NICHOLAS APPLEGATE MUTUAL FUNDS, 485BPOS, 1997-07-17

NICHOLAS APPLEGATE MUTUAL FUNDS
485BPOS, 1997-07-17

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<PAGE>

As filed with the Securities and Exchange Commission
on July 17, 1997
Registration No. 33-56094
811-7428
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. __ [ ]
POST-EFFECTIVE AMENDMENT NO. 44 [X]

AND/OR

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 46

(Check appropriate box or boxes)

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

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

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

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

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

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

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

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

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

Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has registered an indefinite number of shares by this Registration Statement.
Registrant filed a Notice under such Rule for its fiscal year ended March 31,
1997 on May 30, 1997. This Registration Statement has been executed by the
trustees and principal officers of the Registrant and of Nicholas-Applegate
Investment Trust.

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

<PAGE>

CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ------------- --------
PART A
<S> <C>
Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page

Item 2. Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overview; International Core Growth
Portfolios A, B & C; Worldwide Growth
Portfolios A, B & C; International Small
Cap Growth Portfolios A, B & C;
Emerging Countries Portfolios A, B & C;
Large Cap Growth Portfolios A, B & C;
Core Growth Portfolios A, B & C;
Emerging Growth Portfolios A, B & C;
Income & Growth Portfolios A, B & C;
Balanced Growth Portfolios A, B & C;
Government Income Portfolios A, B & C;
Money Market Portfolio

Item 3. Condensed Financial Information. . . . . . . . . . . . . . . . . International Core Growth Portfolios A,
B & C; Worldwide Growth Portfolios A, B
& C; International Small Cap Growth
Portfolios A, B & C; Emerging Countries
Portfolios A, B & C; Large Cap Growth
Portfolios A, B & C; Core Growth
Portfolios A, B & C; Emerging Growth
Portfolios A, B & C; Income & Growth
Portfolios A, B & C; Balanced Growth
Portfolios A, B & C; Government Income
Portfolios A, B & C; Money Market
Portfolio

Item 4. General Description of Registrant. . . . . . . . . . . . . . . . Overview; International Core Growth
Portfolios A, B & C; Worldwide Growth
Portfolios A, B & C; International Small
Cap Growth Portfolios A, B & C;
Emerging Countries Portfolios A, B & C;
Large Cap Growth Portfolios A, B & C;
Core Growth Portfolios A, B & C;
Emerging Growth Portfolios A,B & C;
Income & Growth Portfolios A, B & C;
Balanced Growth Portfolios A, B & C;
Government Income Portfolios A, B & C;
Money Market Portfolio; Master/Feeder
Structure; Risk Factors and Special
Considerations

Item 5. Management of Fund . . . . . . . . . . . . . . . . . . . . . . . Master/Feeder Structure; Portfolio
Teams

Item 6. Capital Stock and Other Securities . . . . . . . . . . . . . . . Your Account; Distribution of Shares

Item 7. Purchase of Securities Being Offered . . . . . . . . . . . . . . Your Account; Distribution of Shares

Item 8. Redemption of Repurchase . . . . . . . . . . . . . . . . . . . . Your Account

Item 9. Pending Legal Proceedings. . . . . . . . . . . . . . . . . . . . Not Applicable
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
PART B
<S> <C>
Item 10. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page

Item 11. Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . Table of Contents

Item 12. General Information and History. . . . . . . . . . . . . . . . . General Information

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

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

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

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

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

Item 18. Capital Stock and Other Securities . . . . . . . . . . . . . . . Miscellaneous

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

Item 20. Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends, Distributions and Taxes

Item 21. Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . Distributor

Item 22. Calculation of Performance Data. . . . . . . . . . . . . . . . . Performance Information

Item 23. Financial Statements . . . . . . . . . . . . . . . . . . . . . . Financial Statements

PART C

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

<PAGE>

FINAL REVISIONS TO PART I FOR EDGAR FILING
-------------------------------------------

Nicholas | Applegate-Registered Trademark-
MUTUAL FUNDS

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

PROSPECTUS

This prospectus contains vital information about these Portfolios. For your own
benefit and protection, please read it before you invest, and keep it on hand
for future reference.

Please note that these Portfolios:

- - are not bank deposits
- - are not federally insured
- - are not endorsed by any bank or government agency
- - are not guaranteed to achieve their investment objectives

There is no assurance that the Money Market Portfolio will be able to maintain a
stable net asset value of $1.00 per share.

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

GLOBAL A, B & C PORTFOLIOS
INTERNATIONAL CORE GROWTH
WORLDWIDE GROWTH
INTERNATIONAL SMALL CAP GROWTH
EMERGING COUNTRIES

U.S. A, B & C PORTFOLIOS
LARGE CAP GROWTH
CORE GROWTH
EMERGING GROWTH
INCOME & GROWTH
BALANCED GROWTH
GOVERNMENT INCOME
AND THE
MONEY MARKET PORTFOLIO

July 16, 1997

<PAGE>

TABLE OF CONTENTS

OVERVIEW

GLOBAL PROTFOLIOS
International Core Growth
Worldwide Growth
International Small Cap Growth
Emerging Countries

U.S. PORTFOLIOS
Large Cap
Core Growth
Emerging Growth
Income & Growth
Balanced Growth
Government Income
Money Market

DISTRIBUTION OF SHARES
Choosing a Portfolio
How Sales Charges Are Calculated
Contingent Deferred Sales Charge
Sales Charge Reductions and Waivers
Distribution Plan and Shareholder
Services
The distributor of the Trust's Shares

SIMPLIFIED ACCOUNT INFORMATION
Opening an Account
Adding to an Account
Selling or Redeeming Shares
Signature Guarantees
Exchanging Shares

YOUR ACCOUNT
Transaction Policies
Features and Account Policies

ORGANIZATION AND MANAGEMENT
Master/Feeder Structure
Investment Adviser Compensation
Administrator Compensation
Portfolio Trades
Investment Objective
Diversification
Portfolio Teams

RISK FACTORS AND SPECIAL CONSIDERATIONS

<PAGE>

OVERVIEW
- --------------------------------------------------------------------------------

FUND INFORMATION
Concise Portfolio descriptions begin on the next page. Each description
provides the following information:

INVESTMENT OBJECTIVE The Fund's particular investment goal.

INVESTMENT STRATEGY The strategy the Fund intends to use in prsuing the
invesment objective

PRINCIPAL INVESTMENTS-- The primary types of securities in which the Fund
invests. Secondary investments are described in "Risk Factors and Special
Consideration" at the end of the prospectus.

PORTFOLIO MANAGEMENT The individuals who manage the Fund.

RISK FACTORS. The major risk factors associated with the Fund. Other risk
factors are also described in "Risk Factors and Special Considerations."

INVESTOR EXPENSES-- The overall costs borne by an investor in the Portfolio,
including sales charges and annual expenses.

FINANCIAL HIGHLIGHTS A table showing the financial performance for each
Portfolio since inception.

GOAL OF THE NICHOLAS-APPLEGATE MUTUAL FUNDS

The Portfolios of Nicholas-Applegate Mutual Funds (the "Trust") are designed to
provide investors with a well rounded investment program. Each Portfolio
invests in a corresponding fund (the "Fund") of Nicholas-Applegate Investment
Trust (the "Master Trust"). Each Fund in turn invests in and holds investment
securities. This structure is called a "master/feeder" structure. Each
Portfolio has its own cost structure, allowing you to choose the one that best
meets your needs.

Each Fund employs its own strategy and has its own risk/reward profile. Because
you could lose money by investing in these Portfolios, be sure to read all risk
disclosures carefully before investing.

WHO MAY WANT TO INVEST IN THE GLOBAL AND U.S.
GROWTH PORTFOLIOS
- - those who are investing for retirement or other long-term goals
- - those who are willing to accept higher short-term risks associated with
investing in foreign companies along with higher potential long-term
results
- - those who want professional portfolio management
- - those who are seeking funds for the international growth portion of an
asset allocation portfolio

WHO MAY NOT WANT TO INVEST IN THE GLOBAL AND
U.S. GROWTH PORTFOLIOS
- - those who are investing with a shorter frame
- - those who are uncomfortable with an investment that will go up and down in
value
- - those who are unable to accept the special risks associated with foreign
investing

WHO MAY WANT TO INVEST IN THE INCOME PORTFOLIOS (BALANCED GROWTH, GOVERNMENT
INCOME AND MONEY MARKET PORTFOLIOS)
- - those who are investing for retirement or other goals that are in the
future
- - those who seek professional portfolio management
- - those who seek to round-out their asset mix
- - those who require current income

WHO MAY NOT WANT TO INVEST IN THE INCOME PORTFOLIOS
- - those who are investing with a shorter time horizon
- - those who are uncomfortable with an investment that will go up and down in
value

*******************************************************

THE INVESTMENT ADVISER
Nicholas-Applegate Capital Management (the "Investment Adviser") serves as
investment adviser to the Funds. Arthur E. Nicholas and 14 other partners with a
staff of approximately 350 employees currently manage 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.

<PAGE>

INTERNATIONAL CORE GROWTH PORTFOLIOS A, B & C
- --------------------------------------------------------------------------------

[bullet point icon]
INVESTMENT OBJECTIVE: Maximum long-term capital appreciation.

[bullet point icon]
INVESTMENT STRATEGY: The Fund's Investment Adviser focuses on a "bottom-up"
analysis that evaluates the financial conditions and competitiveness of
individual companies worldwide. It uses both a blend of traditional fundamental
research, calling on the expertise of many external analysts in different
countries throughout the world, and systematic disciplines to uncover signs of
"change at the margin" - positive business developments which are not yet fully
reflected in a company's stock price. It gathers financial data on 20,000
companies in 52 countries, and searches for successful, growing companies
managing change advantageously and poised to exceed growth expectations.

[bullet point icon]
PRINCIPAL INVESTMENTS: The Fund invests in the larger capitalized companies
in each country. Generally, this means issuers in each country whose market
capitalizations are in the top 75% of publicly traded companies as measured by
capitalization in that country. Under normal conditions, the Fund invests at
least 65% of its total assets in securities of issuers located in at least
three countries outside the U.S. The Fund may invest up to 35% of its total
assets in U.S. issuers.

Under normal conditions, the Fund invests at least 75% of its total assets in
common and preferred stocks, and warrants and convertible securities. It invests
the remainder primarily in investment grade debt securities of foreign companies
and foreign governments, and their agencies and instrumentalities. The Fund may
also use options and futures contracts as hedging techniques.

[bullet point icon]
PORTFOLIO MANAGEMENT: The Investment Adviser emphasizes a team approach to
portfolio management to maximize its overall effectiveness. For a complete
listing of the portfolio team, see "Portfolio Teams" on page __ .

[bullet point icon]
RISK FACTORS. The value of the Fund's investments varies day to day in response
to the activities of individual companies and general market conditions and
economic conditions. As with any international fund, performance depends upon
changing currency values, different political and regulatory environments, and
other overall economic factors in the countries where the Fund invests. For a
further explanation, see "Risk Factors and Special Considerations" starting on
page _____.

INVESTOR EXPENSES: Investors pay various expenses, either directly or
indirectly. The figures below show the expenses for each Portfolio and its
corresponding Fund for the past year.. Actual expenses may be more or less than
those shown.

