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

NICHOLAS APPLEGATE MUTUAL FUNDS
497, 1996-08-12

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

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

<PAGE>
NICHOLAS--APPLEGATE MUTUAL FUNDS

- -------------------------------------------------
MINI CAP GROWTH INSTITUTIONAL PORTFOLIO

PROSPECTUS

Nicholas-Applegate Mutual Funds (the "Trust") is an open-end management
investment company comprised of a number of diversified investment portfolios,
including the Mini Cap Growth Institutional Portfolio ("Portfolio") offered
hereby. The Portfolio seeks to maximize long-term capital appreciation. It
invests in the Nicholas-Applegate Mini Cap Growth Fund, which in turn invests
primarily in a diversified portfolio of common stocks of U.S. corporations with
smaller market capitalizations. It is generally offered to institutional
investors, high net worth individuals, and participants in certain mutual fund
asset allocation programs.
- --------------------------------------------------------------------------------

THE 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 FUND IN TURN INVESTS ITS ASSETS, INCLUDING THOSE OF THE
PORTFOLIO, IN PORTFOLIO SECURITIES. ACCORDINGLY, THE INVESTMENT EXPERIENCE OF
THE PORTFOLIO WILL CORRESPOND DIRECTLY WITH THE INVESTMENT EXPERIENCE OF THE
FUND. INVESTORS SHOULD CAREFULLY CONSIDER THIS INVESTMENT APPROACH. SEE
"INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS--SPECIAL CONSIDERATIONS
REGARDING MASTER/FEEDER STRUCTURE" FOR ADDITIONAL INFORMATION REGARDING THIS
UNIQUE STRUCTURE. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO OR FUND WILL
ACHIEVE ITS INVESTMENT OBJECTIVE.
- --------------------------------------------------------------------------------

SHARES OF THE PORTFOLIO AND INTERESTS IN THE FUND 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 THE
PORTFOLIO INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.

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

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

AUGUST 2, 1996
<PAGE>
NICHOLAS--APPLEGATE MUTUAL FUNDS

- -------------------------------------------------
MINI CAP GROWTH INSTITUTIONAL PORTFOLIO

TABLE OF CONTENTS

Summary of Expenses...................3
Prospectus Summary....................4
Financial Highlights..................6
Investment Objective, Policies and Risk
Considerations........................7
Organization and Management..........10
Purchasing Shares....................12
Investor Services....................14
Redeeming Shares.....................16
Dividends, Distributions and Taxes...18
General Information..................18
Appendix
Investment Policies, Strategies
and Risks.........................20
Prior Performance of Investment
Adviser...........................29

- --------------------------------------------
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 PORTFOLIO OR THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER BY THE PORTFOLIO 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>
- --------------------------------------------------------------------------------
SUMMARY OF EXPENSES

This table is designed to help you understand the costs of investing in the
Portfolio. These are expected expenses of the Portfolio for its first year of
operations, and because the Portfolio invests all of its assets in the Fund, the
Portfolio's expenses include its proportionate share of the operating expenses
of the Fund. Actual expenses may be more or less than those shown.

<TABLE>
<CAPTION>
MINI CAP
GROWTH
INSTITUTIONAL
PORTFOLIO
<S> <C>
- ----------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases (as a percentage of
offering price) None
Sales charge on reinvested dividends None
Deferred sales charge (as a percentage of original
purchase price or redemption proceeds, whichever is
lower) None
Redemption fee None
Exchange fee None
- ----------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF
AVERAGE NET ASSETS (AFTER EXPENSE DEFERRAL):(1)
Management fees 1.25%
12b-1 expenses None
All other expenses (after expense deferral)(1) 0.31%
Total operating expenses (after expense deferral)(1) 1.56%
</TABLE>

The Board of Trustees of the Trust believes that the aggregate per share
expenses of the 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
Fund. For a detailed description of the expenses of the Portfolio and the Fund,
see "Organization and Management."
- ---------------------------

