Funds without a corresponding
distribution.

REGULATED INVESTMENT COMPANY

The Trust has elected to qualify each Portfolio as a regulated
investment company under Subchapter M of the Code, and intends that each
Portfolio will remain so qualified.

B-52

<PAGE>

As a regulated investment company, a Portfolio will not be liable for
federal income tax on its income and gains provided it distributes all of its
income and gains currently. Qualification as a regulated investment company
under the Code requires, among other things, that each Portfolio (a) derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of securities or
foreign currencies, or other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its business of
investing in such securities or currencies; (b) derive less than 30% of its
gross income from the sale or other disposition of stock, securities, options,
futures, forward contracts, certain foreign currencies and certain options,
futures, and forward contracts on foreign currencies held less than three
months; (c) diversify its holdings so that, at the end of each fiscal quarter,
(i) at least 50% of the market value of the Portfolio's assets is represented by
cash, U.S. Government securities and securities of other regulated investment
companies, and other securities (for purposes of this calculation generally
limited, in respect of any one issuer, to an amount not greater than 5% of the
market value of the Portfolio's assets and 10% of the outstanding voting
securities of such issuer) and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government or
foreign government securities or the securities of other regulated investment
companies), or two or more issuers which the Trust controls and which are
determined to be engaged in the same or similar trades or businesses; and
(d) distribute at least 90% of its investment company taxable income (which
includes dividends, interest, and net short-term capital gains in excess of net
long-term capital losses) each taxable year.

A Portfolio generally will be subject to a nondeductible excise tax of
4% to the extent that it does not meet certain minimum distribution requirements
as of the end of each calendar year. To avoid the tax, a Portfolio must
distribute during each calendar year an amount equal to the sum of (1) at least
98% of its ordinary income and net capital gain (not taking into account any
capital gains or losses as an exception) for the calendar year, (2) at least 98%
of its capital gains in excess of its capital losses (and adjusted for certain
ordinary losses) for the twelve month period ending on October 31 of the
calendar year, and (3) all ordinary income and capital gains for previous years
that were not distributed during such years. A distribution will be treated as
paid on December 31 of the calendar year if it is declared by the Portfolio in
October, November, or December of that year to shareholders of record on a date
in such a month and paid by the Portfolio during January of the following year.
Such distributions will be taxable to shareholders (other than those not subject
to federal income tax) in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To avoid the excise tax, the Portfolios intend to make timely distributions of
their income in compliance with these requirements and anticipate that they will
not be subject to the excise tax.

Dividends paid by a Portfolio from ordinary income, and distributions
of the Portfolio's net realized short-term capital gains, are taxable to its
shareholders as ordinary income. Distributions to corporate shareholders will
be eligible for the 70% dividends received deduction to the extent that the
income of the Portfolios is derived from dividends on common or preferred stock
of domestic corporations. Dividend income earned by a Portfolio will be
eligible for the dividends received deduction only if the Portfolio and
corresponding Fund have satisfied a 46-day holding period requirement with
respect to the underlying portfolio security (91 days in the case of dividends
derived from preferred stock). In addition, a corporate shareholder must have
held its shares in the Portfolio for not less than 46 days (91 days in the case
of dividends derived from preferred stock) in order to claim the dividend
received

B-53

<PAGE>

deduction. Not later than 60 days after the end of its taxable year, the
Portfolio will send to its shareholders a written notice designating the amount
of any distributions made during such year which may be taken into account by
its shareholders for purposes of such deduction provisions of the Code. Net
capital gain distributions are not eligible for the dividends received
deduction.

Under the Code, any distributions designated as being made from net
capital gains are taxable to a Portfolio's shareholders as long-term capital
gains, regardless of the holding period of such shareholders. Such
distributions of net capital gains will be designated by the Portfolio as a
capital gains distribution in a written notice to its shareholders which
accompanies the distribution payment. Any loss on the sale of shares held for
less than six months will be treated as a long-term capital loss for federal tax
purposes to the extent a shareholder receives net capital gain distributions on
such shares. The maximum federal income tax rate applicable to long-term
capital gains is currently 28% for individual shareholders and 35% for corporate
shareholders. Dividends and distributions are taxable as such whether received
in cash or reinvested in additional shares of a Portfolio.

Any loss realized on a sale, redemption or exchange of shares of a
Portfolio by a shareholder will be disallowed to the extent the shares are
replaced within a 61-day period (beginning 30 days before the disposition of
shares). Shares purchased pursuant to the reinvestment of a dividend will
constitute a replacement of shares.

A shareholder who acquires shares of a Portfolio and sells or
otherwise disposes of such shares within 90 days of acquisition may not be
allowed to include certain sales charges incurred in acquiring such shares for
purposes of calculating gain or loss realized upon a sale or exchange of shares
of the Portfolio if the shareholder acquires shares in a Portfolio of the Trust
pursuant to a reinvestment right that reduces the sales charges in the
subsequent acquisition of shares.

SPECIAL TAX CONSIDERATIONS

U.S. GOVERNMENT OBLIGATIONS. Income received on direct U.S.
Government obligations is exempt from tax at the state level when received
directly and may be exempt, depending on the state, when received by a
shareholder from a Portfolio provided that certain conditions are satisfied.
Interest received on repurchase agreements collateralized by U.S. Government
obligations normally is not exempt from state taxation. The Trust will inform
shareholders annually of the percentage of income and distributions derived from
direct U.S. Government obligations. Shareholders should consult their tax
advisers to determine whether any portion of the income dividends received from
the Portfolio is considered tax exempt in their particular states.

With respect to investments in STRIPS and CUBES (as defined in the
Appendix) made by the Money Market Fund that are sold at original issue discount
and thus do not make periodic cash interest payments, the Fund and the Money
Market Portfolios will be required to include as part of their current income
the imputed interest on such obligations even though the Fund and the Portfolios
have not received any interest payment on such obligations during that period.
Because the Fund may have to sell portfolio securities to distribute such
imputed income, which may occur at a time when the Investment Adviser would not
have chosen to sell such securities and which may result in a taxable gain or
loss.

B-54

<PAGE>

SECTION 1256 CONTRACTS. Many of the futures contracts and forward
contracts used by the Funds are "section 1256 contracts." Any gains or losses
on section 1256 contracts are generally credited 60% long-term and 40%
short-term capital gains or losses ("60/40") although gains and losses from
hedging transactions, certain mixed straddles and certain foreign currency
transactions from such contracts may be treated as ordinary in character. Also,
section 1256 contracts held by the Funds at the end of each taxable year (and,
for purposes of the 4% excise tax, on certain other dates as prescribed under
the Code) are "marked to market" with the result that unrealized gains or losses
are treated as though they were realized and the resulting gain or loss is
treated as ordinary or 60/40 gain or loss, depending on the circumstances.

STRADDLE RULES. Generally, the hedging transactions and certain other
transactions in options, futures and forward contracts undertaken by the Funds
may result in "straddles" for U.S. federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by the Portfolios.
In addition, losses realized by the Portfolio on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the tax consequences of transactions in options,
futures and forward contracts to the Portfolio are not entirely clear. The
transactions may increase the amount of short-term capital gain realized by the
Portfolio which is taxed as ordinary income when distributed to shareholders.

The Portfolios may make one or more of the elections available under
the Code which are applicable to straddles. If the Portfolios make any of the
elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the election(s) made. The rules applicable under certain of
the elections operate to accelerate the recognition of gains or losses from the
affected straddle positions.

Because applications of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to the shareholders, and which will be taxed to shareholders as
ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.

The 30% limit on gains from the disposition of certain options,
futures, and forward contracts held less than three months and the qualifying
income and diversification requirements applicable to the Portfolios' and the
Funds' assets may limit the extent to which the Funds will be able to engage in
transactions in options, futures contracts or forward contracts.

SECTION 988 GAINS AND LOSSES. Under the Code, gains or losses
attributable to fluctuations in exchange rates which occur between the time a
Fund accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or loss. Similarly, gains or losses on disposition of debt
securities denominated in a foreign currency and on disposition of certain
futures attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the

B-55

<PAGE>

security or contract and the date of disposition also are treated as ordinary
gain or loss. These gains and losses, referred to under the Code as "section
988" gains or losses, may increase or decrease the amount of the Portfolio's
investment company taxable income to be distributed to the shareholders.

FOREIGN TAX. Income received by a Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes. In addition, the Investment Adviser intends to manage the
Funds with the intention of minimizing foreign taxation in cases where it is
deemed prudent to do so. If more than 50% of the value of a Fund's total assets
at the close of its taxable year consists of securities of foreign corporations,
the Fund will be eligible to elect to "pass-through" to the Portfolio's
shareholders the amount of foreign income and similar taxes paid by the Fund.
Each shareholder will be notified within 60 days after the close of the
Portfolio's taxable year whether the foreign taxes paid by the Fund will be
"pass-through" for that year.