- ---------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO A PORTFOLIO B PORTFOLIO C
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Maximum sales charge on purchases (as a percentage of offering price) 5.25% None None
- ---------------------------------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- ---------------------------------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original purchase price or None(1) 5.00% 1.00%
redemption proceeds, whichever is lower)
- ---------------------------------------------------------------------------------------------------------------------------
Redemption fee None None None
- ---------------------------------------------------------------------------------------------------------------------------
Exchange fee None None None
- ---------------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET PORTFOLIO A PORTFOLIO B PORTFOLIO C
ASSETS:
(AFTER EXPENSE DEFERRAL)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fees 1.00% 1.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- ---------------------------------------------------------------------------------------------------------------------------
Total other expenses 0.70% 0.85% 0.85%
- ---------------------------------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.95% 2.60% 2.60%
- ---------------------------------------------------------------------------------------------------------------------------

</TABLE>

1. Shareholders who buy $1 million in shares without paying a sales charge may
be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in
this prospectus.

2. The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. For Portfolios A,B & C, Total operating expenses Portfolios A,
B & C would have been ***16,000%, ***4,580% and ***25.55% respectively,
and Other expenses would have been 1,475%, 4,405% and 23.80% respectively
absent the deferral. See "Investment Adviser Compensation".

<PAGE>

Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

<PAGE>

EXAMPLE The table shows what you would pay if you invested $1,000 over
the various time frames indicated. The example assumes you reinvested all
dividends and the average annual return is 5%.

- ---------------------------------------------------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio A $71 $111 $152 $268
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio B - Assuming redemption at end of time $78 $113 $161 $293
period1 $26 $ 81 $138 $293
- Assuming no redemption
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio C - Assuming redemption at end of $37 $ 81 $138 $293
time period(1) $26 $ 81 $138 $293
- Assuming No redemption
- ---------------------------------------------------------------------------------------------------------------------------

</TABLE>

THIS EXAMPLE IS FOR COMPARISON PURPOSES ONLY AND IS NOT A REPRESENTATION OF THE
PORTFOLIOS' ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

1. Assumes deduction of a contingent deferred sales charge and no exchange of
Portfolio B shares for Portfolio A shares seven or more years after purchase.

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

The figures below have been audited by Ernst & Young L.L.P. with respect to the
fiscal year ended March 31, 1997. Please read in conjunction with the Trust's
1997 Annual Report.

---------------------------------------------
PORTFOLIO A PORTFOLIO B PORTFOLIO C
---------------------------------------------
2/28/97 2/28/97 2/28/97
to 3/31/97 to to
3/31/97 3/31/97

- --------------------------------------------------------------------------------
PER SHARE DATA:
- --------------------------------------------------------------------------------

Net asset value, beginning of $ 12.50 $ 12.50 $ 12.50
period / Income from
investment operations:
Net investment income --- --- ---
(deficit)
Net realized and unrealized
gains (losses) on securities 0.23 0.18 0.18
and foreign currency
- --------------------------------------------------------------------------------

Total from investment 0.23 0.18 0.18
operations
Less distributions:
Dividends from net
investment income --- --- ---
Distributions from capital --- --- ---
gains
- --------------------------------------------------------------------------------
Net asset value, end of period $ 12.73 $ 12.68 $ 12.68
- --------------------------------------------------------------------------------
TOTAL RETURN+: 1.76% 1.44% 1.44%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of $ 1,642 $ 1,027 $ 43,075
period
- --------------------------------------------------------------------------------
Ratio of expenses to average
net assets, after expense 1.95%* 2.59%* 2.41%*
reimbursement++
- --------------------------------------------------------------------------------
Ratio of expenses to average
net assets, before expense 4,580%* 16,000%* 25.55%*
reimbursement++
- --------------------------------------------------------------------------------
Ratio of net investment
income (deficit) to average --- --- (0.07%)*
net assets, after expense
reimbursement++
- --------------------------------------------------------------------------------
Ratio of net investment
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
income (deficit) to average
net assets, before expense (4,577%)* (15,998%)* (291.20%)*
reimbursement++
- --------------------------------------------------------------------------------
Portfolio turnover** 75.53% 75.53% 75.53%
- --------------------------------------------------------------------------------
Average commission rate
paid** $ 0.016 $ 0.016 $ 0.016
- --------------------------------------------------------------------------------

* Annualized

** For the corresponding Fund of the Master Trust

+ Computations do not reflect the Portfolio's sales charges

++ Includes expenses allocated form Master Trust Fund

<PAGE>

WORLDWIDE GROWTH PORTFOLIOS A, B & C
- --------------------------------------------------------------------------------

[bullet point icon]
INVESTMENT OBJECTIVE: Maximum long-term capital appreciation

[bullet point icon]
INVESTMENT STRATEGY: The Fund's Investment Adviser focuses on a "bottom-up"
analysis that evaluates the financial conditions and competitiveness of
individual companies worldwide. It uses a blend of both traditional fundamental
research, calling on the expertise of many external analysts in different
countries throughout the world, and systematic disciplines to uncover signs of
"change at the margin" - positive business developments which are not yet fully
reflected in a company's stock price. It gathers financial data on 20,000
countries in 52 countries, and searches for successful, growing companies
managing change advantageously and poised to exceed growth expectations.

Under normal conditions the Fund invests at least 75% of its total assets in
common and preferred stocks, warrants and convertible securities. It invests
the remainder primarily in investment grade debt securities of foreign companies
and foreign governments and their agencies and instrumentalities. The Fund may
also use options and futures contracts as hedging techniques.

[bullet point icon]
PORTFOLIO MANAGEMENT: The Investment Adviser emphasizes a team approach to
portfolio management to maximize its overall effectiveness. For a complete
list of the portfolio team, see "Portfolio Teams" on page 36.

[bullet point icon]
RISK FACTORS: The value of the Fund's investments varies from day to day in
response to the activities of individual companies, and general market and
economic conditions. The securities of small, less well-known companies may be
more volatile than those of larger companies, changing currency values,
different political and regulatory environments, and other overall economic
factors in the countries where the Fund invests. The risks are magnified in
countries with emerging markets, since these countries may have unstable
governments and less established markets. For a further explanation, see "Risk
Factors and Special Considerations" starting on page ____.

INVESTOR EXPENSES: Investors pay various expenses, either directly or
indirectly. The figures below are expenses of each Portfolio and its
corresponding Fund for the past year. Actual expenses may be more or less
than those shown.

- -------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO PORTFOLIO PORTFOLIO
A B C
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>

Maximum sales charge on purchases
(as a percentage of offering price) 5.25% None None
- -------------------------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- -------------------------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original purchase price
or redemption proceeds, whichever is lower) None(1) 5.00% 1.00%
- -------------------------------------------------------------------------------------------------------------------
Redemption fee None None None
- -------------------------------------------------------------------------------------------------------------------
Exchange fee None None None
- -------------------------------------------------------------------------------------------------------------------

</TABLE>

- -------------------------------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF PORTFOLIO PORTFOLIO PORTFOLIO
AVERAGE NET ASSETS: A B C
(AFTER EXPENSE DEFERRAL)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>

Management fees 1.00% 1.00% 1.00%
- -------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------------------------
Total Other expenses (after expense deferral) (2) 0.60% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral) (2) 1.85% 2.50% 2.50%
- -------------------------------------------------------------------------------------------------------------------

</TABLE>

<PAGE>

2. The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. For Portfolios A,B & C, Total operating expenses would have
been 2.17%, 4.81% and 2.61% respectively, and Other expenses would
have been .92%, 3.06% and .86% respectively, absent the deferral. See
"Investment Adviser Compensation".

Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvest all dividends
and the average annual return is 5%.

- ------------------------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

Portfolio A $70 $108 $147 $258
- ------------------------------------------------------------------------------------------------
Portfolio B - Assuming redemption at
end of time period (1) $77 $110 $156 $284
- Assuming no redemption $25 $78 $133 $284
- ------------------------------------------------------------------------------------------------
Portfolio C - Assuming redemption at end
of time period (1) $36 $78 $133 $284
- Assuming no redemption $25 $78 $133 $284
- ------------------------------------------------------------------------------------------------

</TABLE>

THIS EXAMPLE IS FOR COMPARISON PURPOSES ONLY AND IS NOT A REPRESENTATION OF THE
PORTFOLIOS' ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

1. Assumes deduction of a contingent deferred sales charge and no exchange of
Portfolio B shares for Portfolio A shares seven or more years after
purchase.

FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal years ended March 31, 1996, and 1997, and
by another independent auditor, with respect to the commencement of operations
through March 31, 1995. Please read in conjunction with the Trust's 1997 Annual
Report.

- ------------------------------------------------------------------------------------------------------------------------
PORTFOLIO A PORTFOLIO B PORTFOLIO C
- ------------------------------------------------------------------------------------------------------------------------
4/19/93 4/1/94 4/1/95 4/1/96 5/31/95 4/1/96 4/19/93 4/1/94 4/1/95 4/1/96
TO TO TO TO TO TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 3/31/96 3/31/97 3/31/94 3/31/95 3/31/96 3/31/97
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
DATA: $12.50 $14.86 $14.44
- ------------------------------------------------------------------------------------------------------------------------

Net asset
value,
beginning of $12.50 $14.94 $14.29 $16.57 $12.50 $14.34 $12.50 $14.86 $14.44 $16.76
period
Income from
investment
operations:
Net investment (0.07) (0.05) (0.07) (0.16) (0.05) (0.14) (0.09) (0.15) (0.21) (0.28)
income
(deficit)
Net realized 2.20 1.82 2.23
and unrealized 2.51 (0.09) 2.86 1.89 2.45 (0.08) 2.92
gains (losses)
on securities
and foreign
currency
- ------------------------------------------------------------------------------------------------------------------------
Total from
investment
- ------------------------------------------------------------------------------------------------------------------------

<PAGE>

Less 2.44 (0.14) 2.79 2.04 1.84 1.68 2.36 (0.23) 2.71 1.95
distributions:
Dividends
from net -- (0.02) (0.12) --- -- --- -- -- (0.01) ---
investment
income
Distributions -- (0.49) (0.39) (1.73) -- --- -- (0.19) (0.38) ---
from capital
gains
- ------------------------------------------------------------------------------------------------------------------------
Net asset
value, end of $14.94 $14.29 $16.57 $16.88 $14.34 $16.02 $14.86 $14.44 $16.76 $16.92
period
- ------------------------------------------------------------------------------------------------------------------------
TOTAL 19.52% (0.90%) 19.79% 12.51% 14.72% 11.72% 18.88% (1.49%) 18.95% 11.81%
RETURN+:
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLE
MENTAL DATA:
Net Assets
($000), end of $20,194 $22,208 $23,481 $24,022 $1,972 $5,942 $66,577 $71,201 $71,155 $70,345
period
- ------------------------------------------------------------------------------------------------------------------------
Ratio of
expenses to
average net
assets, after 1.85%* 1.85% 1.85% 1.85% 2.50%* 2.50% 2.44%* 2.50% 2.50% 2.50%
expense
reimbursement
++
- ------------------------------------------------------------------------------------------------------------------------
Ratio of
expenses to
average net
assets, before 2.23%* 2.18% 2.17% 2.17% 9.50%* 4.81% 2.44%* 2.57% 2.57% 2.61%
expense
reimbursement
++
- ------------------------------------------------------------------------------------------------------------------------
Ratio of net
investment
income
(deficit) to
average net
assets, after (0.69%)* (0.42%) (0.35%) (0.93%) (1.28%)* (1.62%) (1.24%)* (1.06%) (0.99%) (1.57%)
expense
reimbursement
++
- ------------------------------------------------------------------------------------------------------------------------
Ratio of net
investment
income
(deficit) to
average net (1.07%)* (0.75%) (0.61%) (1.18%) (8.12%)* (3.87%) (1.24%)* (1.13%) (1.00%) (1.62%)
assets, before
expense
reimbursement
++
- ------------------------------------------------------------------------------------------------------------------------
Portfolio 95.09% 98.54% 132.20% 181.81% 132.20% 181.81% 95.09% 98.54% 132.20% 181.81%
Turnover**
- ------------------------------------------------------------------------------------------------------------------------
Average
commission N/A N/A $0.0187 $0.0078 $0.0187 $0.0078 N/A N/A $0.0187 $0.0078
rate paid**
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Annualized
** For the corresponding Funds of the Master Trust

<PAGE>

+ Computations do not reflect the Portfolio's sales charges

++ Includes expenses allocated form Master Trust Funds
<PAGE>

INTERNATIONAL SMALL CAP GROWTH PORTFOLIOS A, B & C
- --------------------------------------------------------------------------------
(FORMERLY INTERNATIONAL GROWTH PORTFOLIO)

[bullet point icon]
INVESTMENT OBJECTIVE: Maximum long-term capital appreciation.