(1) The Investment Adviser of the Master Trust has agreed to waive or defer its
management fees payable by the Fund, and to absorb other operating expenses
payable by the Fund and the Portfolio, to ensure that the expenses for the
Portfolio (other than interest, taxes, brokerage commissions and other
portfolio transaction expenses, capital expenditures and extraordinary
expenses) will not exceed 1.56% of the Portfolio's average net assets on an
annual basis through March 31, 1997. In subsequent years, overall operating
expenses for the Portfolio will not fall below 1.56% of average net assets
until the Investment Adviser has fully recouped fees foregone or expenses
paid by the Investment Adviser under this agreement, as the Portfolio will
reimburse the Investment Adviser when operating expenses (before
recoupment) for the Portfolio are less than 1.56% of average net assets.
Accordingly, until all such reduced fees or expenses have been recouped by
the Investment Adviser, the Portfolio's expenses will be higher, and its
yields will be lower, than would otherwise be the case. See "Organization
and Management-Expense Limitation." Actual operating expenses for the
Portfolio for the fiscal year ended March 31, 1997 are estimated to be
2.19% of the Portfolio's average net assets (annualized). The various
operating expenses of the Portfolio are further described under
"Organization and Management."

EXAMPLE OF PORTFOLIO EXPENSES. The following table illustrates the expenses that
an investor would pay on a hypothetical $1,000 investment in the Portfolio over
various time periods, assuming (1) a 5% annual return and (2) redemption at the
end of each time period. The Portfolio does not charge a redemption fee.

<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
Mini Cap Growth Institutional
Portfolio $ 16 $ 49
</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 THE 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 the Portfolio's annual return,
as there can be no guarantee of the Portfolio's future performance.

3
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY

INVESTMENT OBJECTIVE. The investment objective of the Portfolio is described on
the front cover of this Prospectus. There can be no assurance that the Portfolio
will achieve its investment objective. See "Investment Objective, Policies and
Risk Considerations" and "Appendix: Investment Policies, Strategies and Risks."

MASTER/FEEDER STRUCTURE. The Portfolio seeks to achieve its investment objective
by investing all of its assets in the Mini Cap Growth Fund series ("Fund") of
Nicholas-Applegate Investment Trust (the "Master Trust"), a diversified,
open-end management investment company. The Fund has the same investment
objective as the Portfolio. The Fund, in turn, holds investment securities.
Although the "master/feeder" structure employed by the Portfolio to achieve its
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 Fund, or
from the failure by investors of the Portfolio to approve a change in investment
objectives and policies that has been approved by the investors of the Fund.
There may also be other investment companies through which you can invest in the
Fund which may have higher or lower fees and expenses than those of the
Portfolio. See "Investment Objective, Policies and Risk Considerations-Special
Considerations Regarding Master/Feeder Structure."

The Portfolio may cease investing in the Fund only if the Trust's Board of
Trustees determines that this is in the best interests of the Portfolio and its
investors, and only with the approval of the Portfolio's investors. In such
event the Board of Trustees would consider alternative arrangements such as
investing all of the Portfolio's assets in another investment 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 PORTFOLIO INVESTS THROUGH THE FUND ARE
DESCRIBED UNDER "INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS" AND IN
"APPENDIX: INVESTMENT POLICIES, STRATEGIES AND RISKS." They include the
following:

The securities of many companies in which the Fund invests 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 value of the Portfolio therefore can be expected to
experience above-average fluctuations.

Investments by the Fund 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 Fund. 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.

The investment approach of Nicholas-Applegate Capital Management (the
"Investment Adviser") results in above-average portfolio turnover. A high rate
of portfolio turnover involves

4
<PAGE>
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, the Fund 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 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 Fund.
See "Appendix: Investment Policies, Strategies and Risks" in this Prospectus and
"Investment Objectives, Policies and Risks" in the Statement of Additional
Information.