Generally, a credit for foreign taxes is subject to the limitation
that it may not exceed the shareholder's U.S. tax attributable to his or her
total foreign source taxable income. For this purpose, if the pass-through
election is made, the source of the Fund's income will flow through to
shareholders of the Portfolio. With respect to such election, gains from the
sale of securities will be treated as derived from U.S. sources and certain
currency fluctuation gains, including fluctuation gains from foreign currency
denominated debt securities, receivables and payables will be treated as
ordinary income derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source passive income, and to certain
other types of income. Shareholders may be unable to claim a credit for the
full amount of their proportion at share of the foreign taxes paid by the Fund.
The foreign tax credit is modified for purposes of the federal alternative
minimum tax and can be used to offset only 90% of the alternative minimum tax
imposed on corporations and individuals and foreign taxes generally are not
deductible in computing alternative minimum taxable income.

SHORT SALES. Generally, capital gain or loss realized by the Fund in
a short sale may be long-term or short-term depending on the holding period of
the short position. Under a special rule, however, the capital gain will be
short-term gain if (1) as of the date of the short sale, the Fund owned property
for the short-term holding period that was substantially identical to that which
the Fund used to close the sale or (2) after the short sale and on or before its
closing, the Fund acquired substantially similar property. Similarly, if
property substantially identical to that sold short was held by the Fund for the
long-term holding period as of the date of the short sale, any loss on closing
the short position will be long-term capital loss. These special rules do not
apply to substantially similar property to the extent such property exceeds the
property used by the Fund to close its short position.

ORIGINAL ISSUE DISCOUNT. Some of the debt securities (with a fixed
maturity date of more than one year from the date of issuance) that may be
acquired by the Funds may be treated as debt securities that are issued
originally at a discount. Generally, the amount of the original issue discount
("OID") is treated as interest income and is included in income over the term of
the debt security, even though payment of that amount is not received until a
later time, usually when the debt security matures. A portion of the OID
includable in income with respect to certain high-yield corporation debt
securities may be treated as a dividend for Federal income tax purposes.

B-56

<PAGE>

Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Funds in the
secondary market may be treated as having market discount. Generally, any gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. Market discount generally accrues in equal daily
installments. The Funds may make one or more of the elections applicable to
debt securities having market discount, which could affect the character and
timing the recognition of income.

Some of the debt securities (with a fixed maturity date of one year or
less from the date of issuance) that may be acquired by the Funds may be treated
as having an acquisition discount, or OID in the case of certain types of debt
securities. Generally, a Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
the debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.

The Portfolios generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includible in income, even though cash representing such income may not have
been received by the Funds. Cash to pay such dividends may be obtained from
sales proceeds of securities held by the Funds.

OTHER TAX INFORMATION

The Portfolios may be required to withhold for U.S. federal income
taxes 31% of all taxable distributions payable to shareholders who fail to
provide the Portfolios with their correct taxpayer identification number or to
make required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate shareholders and
certain other shareholders specified in the Code generally are exempt from such
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. federal tax liability.

The Trust may also be subject to state or local taxes in certain other
states where it is deemed to be doing business. Further, in those states which
have income tax laws, the tax treatment of the Trust and of shareholders of a
Portfolio with respect to distributions by the Portfolio may differ from federal
tax treatment. Distributions to shareholders may be subject to additional state
and local taxes. Shareholders should consult their own tax advisers regarding
specific questions as to federal, state or local taxes.

PERFORMANCE INFORMATION

The Trust may from time to time advertise total returns and yields for
the Portfolios, compare Portfolio performance to various indices, and publish
rankings of the Portfolios prepared by various ranking services. Any
performance information should be considered in light of the Portfolio's and
Fund's investment objectives and policies, characteristics and quality of the
its portfolio, and the market conditions during the given time

B-57

<PAGE>

period, and should not be considered to be representative of what may be
achieved in the future.

TOTAL RETURN

The total return for a Portfolio is computed by assuming a
hypothetical initial payment of $1,000. It is assumed that all investments are
made at net asset value (as opposed to market price) and that all of the
dividends and distributions by the Portfolio over the relevant time periods are
invested at net asset value. It is then assumed that, at the end of each
period, the entire amount is redeemed without regard to any redemption fees or
costs. The average annual total return is then determined by calculating the
annual rate required for the initial payment to grow to the amount which would
have been received upon redemption. Total return does not take into account any
federal or state income taxes.

Total return is computed according to the following formula:

n
P(1 + T) = ERV

Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value at the end of the period (or
fractional portion thereof) of a hypothetical $1,000 payment made at the
beginning of the period.

YIELD

The yield for a Portfolio (other than the Money Market Portfolios) is
calculated based on a 30-day or one-month period, according to the following
formula:

6
Yield = 2[{a - b + 1) -1]
{c x d }

For purposes of this formula, "a" is total dividends and interest
earned during the period; "b" is total expenses accrued for the period (net of
reimbursements); "c" is the average daily number of shares outstanding during
the period that were entitled to receive dividends; and "d" is the maximum
offering price per share on the last day of the period.

Yields for the following Portfolios for the thirty-day period ended
September 30, 1996 were as follows:

Income & Growth Portfolio A 1.6280%
Income & Growth Portfolio B 1.0979%
Income & Growth Portfolio C 1.0861%
Income & Growth Institutional
Portfolio 2.3039%
Balanced Growth Portfolio A 1.7105%

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<PAGE>

Balanced Growth Portfolio B 1.2096%
Balanced Growth Portfolio C 1.1762%
Balanced Growth Institutional
Portfolio 2.3971%
Government Income Portfolio A 5.9898%
Government Income Portfolio B 5.8171%
Government Income Portfolio C 5.8378%

The Money Market Portfolio will prepare a current quotation of yield
daily. The yield quoted will be the simple annualized yield for an identified
seven-calendar-day period. The yield calculation will be based on a
hypothetical account having a balance of exactly one share at the beginning of
the seven-day period. The base return will be the change in the value of the
hypothetical account during the seven-day period, including dividends declared
on any shares purchased with dividends on the shares, but excluding any capital
changes. The yield will vary as interest rates and market conditions change.
Yield also depends on the quality, length of maturity and type of instruments in
the Money Market Fund, and its operating expenses. The Money Market Portfolio
may also prepare an effective annual yield computed by compounding the
unannualized seven-day period return as follows: by adding 1 to the
unannualized seven-day period return, raising the sum to a power equal to 365
divided by 7, and subtracting 1 from the result. The yield for the Money Market
Portfolio for the seven days ended September 30, 1996 was 4.95%.

PRIOR PERFORMANCE OF CERTAIN PORTFOLIOS AND THEIR PREDECESSORS

The following table sets forth historical performance information for the Core
Growth, Emerging Growth, Income & Growth and International Growth Portfolios and
the following predecessor investment partnerships and pooled trust which were
operated by the Investment Adviser prior to the organization of such Portfolios:
Core Growth Portfolio -- includes performance information for Whitehall
Partners, a California limited partnership the assets of which were transferred
to the Core Growth Fund on April 19, 1993; Emerging Growth Portfolio -- includes
performance information for Stratford Partners, a California limited
partnership, and Nicholas-Applegate Emerging Growth Pooled Trust, a tax-exempt
trust, the assets of which were transferred to the Emerging Growth Fund on
December 27, 1993; Income and Growth Portfolio -- includes performance
information for Coventry Partners, a California limited partnership the assets
of which were transferred to the Income & Growth Fund on April 19, 1993;
International Growth Portfolio -- includes performance information for
Huntington Partners, a California limited partnership the assets of which were
transferred to the International Fund on August 31, 1994.

The Investment Adviser has advised the Trust that its net performance results in
the table are calculated as set forth above under "General Information-
Performance Information." All information set forth in the table relies on data
supplied by the Investment Adviser or from statistical services, reports or
other sources believed by the Investment Adviser to be reliable. However, such
information has not been verified and is unaudited. See "Performance
Information" in the Statement of Additional Information for further information
about calculation of total return.

The Investment Adviser has advised the Trust that such partnerships and pooled
trusts were operated in substantially the same manner as such Portfolios, and
their assets were transferred to the Portfolios prior to the effective date of
the Portfolios' registration statement.

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<PAGE>

It has indicated that such results for the prior partnerships and pooled trust
have been adjusted to reflect the deduction of the fees and expenses of the
Portfolios (including Rule 12b-1 fees), and their proportionate shares of the
operating expenses of the corresponding Funds (including advisory fees), as
stated under "Summary of Expenses" in the Portfolios' Prospectus, and give
effect to transaction costs (such as sales loads) as well as reinvestment of
income and gains. However, the prior investment partnerships and pooled trust
were not registered under the 1940 act and were not subject to certain
investment restrictions imposed by such Act; if they had been so registered,
their performance might have been adversely affected.