[bullet point icon]
INVESTMENT STRATEGY: The Fund's Investment Adviser focuses on a "bottom-up"
analysis that evaluates the financial condition and competitiveness of
individual companies worldwide. It uses a blend of both traditional fundamental
research, calling on the expertise of many external analysts in different
countries, and systematic disciplines to uncover signs of "change at the margin"
- - positive business developments which are not yet fully reflected in a
company's stock price. It gathers financial data on 20,000 companies in 52
countries, and searches for successful, growing companies managing change
advantageously and poised to exceed growth expectations.

The Fund emphasizes companies in the bottom 75% of publicly traded companies as
measured by capitalizations in each country ("small-cap securities"). The Fund
may have less U.S. exposure (up to 35% of its assets in U.S. issuers) than the
Worldwide Fund.

[bullet point icon]
PRINCIPAL INVESTMENTS: Under normal conditions, the Fund invests at least 65% of
its total assets in small-cap securities of issuers located in at least three
different countries outside the U.S. Under normal conditions, the Fund invests
at least 75% of its total assets in common and preferred stocks, warrants and
convertible securities. It invests the remainder primarily in investment grade
debt securities of foreign companies and foreign governments and their agencies
and instrumentalities. The Fund may also use options and futures contracts as
hedging techniques.

[bullet point icon]
RISK FACTORS: The value of the Fund's investments varies day to day in response
to the activities of individual companies and general market conditions. As
with any international fund, performance also depends upon changing currency
values, and upon different political and regulatory environments, and other
overall economic factors in countries where the Fund invests. In addition to
the risks posed by foreign investing, the securities of small,less well-known
companies may be more volatile than those of larger companies and may trade less
frequently. The available information regarding these smaller companies may also
be less available, incomplete or inaccurate. Accordingly, the securities of the
companies in which the Fund invests may be more volatile and speculative than
those of larger companies. The risks are magnified in countries with emerging
markets since these countries may have unstable governments and less-established
markets. For a further explanation see "Risk Factors and Special
Considerations" starting on page 38

INVESTOR EXPENSES: Investors pay various expenses, either directly or
indirectly. The figures below are the expenses of each Portfolio, and its
corresponding Fund for the past year. Actual expenses maybe greater or less than
those shown.

<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO PORTFOLIO PORTFOLIO
A B C
- ----------------------------------------------------------------------------------------------------------------------------
Maximum sales charge on purchases (as a percentage of offering price) 5.25% None None
- ----------------------------------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- ----------------------------------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original None 5.00% 1.00%
purchase price or redemption proceeds, whichever is lower)
- ----------------------------------------------------------------------------------------------------------------------------
Redemption fee (2) None None None
- ----------------------------------------------------------------------------------------------------------------------------
Exchange fee None None None
- ----------------------------------------------------------------------------------------------------------------------------

</TABLE>

<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PORTFOLIO PORTFOLIO PORTFOLIO
PERCENTAGE OF AVERAGE NET ASSETS: A B C
(AFTER EXPENSE DEFERRAL)
- ----------------------------------------------------------------------------------------------------------------------------
Management fees 1.00% 1.00% 1.00%
- ----------------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% .075%
- ----------------------------------------------------------------------------------------------------------------------------
Total other expenses (after expense deferral)2 0.70% 0.85% 0.85%
- ----------------------------------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)2 1.95% 2.60% 2.60%
- ----------------------------------------------------------------------------------------------------------------------------

</TABLE>

2. The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. For Portfolios A,B & C Total operating expenses would have been
3.76%%, 4.89% and 3.95%, respectively, and other expenses would have been
2.57%,3.14% and 2.20% respectively absent the deferral. See "Investment
Adviser Compensation".

Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

<PAGE>

EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvest all dividends
and the average annual return is 5%.

<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------------------------------------------
Portfolio A $71 $111 $152 $268
- -----------------------------------------------------------------------------------------------------------------
Portfolio B - Assuming redemption at end of time period 1 $78 $113 $161 $293

- Assuming no redemption $26 $81 $138 $293
- -----------------------------------------------------------------------------------------------------------------
Portfolio C - Assuming redemption at end of time period 1 $37 $81 $138 $293

- Assuming no redemption $26 $81 $138 $293
- -----------------------------------------------------------------------------------------------------------------

</TABLE>

THIS EXAMPLE IS FOR COMPARISON PURPOSES ONLY AND IS NOT A REPRESENTATION OF THE
PORTFOLIOS' ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

1. Assumes deduction of a contingent deferred sales charge and no exchange of
Portfolio B shares for Portfolio A shares seven or more years after
purchase.

FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal years ended March 31, 1996,and 1997, and by
another independent auditor with respect to the commencement of operations
through March 31, 1995. Please read in conjunction with the Trust's 1997 Annual
Report

PORTFOLIO A PORTFOLIO B PORTFOLIO C
- --------------------------------------------------------------------------------------------------------------------------------
8/31/94 4/1/95 4/1/96 5/31/95 4/1/96 8/31/94 4/1/95 4/1/96
TO TO TO TO TO TO TO TO
3/31/95 3/31/96 3/31/97 3/31/96 3/31/97 3/31/95 3/31/96 3/31/97
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period/Income from $12.50 $11.51 $13.15 $12.50 $13.96 $12.50 $11.32 $13.05
investment operations:
Net investment income
(deficit) -- (0.02) 0.04 (0.02) (0.15) (0.04) 0.01 (0.16)
Net realized and
unrealized gains (losses) (0.98) 1.79 1.88 1.48 2.09 (1.12) 1.72 1.98
on securities and foreign
currency
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations
Less distributions: (0.98) 1.77 1.92 1.46 1.94 (1.16) 1.73 1.82
Dividends from net
investment income (0.01) (0.13) (0.01) -- (0.01) (0.02) -- --
Distributions from capital -- -- (0.14) -- -- -- -- --
gains
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of $11.51 $13.15 $14.92 $13.96 $15.89 $11.32 $13.05 $14.87
period
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: (7.85%) 15.46% 14.67% 11.68% 13.96% (9.25%) 15.30% 13.98%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA: Net Assets ($000), $610 $1,056 $5,569 $1,487 $5,080 $24 $933 $3,592
end of period
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<S> <C> <C> <C> <C> <C> <C> <C> <C>
average net assets, after
expense reimbursement++ 1.95%* 1.95% 1.95% 2.60%* 2.60% 2.61%* 2.60% 2.60%
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets, before
expense reimbursement++ 9.77% 10.06% 3.76% 16.15%* 4.89% 75.37%* 16.15% 3.95%
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment
deficit to average net
assets, after expense (0.07%)* (0.27%) (1.05%) (0.64%)* (1.66%) (0.76%)* (1.02%) (1.67%)
reimbursement++
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment
deficit to average net
assets, before expense (7.89%)* (7.75%) (2.82%) (13.26%) (3.91%) (73.52%)* (13.95%) (2.99%)
reimbursement++
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover** 74.85% 141.02% 206.07% 141.02% 206.07% 74.85% 141.02% 206.07%
- --------------------------------------------------------------------------------------------------------------------------------
Average commission rate N/A $0.128 $0.0098 $0.0128 $0.0098 N/A $0.128 $0.0098
paid**
- --------------------------------------------------------------------------------------------------------------------------------

</TABLE>

* Annualized

** For the corresponding Funds of the Master Trust

+ Computations do not reflect the Portfolio's sales charges

++ Includes expenses allocated form Master Trust Funds

<PAGE>

EMERGING COUNTRIES A, B & C
- --------------------------------------------------------------------------------

[bullet point icon]
INVESTMENT OBJECTIVE: Maximum long-term capital appreciation

[bullet point icon]
INVESTMENT STRATEGY: The Fund invests primarily in equity securities of issuers
located in countries with emerging securities markets -- that is, countries with
securities markets which are, in the opinion of the Investment Adviser, emerging
as investment markets but have yet to reach a level of maturity associated with
developed foreign stock markets, especially in terms of participation by foreign
investors. The Investment Adviser seeks issuers in the early stages of
development, growth companies, cyclical companies, or companies believed to be
undergoing a basic change in operations. The Investment Adviser currently
selects portfolio securities from an investment universe of approximately 6,000
foreign issuers in over 20 emerging markets.

[bullet point icon]
PRINCIPAL INVESTMENTS: Under normal conditions, the Fund invests at least 65% of
its total assets in securities of issuers located in at least three different
countries. These countries include but are not limited to: Argentina, Brazil,
Chile, China, Columbia, the Czech Republic, Greece, Hungary, India, Indonesia,
Israel, Jordan, Malaysia, South Africa, South Korea, Taiwan, Thailand, Italy and
Venezuela.

Under normal market conditions, the Fund invests at least 75% of its total
assets in common and preferred stocks, warrants and convertible securities. It
invests the remainder primarily in investment grade bonds of foreign companies
and foreign governments and their agencies and instrumentalities. The Fund may
also use options and futures contracts as hedging techniques.

[bullet point icon]
RISK FACTORS: The value of the Fund's investments varies day to day in response
to the activities of individual companies and general market conditions. As
with any fund investing in foreign securities, performance also depends upon
changing currency values, and upon different political and regulatory
environments, and other overall economic factors in the countries where the Fund
invests. Emerging countries markets may present greater opportunity for gain,
but also involve greater risk than more developed markets. These countries tend
to have less stable governments and less established markets. The markets tend
to be less liquid and more volatile, and offer less regulatory protection for
investors. The economies of emerging countries may be predominantly based on
only a few industries or dependent on revenue from particular commodities,
international aid or other assistance. For a further explanation, see "Risk
Factors and Special Considerations" starting on page __38_.