THE FUND MAY ALSO ENGAGE IN SHORT SALES, WHICH THEORETICALLY INVOLVE UNLIMITED
LOSS POTENTIAL AND MAY BE CONSIDERED A SPECULATIVE TECHNIQUE. SEE THE
DESCRIPTION OF THE RISKS OF SHORT SALES UNDER "SHORT SALES" IN "APPENDIX:
INVESTMENT POLICIES, STRATEGIES AND RISKS."

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

INVESTMENT ADVISER. The Trust has not retained the services of an investment
adviser for the Portfolio, as the Portfolio seeks to achieve its investment
objectives by investing all of its assets in the Fund. Nicholas-Applegate
Capital Management serves as investment adviser to the Fund. The Investment
Adviser has been in the investment advisory business since 1984 and 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 is compensated for its services to the Fund in the form
of monthly fees at the annual rate of 1.25% of the Fund's net assets. See
"Organization and Management."

DISTRIBUTOR. Nicholas-Applegate Securities (the "Distributor"), an affiliate of
the Investment Adviser, serves as distributor of shares of the Portfolio. The
Portfolio does not pay 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 Portfolio,
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 Portfolio 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 $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

5
<PAGE>
for certain others, and may be waived from time to time by the Distributor for
other investors. Shares of the 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 the
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 Portfolio 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 Portfolio declares and pays annual
dividends of net investment income and makes 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.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS

The following financial highlights have been audited by Ernst & Young, L.L.P.,
independent auditors whose report thereon was unqualified. This information
should be read in conjunction with the financial statements and notes thereto
which appear in the Trust's 1996 Annual Report to Shareholders incorporated by
reference in the Statement of Additional Information.

<TABLE>
<CAPTION>
MINI CAP
GROWTH
INSTITUTIONAL
PORTFOLIO
- ---------------------------------------------------------------------------------------------
7-12-95+
to 3-31-96
-------------
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period $ 12.50
Income from investment operations:
Net investment income (deficit) (0.05)
Net realized and unrealized gains on securities 3.40
-------------
Total from investment operations 3.35
Less distributions:
Dividends from net investment income --
Distributions from capital gains --
-------------
Net asset value, end of period $ 15.85
-------------
-------------
TOTAL RETURN: 26.80%

RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $ 25,237
Ratio of expenses to average net assets, after expense reimbursement 1.55%*
Ratio of expenses to average net assets, before expense reimbursement 2.46%*
Ratio of net income (deficit) to average net assets, after expense
reimbursement (0.98%)*
Ratio of net income (deficit) to average net assets, before expense
reimbursement (1.36%)*
Portfolio turnover** 106.99%
Average commission rate per share** $ 0.0529
</TABLE>

- ------------------------------
* Annualized
** For the corresponding Fund of the Master Trust.
+ Portfolio commenced operations on July 12, 1995.

6
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS

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

SPECIAL CONSIDERATIONS REGARDING MASTER/FEEDER STRUCTURE. The Portfolio seeks to
achieve its investment objective by investing all of its assets in the Fund,
which has the same objective as the Portfolio. The Fund, in turn, holds
investment securities. Accordingly, the investment experience of the Portfolio
will correspond directly with the investment experience of the Fund. For a
description of the Fund's objective, policies, restrictions, management and
expenses, see "Investment Objective, Policies and Risk Considerations" below,
the Appendix and "Organization and Management." There can be no assurance that
the Portfolio or Fund will achieve its investment objective. The 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, the Portfolio will
provide at least 30 days' written notice to its investors before any change is
made to its or the Fund's investment objective.

There are certain risks to the Portfolio 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 Fund, could have adverse effects, such as lack of portfolio
diversity and decreased economies of scale, and could result in the shareholders
of the 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 the Fund will
cause the Fund to terminate automatically in 120 days, unless the 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 the Portfolio to
approve a change in the investment objective and policies of the Portfolio
parallel to a change that has been approved by the investors of the 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 Fund may have a greater ownership interest
in the Fund than the Portfolio's interest, and could thus have effective voting
control over the operation of the Fund.