The results presented on the following pages may not necessarily equate with the
return experienced by any particular shareholder, partner or trust beneficiary
as a result of the timing of investments and redemptions. In addition, the
effect of taxes on any shareholder, partner or trust beneficiary will depend on
such person's tax status, and the results have not been reduced to reflect any
income tax which may have been payable.

B-60

<PAGE>

<TABLE>
<CAPTION>
SERIES A PORTFOLIOS
--------------------------------------------------------------------------------------------
Core Growth Emerging Growth Income & Growth International Growth
Performance Performance Performance Performance
-------------------- -------------------- ----------------------- ---------------------
Russell Income & CS First Inter-
Core Emerging 2000 Growth Boston national MSCI
Growth S&P 500 Growth Growth Porfolio Convertible Growth EAFA
Year Portfolio Index(1) Portfolio Index(2) Index(3) Portfolio Index(4)
- ---- --------- -------- --------- -------- -------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1985(5) 18.02% 17.14% 5.20% 6.97%

1986 25.14 18.64 0.07 3.58

1987(5) (2.44) 5.27 (9.55) (10.48) (8.76%) (0.22%)

1988 6.12 16.55 19.46 20.37 12.92 13.41

1989 26.15 31.61 19.98 20.17 20.94 13.76

1990(5) (5.13) (3.04) (13.81) (17.41) (4.08) (6.89) (22.07%) (13.67%)

1991 46.51 30.46 46.92 51.19 30.33 29.11 5.34 12.13

1992 6.95 7.62 6.04 7.77 3.45 17.58 (17.42) (12.17)

1993 12.82 10.07 9.15 13.36 19.84 18.55 18.77 32.57

1994 (15.67) 1.32 (9.07) (2.43) (13.05) (4.72) 3.10 7.76

1995 30.41 37.60 27.79 31.06 15.29 23.72 (0.03) 11.02

1996(6) 10.36 13.49 14.48 10.97 10.23 10.56 6.13 4.25

Last
year(6) 13.54 20.32 17.18 12.62 11.50 5.96 5.92 6.47

Last 5
years(6) 15.73 15.23 15.59 13.42 12.58 13.73 5.91 8.11

Last 10
years(6) 16.48 14.99 15.56 10.99 N/A N/A N/A N/A

Since in-
ception(6) 19.52 16.41 15.12 10.68 13.60 11.19 3.16 5.54
</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 Russell 2000 Growth Stock Index contains those securities in the
Russell 2000 Index with a greater-than-average growth orientation.
Companies in the Growth Stock Index generally have higher price-to-book and
price-to-earnings ratios than the average for all

B-61

<PAGE>

companies in the 2000 Index. The Russell 2000 Index is a widely regarded
small-cap index of the 2,000 smallest securities in the Russell 3000 Index,
which comprises the 3,000 largest U.S. securities as determined by total
market capitalization. The Index reflects the reinvestment of income
dividends and capital gains distributions, if any, but does not reflect
fees, brokerage commissions, or other expenses of investing.

(3) The CS First Boston Convertible Index is an unmanaged market weighted index
representing the universe of convertible securities, whether they are
convertible preferred stocks or convertible 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.

(4) The Morgan Stanley Capital International World Index consists of more than
1,400 securities listed on exchanges in the U.S., Europe, Canada,
Australia, New Zealand and the Far East. The Index is a market-value
weighted combination of countries and is unmanaged. The Index reflects the
reinvestment of income dividends and capital gains distributions, if any,
but does not reflect fees, brokerage commissions or other expenses of
investing.

(5) Inception dates are as follows: Core Growth Portfolio - September 30, 1985
(registration statement effective April 19, 1993); Emerging Growth
Portfolio - September 30, 1985 (registration statement effective December
27, 1993); Income & Growth Portfolio - December 31, 1986 (registration
statement effective April 19, 1993); International Growth Portfolio - June
7, 1990 (registration statement effective August 31, 1994).

(6) Through September 30, 1996.

B-62

<PAGE>

<TABLE>
<CAPTION>
SERIES B PORTFOLIOS
--------------------------------------------------------------------------------------------
Core Growth Emerging Growth Income & Growth International Growth
Performance Performance Performance Performance
-------------------- -------------------- ----------------------- ---------------------
Russell Income & CS First Inter-
Core Emerging 2000 Growth Boston national MSCI
Growth S&P 500 Growth Growth Porfolio Convertible Growth EAFA
Year Portfolio Index(1) Portfolio Index(2) Index(3) Portfolio Index(4)
- ---- --------- -------- --------- -------- -------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1985(5) 18.16% 17.14% 5.20% 6.97%

1986 24.68 18.64 (0.32) 3.58

1987(5) (2.82) 5.27 (9.91) (10.46) (9.12%) (0.22%)

1988 5.72 16.55 19.02 20.37 12.49 13.41

1989 25.68 31.61 19.53 20.17 20.49 13.76

1990(5) (5.50) (3.04) (14.15) (17.41) (4.45) (6.89) (22.17%) (13.67%)

1991 45.97 30.46 46.39 51.19 29.85 29.11 4.94 12.13

1992 6.55 7.62 5.64 7.77 3.06 17.58 (17.75) (12.17)

1993 12.44 10.07 8.74 13.36 19.24 18.55 18.32 32.57

1994 (16.06) 1.32 (9.64) (2.43) (13.31) (4.72) 1.96 7.76

1995 30.07 37.60 27.20 31.06 14.87 23.72 (0.49) 11.02

1996(6) 10.15 13.49 14.02 10.97 10.10 10.56 5.88 4.25

Last
year(6) 13.22 20.32 16.42 12.62 11.24 11.50 5.48 6.47

Last 5
years(6) 15.79 15.23 15.50 13.42 12.63 13.73 5.76 8.11

Last 10
years(6) 16.37 14.99 15.38 10.99 N/A N/A N/A N/A

Since in-
ception(6) 19.34 16.41 14.88 10.68 13.51 11.19 3.23 5.54
</TABLE>

(2) The Russell 2000 Growth Stock Index contains those securities in the
Russell 2000 Index with a greater-than-average growth orientation.
Companies in the Growth Stock Index

B-63

<PAGE>

generally have higher price-to-book and price-to-earnings ratios than the
average for all companies in the 2000 Index. The Russell 2000 Index is a
widely regarded small-cap index of the 2,000 smallest securities in the
Russell 3000 Index, which comprises the 3,000 largest U.S. securities as
determined by total market capitalization. The Index reflects the
reinvestment of income dividends and capital gains distributions, if any,
but does not reflect fees, brokerage commissions, or other expenses of
investing.

(5) Inception dates are as follows: Core Growth Portfolio - September 30, 1985
(registration statement effective May 31, 1995); Emerging Growth Portfolio
-September 30, 1985 (registration statement effective May 31, 1995); Income
& Growth Portfolio - December 31, 1986 (registration statement effective
May 31, 1995); International Growth Portfolio - June 7, 1990 (registration
statement effective May 31, 1995).

(6) Through September 30, 1996

B-64

<PAGE>

<TABLE>
<CAPTION>
SERIES C PORTFOLIOS
--------------------------------------------------------------------------------------------
Core Growth Emerging Growth Income & Growth International Growth
Performance Performance Performance Performance
-------------------- -------------------- ----------------------- ---------------------
Russell Income & CS First Inter-
Core Emerging 2000 Growth Boston national MSCI
Growth S&P 500 Growth Growth Porfolio Convertible Growth EAFA
Year Portfolio Index(1) Portfolio Index(2) Index(3) Portfolio Index(4)
- ---- --------- -------- --------- -------- -------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1985(5) 23.13% 17.14% 9.63% 6.97%

1986 31.24 18.64 4.93 3.58

1987(5) 2.30 5.27 (5.17) (10.48) (4.33%) (0.22%)

1988 11.28 16.55 25.28 20.37 18.41 13.41

1989 32.30 31.61 25.82 20.17 26.83 13.76

1990(5) (0.52) (3.04) (9.63) (17.41) 0.57 (6.89) (18.89%) (13.67%)

1991 53.66 30.46 54.09 51.19 36.68 29.11 10.46 12.13

1992 12.15 7.62 11.20 7.77 8.48 17.58 (13.42) (12.17)

1993 18.23 10.07 14.46 13.36 25.51 18.55 24.55 32.57

1994 (11.53) 1.32 (4.73) (2.43) (8.75) (4.72) 8.77 7.76

1995 36.80 37.60 34.22 31.06 20.83 23.72 3.57 11.02

1996(6) 14.82 13.49 19.04 10.97 14.66 10.56 10.40 4.25

Last
year(6) 19.16 20.32 22.87 12.62 16.93 11.50 11.17 6.47

Last 5
years(6) 16.25 15.23 16.11 13.42 13.06 13.73 6.25 8.11

Last 10
years(6) 16.36 14.99 15.45 10.99 N/A N/A N/A N/A

Since in-
ception(6) 19.34 16.41 14.94 10.68 13.49 11.19 3.28 5.54
</TABLE>

(2) The Russell 2000 Growth Stock Index contains those securities in the
Russell 2000 Index with a greater-than-average growth orientation.
Companies in the Growth Stock Index

B-65

<PAGE>

(3) The CS First Boston Convertible Index is an unmanaged market weighted
index representing the universe of convertible securities, whether they
are convertible preferred stocks or convertible 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.