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

INVESTOR EXPENSES: Investors pay various expenses, either directly or
indirectly. The figures below are expenses for each Portfolio and its
corresponding Fund for the past year. Actual expenses may be more or less than
those shown.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO PORTFOLIO PORTFOLIO
A B C
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Maximum sales charge on purchases (as a percentage of offering price) 5.25% None None
- -----------------------------------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- -----------------------------------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original None(1) 5.00% 1.00%
purchase price or redemption proceeds, whichever is lower)
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fee None None None
- -----------------------------------------------------------------------------------------------------------------------------
Exchange fee None None None
- -----------------------------------------------------------------------------------------------------------------------------

<PAGE>

(after expense deferral)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Management fees 1.25% 1.25% 1.25%
- -----------------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)2 0.75% 0.90% 0.90%
- -----------------------------------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 2.25% 2.90% 2.90%
- -----------------------------------------------------------------------------------------------------------------------------

</TABLE>

2. The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. For Portfolios A, B & C, Total operating expenses would have
been 3.08%***, 3.66%*** and 3.12%*** respectively, and Other expenses would
have been 1.58%, 1.66% and 1.12% respectively, absent the deferral. See
"Investment Adviser Compensation".

Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

<PAGE>

EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvest all dividends
and the average annual return is 5%.

- ------------------------------------------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio A $74 $119 $167 $297
- ------------------------------------------------------------------------------------------------------------------
Portfolio B - Assuming redemption at end of time period 1 $80 $122 $175 $322
$29 $90 $153 $322
- Assuming no redemption
- ------------------------------------------------------------------------------------------------------------------
Portfolio C - Assuming redemption at end of time period 1 $40 $90 $153 $322
- Assuming no redemption $29 $90 $153 $322
- ------------------------------------------------------------------------------------------------------------------

</TABLE>

THIS EXAMPLE IS FOR COMPARISON PURPOSES ONLY AND IS NOT A REPRESENTATION OF THE
PORTFOLIOS' ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

1. Assumes deduction of a contingent deferred sales charge and no exchange of
Portfolio B shares for Portfolio A shares seven or more years after purchase.

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

FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal year ended March 31, 1996, and 1997, and by
another independent auditor with respect to the commencement of operations
through March 31, 1995. Please read in conjunction with the Trust's 1997
Annual Report.

PORTFOLIO A PORTFOLIO B PORTFOLIO C
----------------------------------------------------------------------------------------------------
11/28/94 4/1/95 4/1/96 5/31/95 4/1/96 11/28/94 4/1/95 4/1/96
TO TO TO TO TO TO TO TO
3/31/95 3/31/96 3/31/97 3/31/96 3/31/97 3/31/95 3/31/96 3/31/97
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period/Income from $12.50 $11.00 $14.03 $12.50 $14.02 $12.50 $10.79 $13.71
investment operations:
Net investment income
(deficit) 0.04 (0.04) (0.06) (0.04) (0.11) -- (0.05) (0.10)
Net realized and
unrealized gains (losses) (1.54) 3.15 3.51 1.56 3.47 (1.70) 2.97 3.37
on securities and foreign
currency
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations
Less distributions: (1.50) 3.11 3.45 1.52 3.36 (1.70) 2.92 2.27
Dividends from net
investment income -- (0.02) -- -- -- (0.01) -- --
Distributions from capital -- (0.06) (0.28) -- (0.09) -- -- (0.17)
gains
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of $11.00 $14.03 $17.20 $14.02 $17.29 $10.79 $13.71 $16.81
period
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: (11.98%) 28.43% 24.79% 12.16% 24.00% (13.64%) 27.30% 23.94%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA: Net Assets ($000), $1,197 $4,718 $38,688 $3,557 $24,558 $59 $4,345 $29,376
end of period
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets, after
expense remimbursement++ 2.25%* 2.25% 2.25% 2.90%* 2.90% 2.90%* 2.90% 2.90%
- ---------------------------------------------------------------------------------------------------------------------------------

<PAGE>

- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets, before
expense reimbursement++ 6.15%* 6.72% 3.08% 7.58%* 3.66% 242.59%* 6.23% 3.12%
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment
deficit to average net
assets, after expense 1.09%* (0.35%) (1.14%) (1.05%)* (1.77%) (0.04%)* (1.06%) (1.75%)
reimbursement++
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment
deficit to average net
assets, before expense (4.99%)* (3.61%) (2.00%) (5.44%)* (2.55%) (239.73%)* (4.15%) (1.99%)
reimbursement++
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover** 60.79% 118.21% 176.20% 118.20% 176.20% 60.79% 118.21% 176.20%
- --------------------------------------------------------------------------------------------------------------------------------
Average commission rate N/A $0.0022 $0.0021 $0.0022 $0.0021 N/A $0.0022 $0.0021
paid**
- --------------------------------------------------------------------------------------------------------------------------------

</TABLE>

* Annualized

** For the corresponding Funds of the Master Trust

+ Computations do not reflect the Portfolio's sales charges

++ Includes expenses allocated form Master Trust Funds

<PAGE>

LARGE CAP GROWTH A, B & C
- --------------------------------------------------------------------------------

[bullet point icon]
INVESTMENT OBJECTIVE: Maximum long-term capital appreciation.

[bullet point icon]
INVESTMENT STRATEGY: The Fund's Investment Adviser focuses on a "bottom-up"
analysis that evaluates the financial condition and competitiveness of
individual companies. It uses a blend of traditional fundamental research and
computer intensive systematic disciplines to uncover signs of "change at the
margin" - positive business developments which are not yet fully reflected in a
company's stock price. It searches for successful, growing companies that are
managing change advantageously and poised to exceed growth expectations.

The Fund invests generally in equity securities of U.S. companies with market
capitalizations generally above $3 billion and whose earnings and stock prices
are expected to grow faster than the S&P 500 ("large-cap securities").

[bullet point icon]
PRINCIPAL INVESTMENTS: Under normal conditions, the Fund invests at least 65%
of its total assets in large-cap securities including common and preferred
stocks, warrants, and convertible securities of U.S. companies. It invests the
remainder of its assets primarily in investment grade corporate debt securities,
U.S. Government securities, and securities of foreign issuers. The Fund may use
also options and futures contracts as hedging techniques.

[bullet point icon]
PORTFOLIO MANAGEMENT: The Investment Adviser emphasizes a team approach to
maximize overall effectiveness. For a complete list of the portfolio team, see
"Portfolio Teams" on page 36_.

[bullet point icon]
RISK FACTORS: As with any growth fund, the value of your investment, will
fluctuate day to day with movements in the stock markets as well as in
response to the activities of individual companies. To the extent the Fund is
overweighted in certain market sectors compared to the S&P 500, the Fund may
be more volatile than the S&P 500. Additionally, to the extent the Fund invests
in foreign issuers, the risks and volatility are magnified since the performance
of foreign stocks also depends on changes in foreign currency, different
regulatory environments, and the overall economic conditions in countries where
the Fund invests. For a further explanation, see "Risk Factors and Special
Considerations" starting on page __38__.

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

INVESTOR EXPENSES: Investors pay various expenses, either directly or
indirectly. The figures below are estimated expenses for each Portfolio and
its corresponding Fund for the current fiscal year. Actual expenses may be more
or less than those shown.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO PORTFOLIO PORTFOLIO
A B C
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Maximum sales charge on purchases (as a percentage of offering price) 5.25% None None
- ----------------------------------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- ----------------------------------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original None(1) 5.00% 1.00%
purchase price or redemption proceeds, whichever is lower)
- ----------------------------------------------------------------------------------------------------------------------------
Redemption fee None None None
- ----------------------------------------------------------------------------------------------------------------------------
Exchange fee None None None
- ----------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PORTFOLIO PORTFOLIO PORTFOLIO
PERCENTAGE OF AVERAGE NET ASSETS: A B C
(AFTER EXPENSE DEFERRAL)
- ----------------------------------------------------------------------------------------------------------------------------
Management fees 0.75% 0.75% 0.75%
- ----------------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- ----------------------------------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)2 0.60% 0.75% 0.75%
- ----------------------------------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.60% 2.25% 2.25%
- ----------------------------------------------------------------------------------------------------------------------------

</TABLE>

<PAGE>

2. The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. For Portfolios A,B & C. Total operating expenses would have
been 2.31%***,2.961%*** and 2.96%***respectively, and Other expenses for
the fiscal year ending March 31, 1998 are estimated to be 1.31%, 1.46% and
1.46% respectively, absent the deferral. See "Investment Adviser
Compensation".

Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

<PAGE>

EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvest all dividends
and the average annual return is 5%.

- ----------------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS
<S> <C> <C>
- ----------------------------------------------------------------------------------------
Portfolio A $68 $100
- ----------------------------------------------------------------------------------------
Portfolio B - Assuming redemption at end of time period 1 $74 $103
- Assuming no redemption $23 $70
- ----------------------------------------------------------------------------------------
Portfolio C - Assuming redemption at end of time period 1 $33 $70
- Assuming no redemption $23 $70
- ----------------------------------------------------------------------------------------

</TABLE>

THIS EXAMPLE IS FOR COMPARISON PURPOSES ONLY AND IS NOT A REPRESENTATION OF
THE PORTFOLIOS' ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

1. Assumes deduction of a contingent deferred sales charge and no exchange of
Portfolio B shares for Portfolio A shares seven or more years after
purchase.
<PAGE>

CORE GROWTH PORTFOLIOS A, B & C

[bullet point icon]
INVESTMENT OBJECTIVE: Maximum long-term capital appreciation.

[bullet point icon]
INVESTMENT STRATEGY The Fund's Investment Adviser focuses on a "bottom-up"
analysis that evaluates the financial condition and competitiveness of
individual companies. It uses a blend of traditional fundamental research and
computer intensive systematic disciplines to uncover what it calls "change at
the margin" - positive business developments which are not yet fully reflected
in the company's stock price. It searches for successful, growing companies
that are managing change advantageously and poised to exceed growth
expectations.

The Fund emphasizes companies with market capitilizations generally above $500
million.

[bullet point icon]
PRINCIPAL INVESTMENTS: Under normal conditions, the Fund invests at least
75% of its total assets in common stocks. It invests the remainder of its
assets primarily in preferred and convertible securities, investment grade
debt securities, and securities issued by the U.S. Government, and its
agencies and instrumentalities. The Fund may invest up to 20% of its total
assets in foreign securities. The Fund may also use options and futures
contracts as hedging techniques.

[bullet point icon]
PORTFOLIO MANAGEMENT: The Investment Adviser emphasizes a team
approach to portfolio management to maximize its overall effectiveness. For a
complete list of the portfolio team, see "Portfolio Teams" on page 36.

[bullet point icon]
RISK FACTORS: As with any growth fund, the value of your investment will
fluctuate day to day with movements in the stock markets. The companies in
which the Fund invests may be more subject to volatile market movements than
securities of larger, more established companies. To the extent the Fund
invests in foreign securities, the risks and volatility are magnified since the
performance of foreign stocks also depends upon changing values in foreign
currencies, different political and regulatory environments, and the overall
economic conditions in countries where the Fund invests. For a further
explanation, see "Risk Factors and Special Considerations" starting on
page 38.

INVESTOR EXPENSES: Investors pay various expenses, either directly or
indirectly. The figures below are the expenses of each Portfolio and
its corresponding Fund for the past year, adjusted to reflect any change.
Actual expenses may be more or less than those shown.