The Trust's Board of Trustees believes that the Portfolio will achieve certain
efficiencies and economies of scale through the "master/feeder" structure, and
that the aggregate expenses of the Portfolio will be less than if the Portfolio
invested directly in the securities held by the Fund. However, other investment
companies that offer their shares to the public also may invest all or
substantially all of their assets in the Fund. Accordingly, there may be other
investment companies through which investors can invest indirectly in the Fund.
The fees charged by such other investment companies may be higher or lower than
those charged by

7
<PAGE>
the Portfolio, 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 Fund can be obtained by calling (800) 551-8643.

The Portfolio may cease investing in the 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."

MINI CAP GROWTH INSTITUTIONAL PORTFOLIO. The Mini Cap Growth Institutional
Portfolio seeks to maximize long-term capital appreciation. It invests all of
its assets in the Nicholas-Applegate Mini Cap Growth Fund, which has the same
investment objective as the Portfolio. Assets of the 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 do business in 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 intends to invest primarily in companies with small market capitalizations
(generally, up to $100 million). However, the Fund will not necessarily sell any
security held by it if the market capitalization of the issuer increases above
$100 million subsequent to purchase. 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 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 the Appendix 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 or "BBB" or higher
by S&P or unrated if determined by the Investment Adviser to be of comparable
quality. These securities are of investment grade, which means that their
issuers have adequate capacity to pay interest and repay principal, although
certain of such securities in the lower grades have speculative characteristics,
and changes in economic conditions or other circumstances may be more likely to
lead to a weakened capacity to pay interest and principal than would be the case
with higher rated securities. If the rating of a debt security held by the Fund
is downgraded below investment grade, the security will be sold as promptly as
practicable. The Fund may also make short sales, which is considered a
speculative technique. See the Appendix for a discussion of the risks associated
with short sale transactions.

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

8
<PAGE>
Fund, the Investment Adviser uses a proprietary investment methodology which is
designed to capture positive change at an early stage. It adheres rigorously to
this methodology, and applies it to various segments of the capital markets,
domestically and internationally. This methodology consists of investment
techniques and processes designed to identify companies with attractive earnings
and dividend growth potential and to evaluate their investment prospects. These
techniques and processes include relationships with an extensive network of
brokerage and research firms located throughout the world; computer-assisted
fundamental analysis of thousands of domestic and foreign companies; established
criteria for the purchase and sale of individual securities; portfolio
structuring and rebalancing guidelines; securities trading techniques; and
continual monitoring and reevaluation of all holdings with a view to maintaining
the most attractive mix of investments. The Investment Adviser collects data on
approximately 26,000 companies in 35 countries (adjusted 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 the 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 Fund's 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 Fund, 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 and warrants; depository
receipts; over-the-counter securities; when-issued securities and firm
commitment agreements; futures contracts; put and call options on securities;
stock index futures contracts; repurchase agreements; illiquid securities;
securities lending; and borrowing.

INVESTMENT RESTRICTIONS. The Portfolio and Fund are 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 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 the Fund and the 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. Neither the Portfolio nor the Fund may invest more than 5% of its total
assets in the securities of any one issuer. However, up to 25% of the
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.

9
<PAGE>
2. Neither the Portfolio nor the 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. Neither the Portfolio nor the 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. Neither the Portfolio nor the 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. Neither the Portfolio nor the 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 the
Portfolio of all of its assets in the Fund.

PORTFOLIO TURNOVER. The Investment Adviser's investment approach results in
above-average portfolio turnover, 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 the 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 Fund's
annual portfolio turnover rate 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 the 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 Portfolio. High portfolio turnover should not
result in the Fund paying greater brokerage commissions on debt securities, as
most transactions in debt securities are effected with dealers on a principal
basis. However, debt securities, as well as equity securities traded on a
principal basis, are subject to mark-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. The 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 the Portfolio. See
"General Information." The trustees and officers of the Trust and of the Master
Trust are described in "Trustees and Principal Officers" 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 Portfolio, as the Portfolio seeks to achieve its investment
objective by investing all of its assets in the Fund. Nicholas-Applegate Capital
Management, 600 West Broadway, 30th Floor, San Diego, California 92101, serves
as the Investment Adviser to the Fund. The Investment

10
<PAGE>
Adviser currently manages a total of 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. The Investment Adviser was organized in 1984 as a
California limited partnership. Its general partner is Nicholas-Applegate
Capital Management Holdings, L.P., a California limited partnership controlled
by Arthur E. Nicholas. He and thirteen other partners manage a staff of
approximately 325 employees.