(4) The Morgan Stanley Capital International World Index consists of more
than 1,400 securities listed on exchanges in the U.S., Europe, Canada,
Australia, New Zealand and the Far East. The Index is a market-value
weighted combination of countries and is unmanaged. The Index reflects
the reinvestment of income dividends and capital gains distributions, if
any, but does not reflect fees, brokerage commissions or other expenses
of investing.

(5) Inception dates are as follows: Core Growth Portfolio - September 30,
1985 (registration statement effective April 19, 1993); Emerging Growth
Portfolio - September 30, 1985 (registration statement effective December
27, 1993); Income & Growth Portfolio - December 31, 1986 (registration
statement effective April 19, 1993); International Growth Portfolio -
June 7, 1990 (registration statement effective August 31, 1994).

(6) Through September 30, 1996.

B-66

<PAGE>

<TABLE>
<CAPTION>
INSTITUTIONAL PORTFOLIOS
--------------------------------------------------------------------------------------------
Core Growth Emerging Growth Income & Growth International Growth
Performance Performance Performance Performance
-------------------- -------------------- ----------------------- ---------------------
Russell Income & CS First Inter-
Core Emerging 2000 Growth Boston national MSCI
Growth S&P 500 Growth Growth Porfolio Convertible Growth EAFA
Year Portfolio Index(1) Portfolio Index(2) Index(3) Portfolio Index(4)
- ---- --------- -------- --------- -------- -------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1985(5) 24.74% 17.14% 11.39% 6.97%

1986 32.85 18.64 6.44 3.58

1987(5) 3.59 5.27 (3.78) (10.48) (3.12%) (0.22%)

1988 12.67 16.55 27.05 20.37 19.88 13.41

1989 33.92 31.61 27.60 20.17 28.39 13.76

1990(5) 0.73 (3.04) (8.31) (17.41) 1.84 (6.89) (17.48%) (13.67%)

1991 55.52 30.46 56.23 51.19 38.36 29.11 11.78 12.13

1992 13.55 7.62 12.79 7.77 9.84 17.58 (12.36) 12.17

1993 19.77 10.07 16.09 13.36 27.08 18.55 26.03 32.57

1994 (10.52) 1.32 (3.51) (2.43) (7.59) (4.72) 8.61 7.76

1995 38.57 37.60 35.90 31.06 22.26 23.72 6.00 11.02

1996(6) 16.95 13.49 21.18 10.97 16.84 10.56 12.50 4.25

Last
year(6) 20.54 20.32 24.25 12.62 18.37 11.50 12.45 6.47

Last 5
years(6) 17.68 15.23 17.62 13.42 14.45 13.73 7.48 8.11

Last 10
years(6) 17.80 14.99 17.03 10.99 N/A N/A N/A N/A

Since in-
ception(6) 20.81 16.49 16.51 10.68 14.89 11.19 4.49 5.54
</TABLE>

(2) The Russell 2000 Growth Stock Index contains those securities in the
Russell 2000 Index with a greater-than-average growth orientation.
Companies in the Growth Stock Index

B-67

<PAGE>

(5) Inception dates are as follows: Core Growth Portfolio - September 30, 1985
(registration statement effective April 19, 1993); Emerging Growth
Portfolio - September 30, 1985 (registration statement effective October 1,
1993); Income & Growth Portfolio - December 31, 1986 (registration
statement effective April 19, 1993); International Growth Portfolio -June
7, 1990 (registration statement effective January 3, 1994).

(6) Through September 30, 1996.

B-68

<PAGE>

COMPARISON TO INDICES AND RANKINGS

Performance information for a Portfolio may be compared to various
unmanaged indices, such as the Standard & Poor's 500 Stock Price Index, the
Dow Jones Industrial Average, the IFC Emerging Markets Investible Index, the
MSCI Emerging Markets Free Index, and indices prepared by Lipper Analytical
Services. Unmanaged indices (I.E., other than Lipper) generally do not
reflect deductions for administrative and management costs and expenses.

Performance rankings are prepared by a number of mutual fund ranking
entities that are independent of the Trust and its affiliates. These entities
categorize and rank funds by various criteria, including fund type, performance
over a given period of years, total return, standardized yield, variations in
sales charges and risk\reward considerations.

CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT,
INDEPENDENT AUDITORS AND LEGAL COUNSEL

PNC Bank, Airport Business Center, International Court 2, 200 Stevens
Drive, Lester, Pennsylvania 19113, serves as Custodian for the portfolio
securities and cash of the Portfolios and Funds and in that capacity maintains
certain financial and accounting books and records pursuant to agreements with
the Trust and Master Trust. PFPC Inc., 103 Bellevue Parkway, Wilmington,
Delaware, an affiliate of the Custodian, provides additional accounting services
to the Portfolios and Funds.

State Street Bank and Trust Company, 2 Heritage Drive, 7th Floor, North
Quincy, Massachusetts, 02171, serves as the Dividend Disbursing Agent and as the
Transfer Agent for the Portfolios and Funds. The Transfer Agent provides
customary transfer agency services to the Trust, including the handling of
shareholder communications, the processing of shareholder transactions, the
maintenance of shareholder account records, and related functions. The Dividend
Disbursing Agent provides customary dividend disbursing services to the Trust,
including payment of dividends and distributions and related functions.

The following act as sub-transfer agents for the Portfolios: Financial
Data Services, Inc., 4800 Deer Lake Drive, 2nd Floor, Jacksonville, Florida
32246; and William M. Mercer Plan Participant Services, Inc., 1417 Lake Cook
Road, Deerfield, Illinois 60015.

Ernst & Young, L.L.P., 515 South Flower Street, Los Angeles, California
90071, serves as the independent auditors for the Trust and Master Trust, and in
that capacity examines the annual financial statements of the Trust and Master
Trust.

Paul, Hastings, Janofsky & Walker LLP, 555 South Flower Street, Los Angeles,
California 90071, is legal counsel for the Trust and Master Trust. It also acts
as legal counsel for the Investment Adviser and Distributor.

B-69

<PAGE>

MISCELLANEOUS

SHARES OF BENEFICIAL INTEREST

The Trust is currently comprised of 45 series of shares -- 8 A Portfolios,
8 B Portfolios, 8 C Portfolios, 12 Institutional Portfolios, one Money Market
Portfolio, and 8 Qualified Portfolios.

On any matter submitted to a vote of shareholders of the Trust, all shares
then entitled to vote will be voted by the affected Portfolio(s) unless
otherwise required by the Investment Company Act, in which case all shares of
the Trust will be voted in the aggregate. For example, a change in a Portfolio's
fundamental investment policies would be voted upon only by shareholders of that
Portfolio, as would the approval of any advisory or distribution contract for
the Portfolio. However, all shares of the Trust may vote together in the
election or selection of Trustees, principal underwriters and accountants for
the Trust.

Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by a majority of the outstanding shares of the series of
the Trust affected by the matter. Under Rule 18f-2, a series is presumed to be
affected by a matter, unless the interests of each series in the matter are
identical or the matter does not affect any interest of such series. Under Rule
18f-2 the approval of an investment advisory agreement or any change in a
fundamental investment policy would be effectively acted upon with respect to a
Portfolio only if approved by a majority of its outstanding shares. However,
the rule also provides that the ratification of independent public accountants,
the approval of principal underwriting contracts and the election of directors
may be effectively acted upon by the shareholders of the Trust voting without
regard to Portfolio.