- -----------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO PORTFOLIO PORTFOLIO
A B C
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Maximum sales charge on purchases (as a percentage of offering price) 5.25% None None
- -----------------------------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- -----------------------------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original purchase price or
redemption proceeds, whichever is lower) None(1) 5.00% 1.00%
- -----------------------------------------------------------------------------------------------------------------------
Redemption fee None None None
- -----------------------------------------------------------------------------------------------------------------------
Exchange fee None None None
- -----------------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET
ASSETS:
(AFTER EXPENSE DEFERRAL) PORTFOLIO PORTFOLIO PORTFOLIO
A B C
- -----------------------------------------------------------------------------------------------------------------------
Management fees 0.75% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.60% 0.75% 0.64%
- -----------------------------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.60% 2.25% 2.17%
- -----------------------------------------------------------------------------------------------------------------------

</TABLE>
<PAGE>

(1) Shareholders who buy $1 million in shares without sales charge may be
charged a contingent deferred sales charge of 1% on redemptions made within one
year of purchase. See "Contingent Deferred Sales Charge" in this prospectus.

(2)The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the Portfolios.
For Portfolio B, Total operating expenses would have been 2.66%, and Other
expenses would have been 1.16%, absent the deferral. See "Investment Adviser
Compensation".

Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

<PAGE>

EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvest all dividends
and the average annual return is 5%.

- ---------------------------------------------------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Portfolio A $68 $100 $135 $233
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio B - Assuming redemption at end of time $74 $103 $143 $258
period(1)
- Assuming no redemption $23 $70 $120 $258
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio C - Assuming redemption at end of time period(1) $32 $68 $160 $250
- Assuming no redemption $22 $68 $116 $250
- ---------------------------------------------------------------------------------------------------------------------------

</TABLE>

THIS EXAMPLE IS FOR COMPARISON PURPOSES ONLY AND IS NOT A REPRESENTATION OF THE
PORTFOLIOS' ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

(1) Assumes deduction of a contingent deferred sales charge and no exchange of
Portfolio B shares for Portfolio A shares seven or more years after purchase.

PORTFOLIO A PORTFOLIO B PORTFOLIO C
---------------------- ---------------------- ----------------------
4/19/93 4/1/94 4/1/95 4/1/96 5/31/95 4/1/96 4/1/93 4/1/94 4/1/95 4/1/96
TO TO TO TO TO TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 3/31/96 3/31/97 3/31/94 3/31/95 3/31/96 3/31/97
PER SHARE DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period / Income from investment
operations: $12.50 $13.25 $13.61 $18.37 $12.50 $16.25 $12.50 $13.18 $13.45 $18.06

Net investment income (deficit) (0.07) (0.10) (0.18) (0.17) (0.09) (0.17) (0.11) (0.17) (0.27) (0.32)

Net realized and unrealized
gains (losses) on securities and
foreign currency 0.86 0.46 4.94 0.57 3.84 0.25 0.80 0.44 4.88 0.62
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations
Less distributions: 0.79 0.36 4.76 0.40 3.75 0.08 0.69 0.27 4.61 0.30
- -----------------------------------------------------------------------------------------------------------------------------------

<PAGE>

- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment
income -- -- -- -- -- -- -- -- -- --

Distributions from capital gains (0.04) -- -- (1.97) -- -- (0.01) -- -- (1.88)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.25 $13.61 $18.37 $16.80 $16.25 $16.33 $13.18 $13.45 $18.06 $16.48
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: 6.27% 2.72% 35.07% 1.09% 30.00% (0.49%) 5.54% 2.05% 34.28% 0.56%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA: Net
Assets ($000), end of period $70,512 $65,292 $77,275 $76,108 $11,186 $29,002 $141,489 $143,390 $177,461 $157,501
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets, after expense
reimbursement++ 1.57%* 1.59% 1.58% 1.60% 2.22%* 2.25% 2.17%* 2.24% 2.14% 2.14%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets, before expense
reimbursement/recoupment++ 1.71%* 1.63% 1.56% 1.56% 3.39%* 2.66% 2.17%* 2.24% 2.14% 2.17%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement++ (0.68%)* (0.66%) (0.91%) (1.05%) (1.61%)* (1.69%) (1.30%) (1.30%) (1.47%) (1.59%)
- ------------------------------------------------------------------------------------------------------------------------------------

<PAGE>

- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement++ (0.82%)* (0.70%) (0.89%) (1.01%) (2.77%)* (2.10%) (1.30%)* (1.30%) (1.47%) (1.62%)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover** 84.84% 98.09% 114.48% 153.20% 14.48% 153.20% 84.84% 98.09% 114.48% 153.20%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid** N/A N/A $0.0593 %0.0582 $0.0593 $0.0582 N/A N/A $0.0593 $0.0582
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

* Annualized
** For the corresponding Funds of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated form Master Trust Fund

<PAGE>

EMERGING GROWTH A, B & C
- --------------------------------------------------------------------------------

[bullet point icon]
INVESTMENT OBJECTIVE: Maximum long-term capital appreciation.

[bullet point icon]
INVESTMENT STRATEGY: The Fund's Investment Adviser focuses on a "bottom-up"
analysis that evaluates the financial condition and competitiveness of
individual companies. It uses a blend of traditional fundamental research and
computer intensive systematic disciplines to uncover what it calls a "change at
the margin" - positive business developments which are not yet fully reflected
in a company's stock price. It searches for successful growing companies that
are managing change advantageously and poised to exceed growth expectations.

The Fund emphasizes companies with market capitilizations generally below $500
million at the time of purchase.

[bullet point icon]
PRINCIPAL INVESTMENTS: Under normal conditions, the Fund invests at least 75%
of its total assets in common stocks. It invests the remainder primarily in
preferred and convertible securities, investment grade debt securities, and
securities issued by the U.S. Government, its agencies and instrumentalities.
The Fund may invest up to 20% of its total assets in foreign securities. The
Fund may also use options and futures contracts as hedging techniques.

[bullet point icon]
PORTFOLIO MANAGEMENT The Investment Adviser emphasizes a team approach to
portfolio management to maximize its overall effectiveness. For a complete list
of the portfolio team, see "Portfolio Teams" on page 36_.

[bullet point icon]
RISK FACTORS: As with any growth fund, the value of your investment will
fluctuate day to day with movements in the stock markets. Although small-cap
stocks have a history of long-term growth, they tend to be more volatile and
speculative than stocks of larger, more established companies. To the extent
the Fund invests in foreign issuers, the investment risks and volatility are
magnified since the performance of foreign stocks also depends upon changes in
foreign currency, different political and regulatory environments, and the
overall economic conditions in the foreign countries where the Fund invests. The
risks are magnified in countries with emerging markets since these countries may
have unstable governments and less established markets. For a further
explanation, see "Risk Factors and Special Considerations" starting on page ___.

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

INVESTOR EXPENSES: Investors pay various expenses, either directly or
indirectly. The figures below show the expenses of each Portfolio and its
corresponding Fund for the past year. Actual expenses may be more or less than
those shown.

<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO PORTFOLIO PORTFOLIO
A B C
- ----------------------------------------------------------------------------------------------------------------------------
Maximum sales charge on purchases (as a percentage of offering price) 5.25% None None
- ----------------------------------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- ----------------------------------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original None(1) 5.00% 1.00%
purchase price or redemption proceeds, whichever is lower)
- ----------------------------------------------------------------------------------------------------------------------------
Redemption fee None None None
- ----------------------------------------------------------------------------------------------------------------------------
Exchange fee None None None
- ----------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET PORTFOLIO PORTFOLIO PORTFOLIO
ASSETS: A B C
(AFTER EXPENSE DEFERRAL)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Management fees 1.00% 1.00% 1.00%
- ----------------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- ----------------------------------------------------------------------------------------------------------------------------
Total other expenses (after expense deferral)2 0.47% 0.85% 0.60%
- ----------------------------------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.72% 2.60% 2.35%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

2. The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. For Portfolio B, Total operating expenses would have been
2.73%,*** and Other expenses would have been .98%***, absent the deferral.
See "Investment Adviser Compensation".

Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

<PAGE>

EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvest all dividends
and the average annual return is 5%.

- -----------------------------------------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Portfolio A $69 $104 $142 $247
- -----------------------------------------------------------------------------------------------------------------
Portfolio B - Assuming redemption at end of time $78 $113 $161 $293
period 1 $26 $81 $138 $293
- Assuming no redemption
- -----------------------------------------------------------------------------------------------------------------
Portfolio C - Assuming redemption at end of time period 1 $36 $79 $136 $289
$26 $79 $136 $289
- Assuming no redemption
- -----------------------------------------------------------------------------------------------------------------

</TABLE>

THIS EXAMPLE IS FOR COMPARISON PURPOSES ONLY AND IS NOT A REPRESENTATION OF THE
PORTFOLIOS' ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

1. Assumes deduction of a contingent deferred sales charge and no exchange of
Portfolio B shares for Portfolio A shares seven or more years after
purchase.

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

- ---------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO A PORTFOLIO B PORTFOLIO C
- ---------------------------------------------------------------------------------------------------------------------------------
12/27/93 4/1/94 4/1/95 4/1/96 5/31/95 4/1/96 12/27/93 4/1/94 4/1/95 4/1/96
TO TO TO TO TO TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 3/31/96 3/31/97 3/31/94 3/31/95 3/31/96 3/31/97
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
DATA:
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset
value,
beginning of $12.50 $12.10 $13.06 $17.93 $12.50 $16.69 $12.50 $12.07 $12.96 $17.62
period /
Income from
investment
operations:
Net
investment (0.04) (0.16) (0.20) (0.22) (0.14) (0.21) (0.06) (0.22) (0.29) (0.31)
income
(deficit)
Net realized
and
unrealized (0.36) 1.12 5.09 (0.66) 4.33 (0.97) (0.37) 1.11 5.03 (0.63)
gains (losses)
on securities
and foreign
currency
- --------------------------------------------------------------------------------------------------------------------------------
Total from
investment
operations (0.40) 0.96 4.89 (0.88) 4.19 (1.18) (0.43) 0.89 4.74 (0.94)
Less
distributions:
Dividends
- ---------------------------------------------------------------------------------------------------------------------------------

<PAGE>

- ---------------------------------------------------------------------------------------------------------------------------------
from net -- -- -- -- -- -- -- -- -- --
investment
income
Distributions
from capital -- -- (0.02) (1.90) -- -- -- -- (0.08) (1.99)
gains
- --------------------------------------------------------------------------------------------------------------------------------
Net asset $12.10 $13.06 $17.93 $15.15 16.69 $15.51 $12.07 $12.96 $17.62 $14.69
value, end of
period
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL (3.20%) 7.93% 37.48% (6.26%) 33.52% (7.07%) (3.44%) 7.37% 37.18 (6.81%)
RETURN+:
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/
SUPPLEMENTAL $104,838 $106,725 $138,155 $121,742 $13,626 $28,030 $142,874 $157,292 $207,332 $182,907
DATA: Net
Assets
($000), end of
period
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of
expenses to
average net 1.73%* 1.86% 1.74% 1.72% 2.58%* 2.61% 2.34%* 2.44% 2.35% 2.35%
assets, after
expense
reimbursement++
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of
expenses to
average net 1.80% 1.84% 1.74% 1.72% 3.26%* 2.73% 2.34%* 2.44% 2.35% 2.35%
assets, before
expense
reimbursement++
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net
investment
income (1.44%)* (1.27%) (1.20%) (1.26%) (2.09%)* (2.13% (2.04%)* (1.85%) (1.81%) (1.89%)
(deficit) to
average net
assets, after
expense
reimbursement++
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net
investment
income (1.51%)* (1.25%) (1.20%) (1.26%) (2.76)* (2.25%) (2.04%)* (1.85%) (1.81%) (1.89%)
(deficit) to
average net
assets, before
expense
reimbursement++
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio 50.51% 100.46% 129.59% 112.90% 129.59% 112.90% 50.51% 100.46% 129.59% 112.90%
turnover**
- --------------------------------------------------------------------------------------------------------------------------------
Average N/A N/A $0.0523 $0.0520 $0.0523 $0.0520 N/A N/A $0.0523 $0.0520
commission
rate paid**
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

* Annualized
** For the corresponding Funds of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated form Master Trust Funds

<PAGE>

BALANCED GROWTH A, B & C
- --------------------------------------------------------------------------------

[bullet point icon]
INVESTMENT OBJECTIVE: A balance of long-term capital appreciation and current
income.