As compensation for the services it provides, the Investment Adviser receives a
monthly fee at the annual rate of 1.25% of the Fund's net assets. For the fiscal
year ended March 31, 1996, the Investment Adviser received fees from the
Portfolio equal to 0.24% of the Portfolio's average net assets, after the fee
deferrals and expense reimbursements referred to under "Expense Limitation."

The Fund has 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 Fund's portfolio. Catherine Somhegyi has been primarily
responsible for the Investment Adviser's day-to-day management of the Fund's
portfolio since the Fund began operation. She has managed similar institutional
accounts for the Investment Adviser for more than the last five years.

For historical performance information regarding institutional private accounts
managed by the Investment Adviser that have investment objectives, policies,
strategies and risks that are substantially similar to those of the Portfolio,
see "Appendix: Prior Performance of Investment Adviser."

ADMINISTRATOR. Investment Company Administration Corporation, a Delaware
corporation, is the Administrator of the 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 Portfolio, 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 the Fund at an annual rate
of approximately 0.015% of the average daily net assets of the Fund.

EXPENSE LIMITATION. To limit the expenses of the Portfolio, the Investment
Adviser has agreed to defer its management fees payable by the Fund, and to
absorb the other operating expenses payable by the Fund and the Portfolio, to
ensure that the expenses of the Portfolio (excluding interest, taxes, brokerage
commissions and other portfolio transaction expenses, capital expenditures and
extraordinary expenses, but including the Portfolio's proportionate share of the
Fund's similar operating expenses) do not exceed 1.56% of the Portfolio's
average net assets on an annual basis through March 31, 1997. The Portfolio will
reimburse the Investment Adviser for fees foregone 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 the Portfolio with respect to any amounts representing fees deferred
or other expenses paid by the Investment Adviser. In addition,

11
<PAGE>
neither the Portfolio nor the 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.

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 Portfolio and the Fund. PFPC Inc., an affiliate of
the Custodian, provides accounting services to the Portfolio and the Fund. 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 Portfolio.

PORTFOLIO TRANSACTIONS AND BROKERAGE. The Investment Adviser is responsible for
the Fund's 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 Fund. Subject to obtaining the best price and
execution, the Investment Adviser may effect transactions through brokers who
sell shares of the Portfolio 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.

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

HOW TO PURCHASE SHARES. Shares of the Portfolio 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 Portfolio
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 Portfolio, 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 Portfolio 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

12
<PAGE>
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 $10,000). Shares of the 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 Portfolio 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 Portfolio 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

13
<PAGE>
received before 4:00 P.M. (Eastern time) on a day when the Exchange is open for
normal trading will be processed as of the close of trading on that day.
Otherwise, processing will occur on the next business day. To determine the
Portfolio's net asset value per share, the current value of the Portfolio's
total assets, less all liabilities, is divided by the total number of shares
outstanding, and the result is rounded to the nearer cent.

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

RETIREMENT PLANS. You may invest in the 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.
Twelve 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. 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.

The Portfolio reserves the right to reject any purchase order or to suspend or
modify the continuous offering of its shares. For example, the investment
opportunities in the small capitalization sector of the securities markets may
from time to time be more limited than those in other sectors of the markets.
Therefore, in order to retain adequate investment flexibility, the Investment
Adviser and the Trustees of the Master Trust may from time to time recommend
that the Trust indefinitely discontinue the sale of shares of the Portfolio to
new investors (other than trustees, directors, officers and employees of the
Trust, the Master Trust, the Investment Adviser and affiliated companies). In
such event, the Board of Trustees of the Trust would determine whether such
discontinuance is in the best interests of the Portfolio and its shareholders.
If sales of shares were discontinued, existing shareholders of the Portfolio
would continue to be able to make additional investments in the Portfolio and to
have their dividends and capital gains distributions reinvested. The Portfolio
may recommence the offering of shares to new investors at any time thereafter if
in the Board of Trustees' opinion doing so would be in the best interests of the
Portfolio and its shareholders.