As used in the Portfolios' prospectuses and in this Statement of Additional
Information, the term "majority," when referring to approvals to be obtained
from shareholders of a Portfolio, means the vote of the lesser of (i) 67% of the
shares of the Portfolio represented at a meeting if the holders of more than 50%
of the outstanding shares of the Portfolio are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of the Portfolio. The term
"majority," when referring to the approvals to be obtained from shareholders of
the Trust, means the vote of the lesser of (i) 67% of the Trust's shares
represented at a meeting if the holders of more than 50% of the Trust's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Trust's outstanding shares. Shareholders are entitled to one vote for each
full share held and fractional votes for fractional shares held. Unless
otherwise provided by law (for example, by Rule 18f-2 discussed above) or by the
Trust's Declaration of Trust or Bylaws, the Trust may take or authorize any
action upon the favorable vote of the holders of more than 50% of the
outstanding shares of the Trust.

Whenever a Portfolio or the Trust is requested to vote on a matter with
respect to the Master Trust, the Trust will hold a meeting of its shareholders
and will cast its votes as instructed by such shareholders and, in the case of a
matter affecting only a Fund, as instructed by the shareholders of the
corresponding Portfolio(s).

B-70

<PAGE>

The Trust will dispense with annual meetings of shareholders in any year in
which it is not required to elect Trustees under the Investment Company Act.
However, the Trust undertakes to hold a special meeting of its shareholders for
the purpose of voting on the question of removal of a Trustee or Trustees if
requested in writing by the holders of at least 10% of the Trust's outstanding
voting securities, and to assist in communicating with other shareholders as
required by Section 16(c) of the Investment Company Act.

Each share of a Portfolio represents an equal proportional interest in the
Portfolio with each other share and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Portfolio
as are declared in the discretion of the Trustees. In the event of the
liquidation or dissolution of the Trust, shareholders of a Portfolio are
entitled to receive the assets attributable to the Portfolio that are available
for distribution, and a distribution of any general assets not attributable to a
particular Portfolio that are available for distribution in such manner and on
such basis as the Trustees in their sole discretion may determine.

Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and nonassessable by the Trust.

DECLARATIONS OF TRUST

In accordance with Delaware law and in connection with the tax treatment
sought by the Master Trust, the Master Trust's Declaration of Trust provides
that its investors will be personally and jointly and severally responsible
(with rights of contribution INTER SE in proportion to their respective
ownership interests in the Master Trust) for the Master Trust's liabilities and
obligations in the event that the Master Trust fails to satisfy such liabilities
and obligations. However, to the extent assets are available from the Master
Trust, the Master Trust will indemnify each investor from any claim or liability
to which the investor may become subject solely by reason of his or her having
been an investor, and will reimburse the investor for all legal and other
expenses reasonably incurred by him or her in connection with any such claim or
liability.

The Declarations of Trust of both the Trust and Master Trust provide that
obligations of the Trust and the Master Trust are not binding upon their
respective Trustees, officers, employees and agents individually and that the
Trustees, officers, employees and agents will not be liable to the trusts or
their respective investors for any action or failure to act, but nothing in the
Declarations of Trust protect a Trustee, officer, employee or agent against any
liability to the trusts or their respective investors to which the Trustee,
officer, employee or agent would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of his or her
duties. The Declarations of Trust also provide that the debts, liabilities,
obligations and expenses incurred, contracted for or existing with respect to a
designated Portfolio or Fund shall be enforceable against the assets and
property of such Portfolio or Fund only (and, in the case of a Fund, its
investors), and not against the assets or property of any other Portfolio or
Fund (or in the case of a Portfolio, the investors therein).

B-71

<PAGE>

FINANCIAL STATEMENTS

The Trust's 1996 Annual Reports to Shareholders of the Portfolios accompany
this Statement of Additional Information. The financial statements in such
Annual Reports are incorporated in this Statement of Additional Information by
reference. Such financial statements for the fiscal year ended March 31, 1996
have been audited by the Fund's independent auditors, Ernst & Young L.L.P.,
whose reports thereon appear in such Annual Reports and are incorporated herein
by reference. Such financial statements for prior periods have been audited by
Coopers & Lybrand L.L.P., whose reports thereon appear in the Trust's 1995
Annual Reports to Shareholders of the Portfolios and are incorporated herein by
reference. Such financial statements have been incorporated herein in reliance
upon such reports given upon their authority as experts in accounting and
auditing. Additional copies of the Trust's 1996 Annual Reports to Shareholders
may be obtained at no charge by writing or telephoning the Trust at the address
or number on the front page of this Statement of Additional Information.

The financial statements of the Value Institutional Portfolio (unaudited)
for the period from commencement of the Portfolio's operations on April 30, 1996
through June 30, 1996 are included as Appendix B to this Statement of Additional
Information.

REGISTRATION STATEMENT

The Registration Statement of the Trust and the Master Trust, including the
Portfolios' Prospectuses, the Statements of Additional Information and the
exhibits filed therewith, may be examined at the office of the Commission in
Washington, D.C. Statements contained in the Portfolios' Prospectuses or the
Statements of Additional Information as to the contents of any contract or other
document referred to herein or in the Prospectuses are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to these Registration Statements, each such
statement being qualified in all respects by such reference.

B-72
<PAGE>

APPENDIX A

DESCRIPTION OF SECURITIES RATINGS

The following paragraphs summarize the descriptions for the rating symbols
of securities.

COMMERCIAL PAPER

The following paragraphs summarize the description for the rating
symbols of commercial paper.

MOODY'S INVESTORS SERVICE, INC.

Moody's short-term debt ratings, which are also applicable to
commercial paper investments permitted to be made by the Master Trust, are
opinions of the ability of issuers to repay punctually their senior debt
obligations which have an original maturity not exceeding one year. Moody's
employs the following designations, all judged to be investment grade, to
indicate the relative repayment capacity of rated issuers:

PRIME 1: Issuers (or related supporting institutions) rated PRIME-1
have a superior ability for repayment of short-term promissory obligations.
PRIME-1 repayment ability will often be evidenced by the following
characteristics: (a) leading market positions in well-established industries;
(b) high rates of return on funds employed; (c) conservative capitalization
structures with moderate reliance on debt and ample asset protection; (d) broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; and (e) well-established access to a range of financial markets and
assured sources of alternate liquidity.

PRIME-2: Issuers rated PRIME-2 (or related supporting institutions)
have a strong ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited above in the
PRIME-1 category but to a lesser degree. Earning trends and coverage ratios,
while sound, will be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.

A-1

<PAGE>

PRIME 3: Issuers rated PRIME-3 (or related supporting institutions)
have an acceptable ability for repayment of short-term debt obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.

STANDARD & POOR'S CORPORATION

Standard & Poor's ratings are a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
The ratings are based on current information furnished to Standard & Poor's by
the issuer and obtained by Standard & Poor's from other sources it considers
reliable. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. Issues within the "A"
category are delineated with the numbers 1, 2, and 3 to indicate the relative
degree of safety, as follows:

A-1: This designation indicates the degree of safety regarding timely
payment is overwhelming or very strong. Those issuers determined to possess
overwhelming safety characteristics are denoted with a "PLUS" (+) designation.

A-2: Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated A-1.

A-3: Issues carrying this designation have a satisfactory capacity
for timely payment. They are, however, more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.

B: Issues rated "B" are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.

C: Issues rated "C" are regarded as having a doubtful capacity for
payment.

A-2

<PAGE>

FITCH INVESTORS SERVICE, INC.

F-1+: Exceptionally strong credit quality. Commercial paper assigned
this rating is regarded as having the strongest degree of assurance for timely
payment.

F-1: Very strong credit quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than issues rated F-
1+.

F-2: Good credit quality. Commercial paper assigned this rating has
a satisfactory degree of assurance for timely payment but the margin of safety
is not as great as for issuers assigned F-1+ and F-1 ratings.

F-3: Fair credit quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near term adverse changes could cause these securities to be
rated below investment grade.

DUFF & PHELPS

The three rating categories of Duff & Phelps for investment grade
commercial paper are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps employs
three designations, "Duff 1+," Duff 1" and "Duff 1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:

DUFF 1+ - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.

DUFF 1 - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.

DUFF 1- - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.

DUFF 2 - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.

DUFF 3 - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.

DUFF 4 - Debt possesses speculative investment characteristics.

DUFF 5 - Issuer has failed to meet scheduled principal and/or interest
payments.

THOMSON BANKWATCH

Thomson BankWatch commercial paper ratings assess the likelihood of an
untimely payment of principal or interest of debt having a maturity of one year
or less which is issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the ratings used by Thomson BankWatch:

A-3

<PAGE>

TBW-1 - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.

TBW-2 - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."

TBW-3 - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.

IBCA

IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:

A1+ - Obligations are supported by the highest capacity for timely
repayment.

A1 - Obligations are supported by a strong capacity for timely
repayment.

A2 - Obligations are supported by a satisfactory capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.

A3 - Obligations are supported by an adequate capacity for timely
repayment. Such capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in higher categories.