[bullet point icon]
INVESTMENT STRATEGY: The Fund's Investment Adviser actively manages a blended
portfolio of equity and fixed income securities with an emphasis on overall
total return. For the equity portion, the Investment Adviser focuses on a
"bottom-up" analysis that evaluates the financial condition and competitiveness
of individual companies. It primarily uses computer intensive systematic
disciplines to uncover "change at the margin" - positive business developments
that are not yet fully reflected in a company's stock price. The fixed income
portion is actively managed to take advantage of current interest rates and bond
market trends by varying the structure, duration and allocation of fixed income
vehicles from all sectors of the market.

[bullet point icon]
PRINCIPAL INVESTMENTS: Under normal conditions, the Fund allocates about 60%
of its total assets (but no more than 70% and no less than 50%) to equity
securities and about 40% of its total assets to debt securities issued by
corporations and the U.S. Government, and its agencies and instrumentalities.
The equity securities will be issued primarily by companies with market
capitalizations over $100 million. A portion of the Fund's total assets (less
than 35%) may be invested in debt securities rated below investment grade. The
Fund may invest up to 20% of its total assets in securities of foreign issuers.
The Fund may also use options as hedging techniques.

[bullet point icon]
PORTFOLIO MANAGEMENT: The Investment Adviser emphasizes a team approach to
portfolio management to maximize its overall effectiveness. For a complete list
of the portfolio team, see "Portfolio Teams" on page __36__ .

[bullet point icon]
RISK FACTORS: As with any fund that invests in common stocks and debt
obligations, the value of your investment will fluctuate in response to
movements in the stock and bond markets. Equity securities of companies in
which the Fund invests may be more volatile than securities of larger, more
established companies. The values of the Fund's debt securities will change as
interest rates fluctuate: if rates go up, the values of debt securities fall;
if rates go down, the values of debt securities go up. In addition, lower
rated securities in which the Fund invests are considered speculative and are
subject to greater volatility and risk of loss than investment grade securities,
particularly in deteriorating economic periods. For a further explanation, see
"Risk Factors and Special Considerations" starting on page ___38__.

SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO PORTFOLIO PORTFOLIO
A B C
------------------------------------------------------------------------------
Maximum sales charge on purchases (as a percentage 5.25% None None
of offering price)
------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original None(1) 5.00% 1.00%
purchase price or redemption proceeds, whichever
is lower)
------------------------------------------------------------------------------
Redemption fee None None None
------------------------------------------------------------------------------
Exchange fee None None None
------------------------------------------------------------------------------

ANNUAL PORTFOLIO OPERATING EXPENSES AS A PORTFOLIO PORTFOLIO PORTFOLIO
PERCENTAGE OF AVERAGE NET ASSETS: A B C
(AFTER EXPENSE DEFERRAL)
------------------------------------------------------------------------------
Management fees 0.75% 0.75% 0.75%
------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.60% 0.75% 0.75%
------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2)1.60% 2.25% 2.25%
------------------------------------------------------------------------------

<PAGE>

(1) Shareholders who bought $1 million in shares without paying a sales charge
may be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in
this prospectus.

(2) The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. For Portfolios A, B & C, Total operating expenses would have
been, 3.30%, 6.44% and 2.83% respectively, and Other expenses would
have been 2.30%, 4.94% and 1.33% respectively, absent the deferral.
See "Investment Adviser Compensation".

Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

<PAGE>

EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvest all dividends
and the average annual return is 5%.

------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------------------------------
Portfolio A $68 $100 $135 $233
------------------------------------------------------------------------------
Portfolio B - Assuming redemption at $74 $103 $143 $258
end of time period1 $23 $70 $120 $258
- Assuming no redemption
------------------------------------------------------------------------------
Portfolio C - Assuming redemption at $33 $70 $120 $258
end of time period1 $23 $70 $120 $258
- Assuming no redemption
------------------------------------------------------------------------------

THIS EXAMPLE IS FOR COMPARISON PURPOSES ONLY AND IS NOT A REPRESENTATION OF THE
PORTFOLIOS' ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

1. Assumes deduction of a contingent deferred sales charge and no exchange of
Portfolio B shares for Portfolio A shares seven or more years after
purchase.

<PAGE>

---------------------------------------------------------------------------------------------------------------------------------
Net asset $13.52 $13.74 $16.16 $15.54 $14.18 $14.88 $13.54 $13.76 $16.20 $15.59
value, end of
period
---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: (9.35%) 3.22% 20.16% 6.74% 14.45% 6.10% 8.91% 2.47% 19.58% 6.05%
---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEM
ENTAL DATA: $6,446 $4,980 $5,902 $4,898 $673 $2,133 $16,248 $16,470 $16,586 $16,990
Net Assets
($000), end of
period
---------------------------------------------------------------------------------------------------------------------------------
Ratio of
expenses to
average net 1.59%* 1.60% 1.60% 1.60% 2.25%* 2.25% 2.24%* 2.25% 2.25% 2.25%
assets, after
expense
reimbursement++
---------------------------------------------------------------------------------------------------------------------------------
Ratio of
expenses to
average net 3.28% 2.78% 3.30% 3.00% 13.05%* 6.44% 2.73%* 2.60% 3.01% 2.83%
assets, before
expense
reimbursement++
---------------------------------------------------------------------------------------------------------------------------------

<PAGE>

---------------------------------------------------------------------------------------------------------------------------------
Ratio of net
investment
income 1.30%* 1.44% 2.16% 1.87% 1.38* 1.25% 0.61%* (0.83%) 1.53% 1.23%
(deficit) to
average net
assets, after
expense
reimbursement++
---------------------------------------------------------------------------------------------------------------------------------
Ratio of net
investment
income (0.39%)* 0.26% 0.88% 0.73% (8.86%)* (2.67%) 0.12%* (0.48%) 1.19% 0.91%
(deficit) to
average net
assets, before
expense
reimbursement++
---------------------------------------------------------------------------------------------------------------------------------
Portfolio 85.43% 110.40% 197.19% 212.95% 197.19% 212.95% 85.43% 110.40% 197.19% 212.95%
turnover**
---------------------------------------------------------------------------------------------------------------------------------
Average N/A N/A $0.0594 $0.0586 $0.0594 $0.0586 N/A N/A $0.0594 $0.0586
commission
rate paid**
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Annualized
** For the corresponding Fund of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated form Master Trust Fund

<PAGE>

INCOME & GROWTH A, B & C
- --------------------------------------------------------------------------------
NOTE: THIS FUND PRINTED BEFORE BALANCED GROWTH
- -----------------------------------------------
[bullet point icon]
INVESTMENT OBJECTIVE: Maximum total return, consisting of long-term capital
appreciation and current income.

[bullet point icon]
INVESTMENT STRATEGY: The Fund invests primarily in convertible securities.
The Investment Adviser evaluates security's investment characteristics as a
fixed income instrument as well as its potential for capital appreciation. In
evaluating convertibles, the Investment Adviser searches for what it calls
"changes at the margin" -- positive business developments which are not yet
fully reflected in the company's stock price. It searches for companies that
are managing change advantageously and poised to exceed growth expectations.

[bullet point icon]
PRINCIPAL INVESTMENTS: Under normal conditions, the Fund invests at least 65% of
its total assets in convertible securities. It invests the remainder primarily
in common and preferred stocks, debt securities, and securities issued by the
U.S. Government, and its agencies and instrumentalities.

The Fund will invest a minimum of 25% of its total assets in common and
preferred stocks, and 25% in other income producing convertible and debt
securities. The Fund may also invest up to 35% of its assets in debt
securities rated below investment grade. The Fund may also use options and
futures contracts as hedging techniques.

[bullet point icon]
RISK FACTORS: Convertible securities have the investment characteristics of
both equity and debt securities. Accordingly, the value of your investment
will fluctuate day-to-day with movements in the stock and bond markets. The
companies in which the Fund invests may be subject to more volatile market
movements than securities of larger more established companies. The values of
the Fund's debt securities change as interest rates fluctuate: if rates go up,
the values of debt securities fall; if rates go down, the values of debt
securities go up. In addition, the lower rated convertible securities in
which the Fund may invest are considered predominately speculative and are
subject to greater market risk of loss and volatility than investment grade
securities, particularly in deteriorating economic periods. For a further
explanation, see "Risk Factors and Special Considerations" starting on page
38.

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

- -----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO PORTFOLIO PORTFOLIO
A B C
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Maximum sales charge on purchases (as a percentage of offering price) 5.25% None None
- -----------------------------------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- -----------------------------------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original purchase price or
redemption proceeds, whichever is lower) None(1) 5.00% 1.00%
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fee None None None
- -----------------------------------------------------------------------------------------------------------------------------
Exchange fee None None None
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

- -----------------------------------------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET PORTFOLIO PORTFOLIO PORTFOLIO
ASSETS: A B C
(AFTER EXPENSE DEFERRAL)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Management fees 0.75% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.60% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 1.60% 2.25% 2.25%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

2. The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. For Portfolios A, B & C, Total operating expenses would have
been 1.75%***, 3.19%*** and 2.29%*** respectively, and Other expenses
would have been .17%, 1.69% and .79% respectively,. absent the deferral.
See "Investment Adviser Compensation".

Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

<PAGE>

EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvest all dividends
and the average annual return is 5%.

- -----------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio A $68 $100 $135 $233
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio B - Assuming redemption at end of time period (1) $74 $103 $143 $258
- Assuming no redemption $23 $70 $120 $258
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio C - Assuming redemption at end of time period (1) $33 $70 $120 $258
- Assuming no redemption $23 $70 $120 $258
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

THIS EXAMPLE IS FOR COMPARISON PURPOSES ONLY AND IS NOT A REPRESENTATION OF THE
PORTFOLIOS' ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

(1) Assumes deduction of a contingent deferred sales charge and no exchange of
Portfolio B shares for Portfolio A shares seven or more years after purchase.