- --------------------------------------------------------------------------------
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 Distributor or from
your plan sponsor or administrator.

14
<PAGE>
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 the Portfolio into shares of any other Institutional
Portfolio series of the Trust, subject to conditions outlined in the Statement
of Additional Information and the applicable provisions of the qualified
retirement plan.

EXCHANGE PRIVILEGE. Shares of the Portfolio may be exchanged into shares of any
other available Institutional Portfolio series of the Trust 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). 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
plans. In addition, the exchange privilege may not be available to investors who
are eligible to purchase shares of the Portfolio as a result of agreements
between the Distributor and certain broker-dealers, financial planners and
similar institutions.

Before effecting an exchange, investors 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 application.
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

15
<PAGE>
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. Neither the Portfolio nor 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 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. The 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 Portfolio may provide one annual and semi-annual report
and annual prospectus per household. In addition, quarterly unaudited financial
data are available from the Portfolio 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.

- --------------------------------------------------------------------------------
REDEEMING SHARES

HOW TO REDEEM SHARES. Shares of the 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

16
<PAGE>
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 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.

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
business days after receipt by the Transfer Agent of a written or telephonic
redemption request except as indicated below. 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 checks. 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 the 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.

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

17
<PAGE>
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES

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

The Portfolio declares and pays annual dividends of net investment income and
makes distributions at least annually of its net capital gains, if any. In
determining amounts of capital gains to be distributed by the Portfolio, any
capital loss carryovers from prior years will be offset against its capital
gains. Under U.S. Treasury Regulations, the Portfolio is 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 tax at the rate of 30% (or lower treaty rate).

The Trust may elect to "pass through" to the 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 Fund is not required to pay federal income taxes on its net investment
income and capital gains, as it is treated as a partnership for tax purposes.
Any interest, dividends and gains or losses of the Fund will be deemed to have
been "passed through" to the 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.

- --------------------------------------------------------------------------------
GENERAL INFORMATION

PERFORMANCE INFORMATION. From time to time the Trust may advertise the
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

18
<PAGE>

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.

DESCRIPTION OF SHARES. The Portfolio is a 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 the Portfolio. Shares of the
Portfolio, when issued, are fully paid, nonassessable, fully transferable and
redeemable at the option of the holder. Shares of the 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 the 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 Portfolio 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 the Portfolio, for the purpose of
voting on the removal of one or more Trustees.

MASTER TRUST. The Fund is a 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 the Portfolio is requested to
vote on matters pertaining to the Fund or the Master Trust in its capacity as a
shareholder of the 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 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.

19
<PAGE>
APPENDIX

- --------------------------------------------------------------------------------
INVESTMENT POLICIES, STRATEGIES AND RISKS

The investment policies and strategies of the Portfolio (as implemented through
its investment in the Fund) encompass the following securities, techniques and
risk considerations.

SHORT-TERM INVESTMENTS. The Fund 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 the Fund's total assets will be
retained in cash and cash equivalents. However, the 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 Fund 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 Fund 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. Securities issued or guaranteed by the U.S.
Government or its agencies and instrumentalities in which the Fund 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 Fund 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.

CERTIFICATES OF DEPOSIT, TIME DEPOSITS AND BANKERS' ACCEPTANCES. The Fund 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

20
<PAGE>
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. The Fund 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. The Fund 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 the 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
the 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 the Fund in floating or variable rate 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. The non-convertible corporate debt securities in
which the Fund 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. The corporate debt securities held by the Fund
are generally of investment grade. For short-term purposes, the Fund 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.