CORPORATE BONDS

MOODY'S

Moody's corporate bond ratings are opinions of the relative investment
qualities of bonds. Moody's employs nine designations to indicate such relative
qualities, ranging from "Aaa" for the highest quality obligations to "C" for the
lowest. Issues are further refined with the designation 1,2, and 3 to indicate
the relative ranking within designations. Bonds with the following Moody's
ratings have the following investment qualities:

Aaa: Bonds in this category are judged to be of the highest 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 in this category are judged to be of 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

A-4

<PAGE>

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 in this category possess many favorable investment
attributes and are considered to be 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 in this category are considered 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.

Ba: Bonds in this category 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 in this category generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

Caa: Bonds in this category 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 in this category represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcoming.

C: Bonds in this category are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

STANDARD & POOR'S

A Standard & Poor's corporate debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation.
Ratings are graded into ten categories, ranging from "AAA" for the highest
quality obligation to "D" for debt in default. Issues are further refined with
a "PLUS" or "MINUS" sign to show relative standing within the categories. Bonds
with the following Standard & Poor's ratings have the following investment
qualities:

AAA: Bonds in this category have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is extremely
strong.

AA: Bonds in this category have a very strong capacity to pay
interest and repay principal and differ from the higher rated issues only in
small degree.

A: Bonds in this category have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in higher
rated categories.

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<PAGE>

BBB: Bonds in this category have an adequate capacity to pay interest
and repay principal. Whereas such issues normally exhibit 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: Bonds in this category have less near-term vulnerability to
default than other speculative issues. However, they face 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: Bonds in this category have a greater vulnerability to default but
currently have 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 is also used
for debt subordinated to senior debt that is assigned an actual or implied "BB"
or "BB-" rating.

CCC: Bonds in this category have currently identifiable vulnerability
to default, and are 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 conditions, they are 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.

C: This rating 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.

DUFF & PHELPS

The following summarizes the ratings used by Duff & Phelps for
corporate and municipal long-term debt:

AAA - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.

AA - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

A - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.

BBB - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.

BB, B, CCC, DD, AND DP - Debt that possesses one of these ratings is
considered to be below investment grade. Although below investment grade, debt
rated "BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses the risk that obligations will not be met when due. Debt rated "CCC"
is well below investment grade and has considerable

A-6

<PAGE>

uncertainty as to timely payment of principal, interest or preferred dividends.
Debt rated "DD" is a defaulted debt obligation, and the rating "DP" represents
preferred stock with dividend arrearages.

To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.

FITCH INVESTORS SERVICE, INC.

The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:

AAA - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.

AA - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+."

A - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.

BBB - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.

BB, B, CCC, CC, C, DDD, DD, AND D - Bonds that possess one of these
ratings are considered by Fitch to be speculative investments. The ratings "BB"
to "C" represent Fitch's assessment of the likelihood of timely payment of
principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.

To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.

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<PAGE>

ICBA

IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:

AAA - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.

AA - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.

A - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.

BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.

BB, B, CCC, CC, AND C - Obligations are assigned one of these ratings
where it is considered that speculative characteristics are present. "BB"
represents the lowest degree of speculation and indicates a possibility of
investment risk developing. "C" represents the highest degree of speculation
and indicates that the obligations are currently in default.

IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.

THOMSON BANKWATCH

Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:

AAA - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.

AA - This designation indicates a superior ability to repay principal
and interest on a timely basis with limited incremental risk versus issues rated
in the highest category.

A - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.

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<PAGE>

BBB - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.

BB, B, CCC, AND CC, - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded as
having speculative characteristics regarding the likelihood of timely payment of
principal and interest. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation.

D - This designation indicates that the long-term debt is in default.

PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.

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<PAGE>

NICHOLAS-APPLEGATE MUTUAL FUNDS

FORM N-1A

PART C: OTHER INFORMATION

Item 24. FINANCIAL STATEMENTS AND EXHIBITS.

a. Financial Statements: Registrant's Schedules of Investments as of
March 31, 1996, Statements of Assets and Liabilities as of March 31,
1996, Statements of Operations for the fiscal year ended March 31,
1996, Statements of Changes in Net Assets for the fiscal years ended
March 31, 1995 and 1996, related Notes, and Independent Auditors'
Reports dated May 10, 1996, with respect to the Portfolios are
included as part of Registrant's Annual Reports to Shareholders for
the fiscal year ended March 31, 1996, incorporated by reference in
Part B.

Registrant's Schedule of Investments as of September 30, 1996,
Statement of Assets and Liabilities as of September 30, 1996,
Statement of Changes in Net Assets for the period ended September 30,
1996, and related Notes, with respect to the Value Institutional
Portfolio are included in Part B.

b. Exhibits:

(1.1) Certificate of Trust of Registrant (f).

(1.2) Certificate of Amendment to Certificate of Trust of
Registrant (f).

(1.3) Amended and Restated Declaration of Trust of Registrant (f).

(1.4) Certificate of Trustees dated August 6, 1993, establishing
Emerging Growth Portfolio series (f).

(1.5) Certificate of Trustees dated December 15, 1993,
establishing International Growth Portfolio series (f).

(1.6) Amendment No. 2 to Amended and Restated Declaration of Trust
(f).

(1.7) Amendment No. 3 to Amended and Restated Declaration of Trust
(f).

(1.8) Amendment No. 4 to Amended and Restated Declaration of Trust
(f).

(1.9) Amendment No. 5 to Amended and Restated Declaration of Trust
(f).

(1.10) Amendment No. 6 to Amended and Restated Declaration of Trust
(f).

(1.11) Amendment No. 7 to Amended and Restated Declaration of Trust
(f).

(1.12) Form of Amendment No. 8 to Amended and Restated Declaration
of Trust (f).

(1.13) Amendment No. 9 to Amended and Restated Declaration of Trust
(f).

(1.14) Form of Amendment No. 10 to Amended and Restated Declaration
of Trust (b).

(1.15) Form of Amendment No. 11 to Amended and Restated Declaration
of Trust (g).

(2.1) Amended Bylaws of Registrant (f).

(2.2) Amendment to Section 2.5 of Bylaws of Registrant (f).

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<PAGE>

(2.2) Amendment to Section 2.5 of Bylaws of Registrant (f).

(3) None.

(4) None.

(5) None.

(6.1) Distribution Agreement between Registrant and Nicholas-
Applegate Securities dated as of April 19, 1993 (f).

(6.2) Letter agreement between Registrant and Nicholas-Applegate
Securities dated May 17, 1993, adding certain Institutional
(formerly Qualified) Portfolio series and Emerging Growth
Portfolio series to Distribution Agreement (f).

(6.3) Letter agreement between Registrant and Nicholas-Applegate
Securities dated December 15, 1993, adding
International Growth Portfolio series to Distribution
Agreement (f).

(6.4) Letter agreement between Registrant and Nicholas-Applegate
Securities dated April 22, 1994, adding Qualified Portfolio
series to Distribution Agreement (f).

(6.5) Letter agreement between Registrant and Nicholas-Applegate
Securities, adding Emerging Countries Growth Portfolio
series, Global Growth & Income Portfolio series and Mini-Cap
Growth Portfolio series to Distribution Agreement (f).

(6.6) Letter agreement between Registrant and Nicholas-Applegate
Securities, adding Series B Portfolios to Distribution
Agreement (f).

(6.7) Letter agreement between Registrant and Nicholas-Applegate
Securities, adding Fixed Income and Qualified Portfolio
series to Distribution Agreement (f).

(6.8) Form of letter agreement between Registrant and Nicholas-
Applegate Securities, adding Value Institutional Portfolio
series to Distribution Agreement (a).

(6.9) Form of letter agreement between Registrant and Nicholas-
Applegate Securities, adding High Yield Bond and Strategic
Income Institutional Portfolio series to Distribution
Agreement (b).

(6.10) Form of letter agreement between Registrant and Nicholas-
Applegate Securities adding Large Cap Growth and Core Growth
International Institutional Portfolio series to Distribution
Agreement (g).

(7) None.

(8.1) Custodian Services Agreement between Registrant and PNC Bank
dated as of April 1, 1993 (f).

(8.2) Letter agreement between Registrant and PNC Bank dated July
19, 1993, adding certain Institutional (formerly Qualified)
Portfolio series to Custodian Services Agreement (f).

(8.3) Letter agreement between Registrant and PNC Bank dated
August 20, 1993, adding Emerging Growth Portfolio series to
Custodian Services Agreement (f).

(8.4) Letter agreement between Registrant and PNC Bank dated
December 15, 1993, adding International Growth Portfolio
series to Custodian Services Agreement (f).

(8.5) Letter agreement between Registrant and PNC Bank dated April
22, 1994, adding Core Growth Qualified Portfolio series to
Custodian Services Agreement (f).