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

- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO A PORTFOLIO B PORTFOLIO C
4/19/93 4/1/94 4/1/95 4/1/96 5/31/95 4/1/96 4/19/93 4/1/94 4/1/95 4/1/96
TO TO TO TO TO TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 3/31/96 3/31/97 3/31/94 3/31/95 3/31/96 3/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset
value,
beginning $12.50 $14.16 $12.86 $15.68 $12.50 $14.96 $12.50 $14.28 $13.03 $15.89
of period /
Income from
investment
operations:

Net 0.32 0.49 0.48 0.47 0.24 0.31 0.24 0.41 0.40 0.37
investment
income
(deficit)

Net
realized
and
unrealized 2.15 (0.89) 2.82 1.64 2.46 1.64 2.11 (0.89) 2.86 1.66
gains
(losses) on
securities
and foreign
currency
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

<PAGE>

Dividends
from net (0.32) (0.49) (0.48) (0.48) (0.24) (0.31) (0.24) (0.41) (0.40) (0.37)
investment
income

Distributio
ns from (0.49) (0.41) -- (0.72) -- -- (0.33) (0.36) -- (0.50)
capital
gains
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset $14.16 $12.86 $15.68 $16.59 $14.96 $16.60 $14.28 $13.03 $15.89 $17.05
value, end
of period
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 19.65% (2.64%) 26.00% 13.73% 21.72% 13.01% (18.76%) (3.26%) 25.24% 12.91%
RETURN:
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPP
LEMENTAL $30,447 $31,150 $31,712 $32,082 $2,125 $12,740 $69,265 $61,792 $58,997 $62,143
DATA:
Net Assets
($000), end
of period
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of
expenses to
average net 1.59%* 1.60% 1.60% 1.60% 2.25%* 2.25% 2.22%* 2.25% 2.25% 2.25%
assets,
after
expense
reimbursement++
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of
expenses to
average 1.83% 1.76% 1.76% 1.75% 7.08%* 3.19% 2.23% 2.29% 2.28% 2.29%
net assets,
before
expense
reimburse
ment++
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of
net
investment 2.83%* 3.71% 3.29% 2.83% 2.59%* 2.29% 2.28%* 3.05% 2.64% 2.18%
income
(deficit)
to average
net assets,
after
expense
reimburse
ment++
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of
net
investment 2.59%* 3.55% 3.12% 2.66% (2.22%)* 1.32% 2.27%* 3.01% 2.61% 2.11%
income
(deficit) to
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

<PAGE>

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
average
net assets,
before
expense
reimburseme
nt++
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio 117.52% 125.51% 144.97% 166.84% 144.97% 166.84% 117.52% 125.51% 144.97% 166.84%
turnover**
- ------------------------------------------------------------------------------------------------------------------------------------
Average N/A $0.0022 $0.0597 $0.0154 $0.0597 $0.0154 N/A N/A $0.0597 $0.0154
commission
rate paid**
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

* Annualized
** For the corresponding Funds of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated form Master Trust Funds

<PAGE>

GOVERNMENT INCOME A, B & C
- --------------------------------------------------------------------------------

[bullet point icon]
INVESTMENT OBJECTIVE: Current income consistent with prudent investment risk and
preservation of capital.

[bullet point icon]
INVESTMENT STRATEGY: The Fund invests primarily in intermediate-term government
bonds. When evaluating any bond, the Investment Adviser selects bonds based on
a "top down" analysis of economic trends. It also analyzes the yield to maturity
of the security, the security's credit quality, and the effect the security will
have on the average yield to maturity of the Fund.

[bullet point icon]
PRINCIPAL INVESTMENTS: Under normal conditions, the Fund invests at least 75%
of its total assets in securities issued by the U.S. Government, and its
agencies and instrumentalities. It invests the remainder primarily in
non-agency, mortgage-related securities, domestic and foreign investment grade
debt obligations and short-term investments. The Fund's weighted average
portfolio duration varies from three to six years.

[bullet point icon]
PORTFOLIO MANAGEMENT: The Investment Adviser emphasizes a team approach to
portfolio management to maximize overall effectiveness. For a complete list of
the portfolio team, see "Portfolio Teams" on page 36.

[bullet point icon]
RISK FACTORS: As with any fund that invests in bonds, the value of your
investment will fluctuate in response to movements in interest rates: if
interest rates go up, the values of debt securities fall; if rates go down, the
values of debt securities go up. Debt securities with longer maturities tend to
be more sensitive to interest rate movements than those with shorter maturities.
The Fund's value and current yield are not guaranteed by the U.S. Government.
Obligations issued by certain governmental agencies, such as Freddie Mac and
Fannie Mae, are not guaranteed by the full faith and credit of the U.S.
Government. In addition, to the extent the Fund invests in foreign issues, the
risks are magnified since performance of foreign securities also depends on
changes in foreign currency, different regulatory environments, and the overall
economic conditions in countries where the Fund invests. For a further
explanation, see "Risk Factors and Special Considerations" starting on page
38.

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

SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO A PORTFOLIO B PORTFOLIO C
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge on purchases (as a percentage of offering price) 4.75% None None
- --------------------------------------------------------------------------------------------------------------------------------
Sales charge on reinvested dividends None None None
- --------------------------------------------------------------------------------------------------------------------------------
Deferred sales charge (as a percentage of original purchase price or
redemption proceeds, whichever is lower) None(1) 5.00% 1.00%
- --------------------------------------------------------------------------------------------------------------------------------
Redemption fee None None None
- --------------------------------------------------------------------------------------------------------------------------------
Exchange fee None None None
- --------------------------------------------------------------------------------------------------------------------------------

ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET
ASSETS:
(AFTER EXPENSE DEFERRAL) PORTFOLIO A PORTFOLIO B PORTFOLIO C
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fees 0.40% 0.40% 0.40%
- --------------------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.25% 0.50% 0.50%
- --------------------------------------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.25% 0.40% 0.40%
- --------------------------------------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(2) 0.90% 1.30% 1.30%
- --------------------------------------------------------------------------------------------------------------------------------

</TABLE>

1. Shareholders who buy $1 million in shares without paying a sales charge
may be charged a contingent deferred sales charge of 1% on redemptions made
within one year of purchase. See "Contingent Deferred Sales Charge" in
this prospectus.

<PAGE>

2. The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. For Portfolios A, B & C, Total operating expenses would have
been 7.67%, 8.33% and 4.98% respectively, and Other expenses would
have been 7.02%, 7.43% and 4.08% respectively, absent the deferral. See
"Investment Adviser Compensation".

Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.

EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvest all dividends
and the average annual return is 5%.

PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio A $56 $75 $95 $153
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio B - Assuming redemption at end of time period1 $65 $75 $95 $157
- Assuming no redemption $13 $41 $71 $157
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio C - Assuming redemption at end of time period1 $24 $41 $71 $157
- Assuming no redemption $13 $41 $71 $157
- ---------------------------------------------------------------------------------------------------------------------------

</TABLE>

THIS EXAMPLE IS FOR COMPARISON PURPOSES ONLY AND IS NOT A REPRESENTATION OF THE
PORTFOLIOS' ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

1. Assumes deduction of a contingent deferred sales charge and no exchange of
Portfolio B shares for Portfolio A shares seven or more years after purchase.

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

FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal year ended March 31, 1996, and 1997, and by
another independent auditor with respect to the commencement of operations
through March 31, 1995. Please in conjunction with the Trust's 1997 Annual
Report.

PORTFOLIO A PORTFOLIO B PORTFOLIO C
--------------------------------------------------------------------------------------------------------
12/27/93 4/1/94 4/1/95 4/1/96 5/31/95 4/1/96 4/19/93 4/1/94 4/1/95 4/1/96
TO TO TO TO TO TO TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97 3/31/96 3/31/97 3/31/94 3/31/95 3/31/96 3/31/97
- ----------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset
value,
beginning of
period / Income
from investment
operations: $12.50 $12.51 $12.29 $12.74 $12.50 $12.53 $12.50 $12.56 $12.27 $12.63
Net investment
income
(deficit) 0.29 0.63 0.75 0.71 0.48 0.56 0.25 0.63 0.77 0.62
Net realized
and unrealized
gains (losses)
on securities

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

</TABLE>
<PAGE>

--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
and foreign
currency 0.34 (0.19) 0.45 (0.37) 0.04 (0.28) 0.29 (0.28) 0.36 (0.34)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from
investment
operations 0.63 0.44 1.20 0.34 0.52 0.28 0.54 0.35 1.13 0.32
Less
distributions:
Dividends from
net investment (0.29) (0.63) (0.75) (0.71) (0.48) (0.56) (0.25) (0.63) (0.77) (0.62)
income
Distributions
from capital
gains (0.33) (0.03) -- (0.21) (0.01) (0.12) (0.23) (0.01) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset $12.51 $12.29 $12.74 $12.16 $12.53 $12.13 $12.56 $12.27 $12.63 $12.29
value, end of
period
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+: 4.97% 3.68% 9.71% 2.73% 4.16% 2.30% 4.28% 2.96% 9.20% 2.29%
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL:
Net Assets ($000), $820 $925 $1,297 $1,113 $128 $1,345 $7,345 $4,278 $2,986 $3,694
end of period
----------------------------------------------------------------------------------------------------------------------------------
Ratio of
expenses to
average net 1.10%* 1.10% 0.93% 0.90% 1.33%* 1.29% 1.50%* 1.50% 1.33% 1.30%
assets, after
expense
reimbursement++
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of
expenses to
average net 20.28%* 8.40% 9.58% 7.67% 86.12%* 8.33% 3.86%* 2.67% 5.77% 4.98%
assets, before
expense
reimbursement++
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net
investment
income 3.07%* 5.18% 5.78% 5.52% 5.14%* 5.20% 2.70%* 4.58% 5.46% 5.10%
(deficit) to
average net
assets, after
expense
reimbursement++
- ----------------------------------------------------------------------------------------------------------------------------------

Ratio of net
investment
income (16.11%)* (2.12%) (0.75%) 0.22% (67.73%)* (0.36%) 0.34%* 3.41% 3.13% 2.89%
(deficit) to
average net
assets, before
expense
reimbursement++

</TABLE>

<PAGE>

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio 159.17% 258.72% 190.47% 573.72% 190.47% 573.72% 159.17% 258.72% 190.47% 573.72%
turnover**
- ----------------------------------------------------------------------------------------------------------------------------------
Average N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
commission rate
paid**
- ----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

* Annualized
** For the corresponding Fund of the Master Trust
+ Computations do not reflect the Portfolio's sales charges
++ Includes expenses allocated form Master Trust Fund

<PAGE>

MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------

[bullet point icon]
INVESTMENT OBJECTIVE: High current income consistent with preservation of
capital and maintenance of liquidity.

[bullet point icon]
INVESTMENT STRATEGY: The Fund's Investment Adviser invests only in securities
that mature in 397 days or less, and are rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organization, or in comparable unrated securities. The Fund maintains a
dollar weighted portfolio average maturity of 90 days or less.

[bullet point icon]
PRINCIPAL INVESTMENTS: The Fund invests in high-quality, short-term, U.S.
dollar denominated money market instruments that comply with the credit quality
and diversification requirements of Rule 2a-7 under the Investment Company Act,
which regulates money market funds. These include obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;
certificates of deposit, time deposits and bankers' acceptances of certain
domestic and foreign banks, and domestic savings and loan associations;
commercial paper and other short-term corporate obligations; and repurchase
agreements. Certain of the acceptable debt instruments may be credit-enhanced by
a guaranty, letter of credit, or insurance.