21
<PAGE>
CONVERTIBLE SECURITIES AND WARRANTS. The Fund may invest in 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 the Fund's entire investment therein. As a matter of operating policy,
the Fund will not invest more than 5% of its net assets in warrants.

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

Like other debt securities, the market value of convertible 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 securities have greater
yields than do shorter term securities of similar quality, they are subject to
greater price fluctuations. Fluctuations in the value of the Fund's investments
will be reflected in its and the 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 instrument governing the convertible security. If a
convertible security held by the 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 Fund, which are acquired in whole
or substantial part for their equity characteristics, are not subject to rating
requirements.

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES. The 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 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

22
<PAGE>
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 OF SMALLER GROWTH COMPANIES. The Fund will invest primarily in
companies with small market capitalizations (E.G., $100 million or less),
including growth companies, cyclical companies and 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
Portfolio's net asset values can be expected to experience above-average
fluctuations, as above-average risk is assumed by the Fund in investing in such
growth companies in seeking higher than average growth in capital.

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

FOREIGN INVESTMENT CONSIDERATIONS. There are special risks associated with the
Fund's 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 the 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 the 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 Fund
will not invest in securities denominated in a foreign currency unless, at the
time of investment, such currency is considered by the Investment Adviser to be
fully exchangeable into United States dollars without significant legal
restriction. See "Investment Objectives, Policies and Risks--Foreign
Investments" in the Statement of Additional Information.

23
<PAGE>
SPECIAL CONSIDERATIONS REGARDING EMERGING MARKETS INVESTMENTS. Investments by
the Fund 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 the 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. Securities owned by the Fund may be traded in the
over-the-counter market or on a regional securities exchange and may not be
traded every day or in the volume typical of securities trading on a national
securities exchange. As a result, disposition by the Fund of portfolio
securities to meet redemptions by investors or otherwise may require the Fund 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. The Fund 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 the Fund enters into such a transaction may not
perform its commitment. The Fund will normally enter into these transactions
with the intention of actually receiving or delivering the securities. The Fund
may sell the securities before the settlement date.

To the extent the 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 Fund 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. The 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. 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, the Fund
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

24
<PAGE>
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 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 Portfolio,
will tend to increase more when the securities it has sold short decrease in
value, and to decrease more when the securities it has sold short increase in
value, than would otherwise be the case if it had not engaged in such short
sales. Short sales theoretically involve unlimited loss potential, as the market
price of securities sold short may continuously increase, although the Fund may
mitigate such losses by replacing the securities sold short before the market
price has increased significantly. Under adverse market conditions a Fund might
have difficulty purchasing securities to meet its short sale delivery
obligations, and might have to sell portfolio securities to raise the capital
necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor such sales. The value of securities of
any issuer in which the 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 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. The 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 securities required to be deposited as collateral with a
broker in connection with the sale (not including the proceeds from the short
sale), which difference is adjusted daily for changes in the value of the
securities sold short. The total value of the cash, U.S. Government securities
or other liquid debt or equity securities deposited with the broker and
otherwise segregated may not at any time be less than the market value of the
securities sold short at the time of the short sale. As a matter of policy, the
Master Trust's Board of Trustees has determined that the 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 total assets, taken at market value.

25
<PAGE>
The Fund's ability to enter into short sales transactions is limited by the
requirements of the Internal Revenue Code with respect to the Portfolio's
qualification as a regulated investment company. See "Taxes" in the Statement of
Additional Information.

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

Put and call options are derivatives 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 Fund 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 Fund's 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 Fund may also write listed covered options on up to 25% of the value of its
net assets. Call options written by the Fund give the holder the right to buy
the underlying securities from the Fund at a stated exercise price; put options
written by the 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 the 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 the 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 the Fund
may be closed out by an offsetting purchase or sale of an option of the same
series. The 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. See "Investment Objectives, Policies and Risks--Options on
Securities and Securities Indices" in the Statement of Additional Information.

26
<PAGE>
FUTURES CONTRACTS. The Fund may purchase and sell stock index futures contracts
as a hedge against changes in market conditions. A stock index futures contract
is a bilateral 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.