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<PAGE>

(8.6) Letter agreement between Registrant and PNC Bank, adding
Emerging Countries Growth Portfolio series, Global Growth &
Income Portfolio series and Mini-Cap Growth Portfolio series
to Custodian Services Agreement (f).

(8.7) Letter agreement between Registrant and PNC Bank, adding
Series B Portfolios to Custodian Services Agreement (f).

(8.8) Letter agreement between Registrant and PNC Bank, adding
Fixed Income Portfolio series to Custodian Services
Agreement (f).

(8.9) Form of letter agreement between Registrant and PNC Bank
adding Value Institutional Portfolio series to Custodian
Services Agreement (a).

(8.10) Form of letter agreement between Registrant and PNC Bank
adding High Yield Bond and Strategic Income Institutional
Portfolio series to Custodian Services Agreement (b).

(8.11) Form of letter agreement between Registrant and PNC Bank
adding Large Cap Growth and Core Growth International
Institutional Portfolio series to Custodian Services
Agreement (g).

(9.1) Administration Agreement between Registrant and Investment
Company Administration Corporation dated as of April 1, 1993
(f).

(9.2) Transfer Agency and Service Agreement between Registrant and
State Street Bank and Trust Company dated as of April 1,
1993 (f).

(9.3) Letter agreement between Registrant and State Street Bank
and Trust Company dated July 19, 1993, adding certain
Institutional (formerly Qualified) Portfolio series to
Transfer Agency and Service Agreement (f).

(9.4) Letter agreement between Registrant and State Street Bank
and Trust Company dated August 20, 1993, adding Emerging
Growth Portfolio Series to Transfer Agency and Service
Agreement (f).

(9.5) Letter agreement between Registrant and State Street Bank
and Trust Company dated December 15, 1993, adding
International Growth Portfolio series to Transfer Agency and
Service Agreement (f).

(9.6) Letter agreement between Registrant and State Street Bank
and Trust Company dated April 22, 1994, adding Core Growth
Qualified Portfolio series to Transfer Agency and Service
Agreement (f).

(9.7) Letter agreement between Registrant and State Street Bank
and Trust Company, adding Emerging Countries Growth
Portfolio series, Global Growth & Income Portfolio series
and Mini-Cap Growth Portfolio series to Transfer Agency and
Service Agreement (f).

(9.8) Letter agreement between Registrant and State Street Bank
and Trust Company, adding Series B Portfolios to Transfer
Agency and Service Agreement (f).

(9.9) Form of letter agreement between Registrant and State Street
Bank and Trust Company, adding Fixed Income Portfolio series
to Transfer Agency and Service Agreement (f).

(9.10) Form of letter agreement between Registrant and State Street
Bank and Trust Company, adding Value Institutional Portfolio
series to Transfer Agency and Service Agreement (a).

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<PAGE>

(9.11) Form of letter agreement between Registrant and State Street
Bank and Trust Company, adding High Yield Bond and Strategic
Income Institutional Portfolio series to Transfer Agency and
Service Agreement (b).

(9.12) Form of letter agreement between Registrant and State Street
Bank and Trust Company, adding Large Cap Growth and Core
Growth International Institutional Portfolio series to
Transfer Agency and Service Agreement (g).

(9.13) Shareholder Service Plan between Registrant and Nicholas-
Applegate Securities (f).

(9.14) License Agreement dated as of December 17, 1992, between
Registrant and Nicholas-Applegate Capital Management (f).

(9.15) Accounting Services Agreement between Registrant and PFPC
Inc. dated as of April 1, 1993 (f).

(9.16) Letter agreement between Registrant and PFPC Inc. dated July
19, 1993, adding certain Institutional (formerly Qualified)
Portfolio series to Accounting Services Agreement (f).

(9.17) Letter agreement between Registrant and PFPC Inc. dated
August 20, 1993, adding Emerging Growth Portfolio series to
Accounting Services Agreement (f).

(9.18) Letter agreement between Registrant and PFPC Inc. dated
December 15, 1993, adding International Growth Portfolio
series to Accounting Services Agreement (f).

(9.19) Letter agreement between Registrant and PFPC Inc. dated
April 22, 1994, adding Core Growth Qualified Portfolio
series to Accounting Services Agreement (f).

(9.20) Letter agreement between Registrant and PFPC Inc., adding
Emerging Countries Growth Portfolio series, Global Growth &
Income Portfolio series and Mini-Cap Growth Portfolio series
to Accounting Services Agreement (f).

(9.21) Letter agreement between Registrant and PFPC Inc., adding
Series B Portfolios to Accounting Services Agreement (f).

(9.22) Letter agreement between Registrant and PFPC Inc., adding
Fixed Income Portfolio series to Accounting Services
Agreement (f).

(9.23) Form of letter agreement between Registrant and PFPC Inc.
adding Value Institutional Portfolio series to Accounting
Services Agreement (a).

(9.24) Form of letter agreement between Registrant and PFPC Inc.
adding High Yield Bond and Strategic Income Institutional
Portfolio series to Accounting Services Agreement (b).

(9.25) Form of letter agreement between Registrant and PFPC Inc.
adding Large Cap Growth and Core Growth International
Institutional Portfolio series to Accounting Services
Agreement (g).

(9.26) Letter agreement between Registrant and Nicholas-Applegate
Capital Management dated September 27, 1993 regarding
expense reimbursements (f).

(9.27) Letter agreement between Registrant and Nicholas-Applegate
Capital Management dated December 15, 1993, adding
International Growth Portfolio series to agreement regarding
expense reimbursements (f).

(9.28) Letter agreement between Registrant and Nicholas-Applegate
Capital Management dated April 22, 1994, adding Qualified
Portfolio series to agreement regarding expense
reimbursements (f).

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<PAGE>

(9.30) Letter agreement between Registrant and Nicholas-Applegate
Capital Management, adding Series B Portfolios to agreement
regarding expense reimbursement (f).

(9.31) Letter agreement between Registrant and Nicholas-Applegate
Capital Management, adding Qualified and Fixed Income
Portfolio series to agreement regarding expense
reimbursement (f).

(9.32) Letter agreement between Registrant and Nicholas-Applegate
Capital Management revising expense reimbursement agreement
with respect to Government Income Portfolios (f).

(9.33) Form of letter agreement between Registrant and Nicholas-
Applegate Capital Management, adding Value Institutional
Portfolio series to agreement regarding expense
reimbursement (a).

(9.34) Form of letter agreement between Registrant and Nicholas-
Applegate Capital Management, adding High Yield Bond and
Strategic Income Institutional Portfolio series to agreement
regarding expense reimbursement (b).

(9.35) Form of letter agreement between Registrant and Nicholas-
Applegate Capital Management, adding Large Cap Growth and
Core Growth International Institutional Portfolio series to
agreement regarding expense reimbursement (g).

(9.36) Credit Agreement among Registrant, Chemical Bank and certain
other banks dated April 10, 1996 (f).

(10) Opinion of Counsel (c).

(11) Not applicable.

(12) Not applicable.

(13) Investment Letter of initial investor in Registrant dated
April 1, 1993 (f).

(14.1) IRA Plan Materials (d).

(14.2) 401(k) Profit-Sharing Plan Materials (d).

(15) Amended Distribution Plan of Registrant (f)

(16) Schedule of Computation of Performance Quotations (c).

(17) Not applicable.

(18) Not applicable.

(19.1) Limited Powers of Attorney of Trustees (d).

(19.2) Limited Power of Attorney of Walter E. Auch (e).

(19.3) Limited Power of Attorney of John D. Wylie.

(19.4) Certified Resolution of Board of Trustees of Registrant
regarding Limited Power of Attorney of John D. Wylie.

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<PAGE>

_____________________________

(a) Filed as an Exhibit to Amendment No. 28 to Registrant's Form N-1A
Registration Statement on January 19, 1996 and incorporated herein by
reference.

(b) Filed as an Exhibit to Amendment No. 29 to Registrant's Form N-1A
Registration Statement on May 3, 1996 and incorporated herein by reference.

(c) Filed as an Exhibit to Amendment No. 1 to Registrant's Form N-1A
Registration Statement on March 15, 1993 and incorporated herein by
reference.

(d) Filed as an Exhibit to Amendment No. 12 to Registrant's Form N-1A
Registration Statement on August 1, 1994 and incorporated herein by
reference.

(e) Filed as an Exhibit to Amendment No. 14 to Registrant's Form N-1A
Registration Statement on September 26, 1994 and incorporated herein by
reference.

(f) Filed as an Exhibit to Amendment No. 32 to Registrant's Form N-1A
Registration Statement on June 3, 1996 and incorporated herein by
reference.