Stock index futures contracts are derivatives 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 Fund 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 Fund. As a general rule, the Fund
will not purchase or sell futures if, immediately thereafter, more than 25% of
its net assets would be hedged. In addition, the Fund may not 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 the 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. 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 the 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. If the Investment
Adviser is incorrect in its forecasts regarding market values or other relevant
factors, the Fund may be in a worse position than if the Fund had not engaged in
options or futures transactions. The potential loss incurred by the 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 the
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 the Fund from liquidating an unfavorable position and the
Fund would remain obligated to meet margin

27
<PAGE>
requirements until the position is closed. See "Investment Objectives, Policies
and Risks-- Options and Securities and Securities Indices" and "--Futures
Contracts and Related Options" in the Statement of Additional Information.

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

REPURCHASE AGREEMENTS. The 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. The 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 the Fund may be
delayed or limited. The 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. The 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, pursuant to
guidelines adopted by the Master Trust's Board of Trustees, may determine 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,

28
<PAGE>
and the nature of the security and the marketplace trades. In all other cases,
however, securities subject to restrictions on resale will be deemed illiquid.
Investing in restricted securities eligible for resale under Rule 144A could
have the effect of increasing the level of illiquidity in the Fund to the extent
that the qualified institutional buyers become uninterested in purchasing such
securities.

SECURITIES LENDING. To increase its income, the 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 the 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. The 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, 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. All borrowings by the 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.

- --------------------------------------------------------------------------------
PRIOR PERFORMANCE OF INVESTMENT ADVISER

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

29
<PAGE>
The Investment Adviser's composite performance data shown below were calculated
in accordance with recommended standards of the Association for Investment
Management and Research ("AIMR"*), retroactively applied to all time periods.
All returns presented were calculated on a total return basis and include all
dividends and interest, accrued income and realized and unrealized gains and
losses. All returns reflect the deduction of investment advisory fees, brokerage
commissions and execution costs paid by the Investment Adviser's institutional
private accounts, without provision for federal or state income taxes. Custodial
fees, if any, were not included in the calculation. The Investment Adviser's
composite includes all actual, fee-paying, discretionary institutional private
accounts managed by the Investment Adviser that have investment objectives,
policies, strategies and risks substantially similar to those of the Mini Cap
Portfolio. Securities transactions are accounted for on the trade date and
accrual accounting is utilized. Cash and equivalents are included in performance
returns. The monthly returns of the Nicholas-Applegate Composite combine the
individual accounts' returns (calculated on a time-weighted rate of return that
is revalued whenever cash flows exceed $500) by asset-weighing each individual
account's asset value as of the beginning of the month. Quarterly and yearly
returns are calculated by geometrically linking the monthly and quarterly
returns, respectively. The yearly returns are computed by geometrically linking
the returns of each quarter within the calendar year.

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

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

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

30
<PAGE>
The investment results of the Investment Adviser's composite presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the Mini Cap Institutional Portfolio or an individual investing
in such Portfolio. Investors should also be aware that the use of a methodology
different from that used below to calculated performance could result in
different performance data.

<TABLE>
<CAPTION>
MINI CAP PERFORMANCE
----------------------------------------
INVESTMENT ADVISER'S RUSSELL 2000
MINI CAP GROWTH STOCK
YEAR COMPOSITE INDEX(1)
- ------------------------------------------------------------------------------------- ----------------------- ---------------
<S> <C> <C>
1991(2).............................................................................. 28.69% 14.77%
1992................................................................................. 11.58 7.77
1993................................................................................. 7.25 13.36
1994................................................................................. (5.85) (2.43)
1995................................................................................. 55.93 31.06
1996(3).............................................................................. 30.41 11.92
Last year(3)......................................................................... 60.97 26.51
Since inception(3)................................................................... 24.11 15.23
</TABLE>

- ------------------------
(1) 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-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.
(2) Commencement of investment operations is August 1, 1991.
(3) Through June 30, 1996.

31
<PAGE>

INSTMINIPRO896