(g) Filed as an Exhibit to Amendment No. 37 to Registrant's Form N-1A
Registration Statement on October 15, 1996 and incorporated herein by
reference.

Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

Fred C. Applegate, Arthur B. Laffer and Charles E. Young, members of
the Board of Trustees of Registrant, are also three of the seven members of the
Board of Directors of Nicholas-Applegate Fund, Inc., a registered investment
company. Accordingly, Registrant and Nicholas-Applegate Fund, Inc. may be
deemed to be under common control.

Item 26. NUMBER OF HOLDERS OF SECURITIES.

As of June 30, 1996, the number of record holders of each series of
Registrant was as follows:

Title of Series Number of Record Holders
--------------- ------------------------

Core Growth Portfolio A 6,344
Emerging Growth Portfolio A 11,148
Income & Growth Portfolio A 1,828
Balanced Growth Portfolio A 533
International Growth Portfolio A 124
Worldwide Growth Portfolio A 1,737
Government Income Portfolio A 112
Emerging Countries Portfolio A 824
Money Market Portfolio 159
Core Growth Portfolio B 1,517
Emerging Growth Portfolio B 639
Income & Growth Portfolio B 212
Balanced Growth Portfolio B 86
International Growth Portfolio B 136
Worldwide Growth Portfolio B 236
Government Income Portfolio B 25
Emerging Countries Portfolio B 639
Core Growth Portfolio C 14,412
Emerging Growth Portfolio C 17,069

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<PAGE>

Income & Growth Portfolio C 5,188
Balanced Growth Portfolio C 1,333
Worldwide Growth Portfolio C 5,821
International Growth Portfolio C 204
Government Income Portfolio C 304
Emerging Countries Portfolio C 675
Core Growth Institutional Portfolio 178
Emerging Growth Institutional Portfolio 177
Income & Growth Institutional Portfolio 104
Balanced Growth Institutional Portfolio 21
Worldwide Growth Institutional Portfolio 69
International Growth Institutional Portfolio 65
Emerging Countries Institutional Portfolio 104
Mini Cap Growth Institutional Portfolio 108
Fully Discretionary Institutional Fixed Income Portfolio 13
Short-Intermediate Institutional Fixed Income Portfolio 12
Core Growth Qualified Portfolio 50
Income & Growth Qualified Portfolio 10
Balanced Growth Qualified Portfolio 10
Worldwide Growth Qualified Portfolio 10
Government Income Qualified Portfolio 10
Emerging Growth Qualified Portfolio 9
International Growth Qualified Portfolio 10
Emerging Countries Qualified Portfolio 7

Item 27. INDEMNIFICATION.

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

Section 8 of Registrant's Administration Agreement, filed herewith as
Exhibit 9.1, provides for the indemnification of Registrant's Administrator
against all liabilities incurred by it in performing its obligations under the
Agreement, except with respect to matters involving its Disabling Conduct.
Section 9 of Registrant's Distribution Agreement, filed herewith as Exhibit 6,
provides for the indemnification of Registrant's Distributor against all
liabilities incurred by it in performing its obligations under the Agreement,
except with respect to matters involving its Disabling Conduct. Section 4 of
the Shareholder Service Agreement, filed herewith as Exhibit 9.3, provides for
the indemnification of Registrant's Distributor against all liabilities incurred
by it in performing its obligations under the Agreement, except with respect to
matters involving its Disabling Conduct.

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

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

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<PAGE>

Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

Nicholas-Applegate Capital Management, the investment adviser to the
Master Trust, is a California limited partnership, the general partner of which
is Nicholas-Applegate Capital Management, Inc. (the "General Partner"). During
the two fiscal years ended December 31, 1995 Nicholas-Applegate Capital
Management has engaged principally in the business of providing investment
services to institutional and other clients. All of the additional information
required by this Item 28 with respect to the Investment Adviser is set forth in
the Form ADV, as amended, of Nicholas-Applegate Capital Management (File No.
801-21442), which is incorporated herein by reference.

Item 29. PRINCIPAL UNDERWRITERS.

(a) Nicholas-Applegate Securities does not act as a principal
underwriter, depositor or investment adviser to any investment company other
than Registrant.

(b) Nicholas-Applegate Securities, the Distributor of the shares of
Registrant's Portfolios, is a California limited partnership and its general
partner is Nicholas-Applegate Capital Management Holdings, L.P. (the "General
Partner"). Information is furnished below with respect to the officers,
partners and directors of the General Partner and Nicholas-Applegate Securities.
The principal business address of such persons is 600 West Broadway, 30th Floor,
San Diego, California 92101, except as otherwise indicated below.

Positions and
Offices with Principal Positions and
Name and Principal Underwriter Offices with
Business Address ----------- Registrant
- ------------------ -------------

Arthur E. Nicholas Chairman and President None

Peter J. Johnson Vice President Vice President

Thomas Pindelski Chief Financial Officer Chief Financial Officer

E. Blake Moore, Jr. Secretary Secretary

Todd Spillane Director of Compliance None

Item 30. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder will be maintained either at the offices of the Registrant (600 West
Broadway, 30th Floor, San Diego, California 92101); the Investment Adviser to
the Trust and Master Trust, Nicholas-Applegate Capital Management (600 West
Broadway, 30th Floor, San Diego, California 92101); the Administrator for the
Trust and Master Trust, Investment Company Administration Corporation (4455 East
Camelback Road, Suite 261-E, Phoenix, Arizona 85018); the Custodian, PNC Bank
(Airport Business Center, International Court 2, 200 Stevens Drive, Lester,
Pennsylvania 19113); or the Transfer and Dividend Disbursing Agent, State Street
Bank & Trust Company (2 Heritage Drive, 7th Floor, North Quincy, Massachusetts
02171).

Item 31. MANAGEMENT SERVICES.

Not Applicable.

C-8

<PAGE>

Item 32. UNDERTAKINGS.

Registrant hereby undertakes that if it is requested by the holders of
at least 10% of its outstanding shares to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee, it will do so and
will assist in communications with other shareholders as required by Section
16(c) of the Investment Company Act of 1940.

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

C-9

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Diego, State of California, on the 22nd day
of October, 1996. The undersigned hereby certifies that this Agreement meets
all of the requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933.

NICHOLAS-APPLEGATE MUTUAL FUNDS

By John D. Wylie*
-------------------
John D. Wylie
President

Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.

John D. Wylie* Principal Executive Officer October 22, 1996
- -------------------------
John D. Wylie

Principal Financial and October 22, 1996
s/Thomas Pindelski Accounting Officer
- -------------------------
Thomas Pindelski

Fred C. Applegate* Trustee October 22, 1996
- -------------------------
Fred C. Applegate

Arthur B. Laffer* Trustee October 22, 1996
- -------------------------
Arthur B. Laffer

Charles E. Young* Trustee October 22, 1996
- -------------------------
Charles E. Young

* s/E. Blake Moore, Jr.
- -------------------------
By: E. Blake Moore, Jr.
Attorney In Fact

C-10

<PAGE>

SIGNATURES

Nicholas-Applegate Investment Trust has duly caused this Amendment to
Registration Statement on Form N-1A
of Nicholas-Applegate Mutual Funds to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, State of
California, on the 22nd day of October, 1996. The undersigned hereby
certifies that this Agreement meets all of the requirements for
effectiveness pursuant to Rule 485(b) under the Securities Act of 1933.

NICHOLAS-APPLEGATE INVESTMENT TRUST

By John D. Wylie*
----------------
John D. Wylie
President

This Amendment to Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.

John D. Wylie* Principal Executive Officer October 22, 1996
- -------------------------
John D. Wylie

Principal Financial
s/Thomas Pindelski And Accounting Officer October 22, 1996
- -------------------------
Thomas Pindelski

George F. Keane* Trustee October 22, 1996
- -------------------------
George F. Keane

Dann V. Angeloff* Trustee October 22, 1996
- -------------------------
Dann V. Angeloff

Walter E. Auch* Trustee October 22, 1996
- -------------------------
Walter E. Auch

Theodore J. Coburn* Trustee October 22, 1996
- -------------------------
Theodore J. Coburn

Darlene DeRemer* Trustee October 22, 1996
- -------------------------
Darlene DeRemer

Arthur E. Nicholas* Trustee October 22, 1996
- -------------------------
Arthur E. Nicholas

* s/E. Blake Moore, Jr.
- -------------------------
By: E. Blake Moore, Jr.
Attorney in Fact

C-11

<PAGE>

EXHIBIT INDEX
NICHOLAS-APPLEGATE MUTUAL FUNDS
AMENDMENT NO. 38 TO
FORM N-1A
REGISTRATION STATEMENT
FILE NO. 811-7428

Exhibit No. Title of Exhibit
----------- ----------------