[bullet point icon]
RISK FACTORS: Although the Fund seeks to preserve the value of your investment
at $1.00 per share, it is possible to lose money by investing in the Fund. As
with any money market fund, there is the risk that the issuers or guarantors of
securities owned by the Fund will default on the payment of principal or
interest or the obligation to repurchase securities from the Fund. Neither the
Fund nor the Portfolio is insured or guaranteed by the U.S. Government. For a
further explanation, see "Risk Factors and Special Considerations" starting on
page 38.
- --------------------------------------------------------------------------------

INVESTOR EXPENSES: Investors pay various expenses, either directly or
indirectly. The figures below are expenses for the Portfolio and
its corresponding Fund for the past year. Actual expenses may be more or less
than those shown.

SHAREHOLDER TRANSACTION EXPENSES: PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
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(1)
- ----------------------------------------------------------------------------------------------------------------------------
Redemption fee None
- ----------------------------------------------------------------------------------------------------------------------------
Exchange fee None
- ----------------------------------------------------------------------------------------------------------------------------

</TABLE>

ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE PORTFOLIO
NET ASSETS:
(AFTER EXPENSE DEFERRAL)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Management fees (2) 0.00%
- ----------------------------------------------------------------------------------------------------------------------------
12b-1 expenses 0.15%
- ----------------------------------------------------------------------------------------------------------------------------
Other expenses (after expense deferral)(2) 0.30%
- ----------------------------------------------------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(3) 0.45%
- ----------------------------------------------------------------------------------------------------------------------------

</TABLE>

1. Shareholders who purchase shares through an exchange from A B or C
Portfolio may pay a contingent deferred sales charge on shares redeemed.
See "Contingent Deferred Sales Charge" in this prospectus.

<PAGE>

2. The management fee has been reduced to reflect waivers of the management
fee. The maximum management fee is .25%

3. The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. Total operating expenses would have been 1.73% and Other
expenses would have been 1.58%, absent the waiver and deferral. See
"Investment Adviser Compensation".

EXAMPLE The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvest all dividends
and the average annual return is 5%.

PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio $3 $10 $17 $39
- ------------------------------------------------------------------------------------------------------------

</TABLE>

THIS EXAMPLE IS FOR COMPARISON PURPOSES ONLY AND IS NOT A REPRESENTATION OF THE
PORTFOLIOS' ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

1. Assumes deduction of a contingent deferred sales charge and no exchange of
Portfolio B shares for Portfolio A shares seven or more years after purchase.

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

- ---------------------------------------------------------------------------------
PORTFOLIO
- ---------------------------------------------------------------------------------
<C> <C> <C> <C>
4/19/93 4/1/94 4/1/95 4/1/96
TO TO TO TO
3/31/94 3/31/95 3/31/96 3/31/97
- ---------------------------------------------------------------------------------
<S>
PER SHARE:
DATA
- ---------------------------------------------------------------------------------
Net asset value,
beginning of period /
Income from investment $1.00 $1.00 $1.00 $1.00
operations:
Net investment income
(deficit) 0.01 0.05 0.05 0.05
Net realized and
unrealized gains
(losses) on securities
and foreign currency
-- -- -- --
- ---------------------------------------------------------------------------------

Total from investment
operations
Less distributions: 0.01 0.05 0.05 0.05
Dividends from net
investment income
Distributions (0.01) (0.05) (0.05) (0.05)
- ---------------------------------------------------------------------------------

</TABLE>

<PAGE>

<TABLE>

<S> <C> <C> <C> <C>
from capital -- -- -- --
gains
- ---------------------------------------------------------------------------------
Net asset value, end $1.00 $1.00 $1.00 $1.00
of period
- ---------------------------------------------------------------------------------
TOTAL RETURN+: 1.72% 4.58% 5.47% 5.09%
- ---------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA: Net Asset $48 $2,996 $3,129 $36,259
($000), end of period
- ---------------------------------------------------------------------------------
Ratio of expenses to
average net assets,
after expense 0.54%* 0.31% 0.45% 0.45%
reimbursement++
- ---------------------------------------------------------------------------------
Ratio of expenses to
average net assets,
before expense 323.24%* 2.49% 5.78% 1.73%
reimbursement++
- ---------------------------------------------------------------------------------
Ratio of net
investment income
(deficit) to average 1.85%* 4.60% 5.35% 4.97%
net assets, after
expense
reimbursement++
- ---------------------------------------------------------------------------------
Ratio of net
investment income
(deficit) to average (320.85 2.42% 2.77% 4.12%
net assets, before %)*
expense
reimbursement++
- ---------------------------------------------------------------------------------
Portfolio N/A N/A N/A N/A
turnover**
- ---------------------------------------------------------------------------------
Average commission N/A N/A N/A N/A
rate paid**
- ---------------------------------------------------------------------------------
</TABLE>

* Annualized

** For the corresponding Article of the Master Trust

+ Computations do not reflect the Portfolio's sales charges

++ Includes expenses allocated form Master Trust Funds

<PAGE>

DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
CHOOSING A PORTFOLIO. This prospectus offers Series A, B & C Portfolios. Each
Portfolio has its own cost structure, allowing you to choose the one that best
meets your requirements. Your financial representative can help you decide.
For actual past expense of A, B & C Portfolios, see the Portfolio information
earlier in this prospectus.

- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED

SERIES A PORTFOLIOS Sales charges are as follows:

ALL A PORTFOLIOS EXCEPT GOVERNMENT INCOME
- --------------------------------------------------------------------------------

AS A % AS A % OF DEALER
YOUR OF YOUR COMMISSION
INVESTMENT OFFERING INVESTMENT AS % OF
PRICE OFFERING
PRICE

Up to $49,999 5.25% 5.54% 4.50%
$50,000 - $99,999 4.50% 4.71% 3.75%
$100,000 - $249,999 3.50% 3.63% 2.75%
$250,000 - $499,999 2.50% 2.56% 2.00%
$500,000 - $999,999 2.00% 2.04% 1.60%
$1,000,000 and over (See below) (See below) (See below)

GOVERNMENT INCOME PORTFOLIO
- --------------------------------------------------------------------------------

AS A % AS A % OF DEALER
YOUR OF YOUR COMMISSION
INVESTMENT OFFERING INVESTMENT AS % OF
PRICE OFFERING
PRICE

Up to $49,999 4.75% 4.99% 4.00%
$50,000 - $99,999 4.00% 4.17% 3.25%
$100,000 - $249,999 3.50% 3.63% 2.75%
$250,000 - $499,999 2.50% 2.56% 2.00%
$500,000 - $999,999 2.00% 2.04% 1.60%
$1,000,000 and over (See below) (See below) (See below)

INVESTMENTS OF $1 MILLION OR MORE of a Series A Portfolio have no front-end
sales charge. The Distributor pays a commission of 1% to financial
institutions that initiate purchases of $1 million and more.

SERIES B PORTFOLIO shares are offered at their net asset value per share,
without any initial sales charge. The Distributor pays a commission of 4% (3%
for the Government Income Portfolio) to financial institutions that initiate
purchases.

SERIES C PORTFOLIO shares are offered at their net asset value per share without
any initial sales charge. The Distributor pays a 1% commission to financial
institutions that initiate purchases.

MONEY MARKET PORTFOLIO shares are offered at their net asset value per share
without any initial sales charge.

CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a CDSC upon redemption of their shares under the
following conditions:

SERIES A PORTFOLIOS
Shareholders who buy $1 million in shares
without paying a sales charge and redeem
within one full year of purchase may be charged a
CDSC of 1% on shares redeemed.

SERIES B PORTFOLIO

YEARS AFTER CDSC ON SHARES
PURCHASE BEING SOLD
1st year 5.00%
2nd year 4.00%
3rd or 4th years 3.00%

<PAGE>

5th year 2.00%
6th year 1.00%
After 6 years None

SERIES C PORTFOLIOS
Shareholders who redeem Series C Portfolio shares within one full year of
purchase date may be charged a CDSC of 1% of shares redeemed.

MONEY MARKET PORTFOLIO
A CDSC may be charged on redemptions of shares purchased through an
exchange of Series B or C Portfolio shares by an investor who did not own
the B Portfolio shares for six full years or the A or C Portfolio shares
for one full year, whichever is applicable.

There is no CDSC imposed on shares acquired through reinvestment of dividends or
capital gains.

The CDSC will be imposed on the lesser of the original purchase price or the net
asset value of the redeemed shares at the time of redemption. CDSC calculations
are based on the numbers of shares involved, not the value of your account. To
keep your CDSC as low as possible, each time you place a request to sell shares,
we will first sell any shares in your account that represent reinvested
dividends/capital gains and then shares that satisfy the holding period. If
there are not enough of these to meet your request, we will sell your shares on
a first-in, first-out basis. Your financial institution may elect to waive some
or all of the payment thereby reducing or eliminating the otherwise applicable
CDSC.

- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS

REDUCING YOUR SERIES A PORTFOLIO SALES CHARGE. There are several ways you can
combine multiple purchases of shares of Series A Portfolios to take advantage of
the breakpoints in the sales charge schedule. These can be combined in any
manner:
- Accumulation Privilege - lets you add the value of shares of any Series A
Portfolio you and your immediate family already own to the amount of your
next investment for purposes of reducing the sales charge.
- Letter of Intent - lets you purchase shares of any Series A Portfolio over
a 13-month period and receive the same sales charge as if all shares had
been purchased at once.
- Combination Privilege - lets you combine shares of multiple Series A
Portfolios for purposes of calculating the sales charge.

TO UTILIZE: COMPLETE THE APPROPRIATE SECTION ON YOUR APPLICATION, OR CONTACT
YOUR FINANCIAL REPRESENTATIVE OR NICHOLAS-APPLEGATE MUTUAL FUNDS TO ADD THESE
OPTIONS TO AN EXISTING ACCOUNT.

CDSC WAIVERS In general, the CDSC may be waived on shares you sell for the
following reasons:
- payments through certain systematic withdrawal plans
- qualifiying distributions from qualified retirement plans and other
employee benefit plans
- distributions from custodial accounts under section 403(b)(7) of the
Internal Revenue Code as well as IRAs due to death, disability or
attainment of age 59 1/2

TO UTILIZE: CONTACT YOUR FINANCIAL REPRESENTATIVE OR THE NICHOLAS-APPLEGATE
MUTUAL FUNDS, OR CONSULT THE SAI (SEE THE BACK COVER OF THIS PROSPECTUS).

REINSTATEMENT PRIVILEGE If you sell shares of a Portfolio, you may invest some
or all of the proceeds in the same Portfolio within 90 days without a sales
charge. If you paid a CDSC when you sold your shares, you will be credited with
the amount of the CDSC. All accounts involved must have the same registration.

TO UTILIZE: CONTACT YOUR FINANCIAL REPRESENTATIVE OR NICHOLAS-APPLEGATE MUTUAL
FUNDS.

NET ASSET VALUE PURCHASES Shares of a Series A Portfolio may be sold at net
asset value to:

(1) current or retired directors, trustees, partners, officers and employees of
the Trust, the Master Trust, the Distributor, the Investment Adviser and its
general partner, certain family members of the above persons, and trusts or
plans primarily for such persons;
(2) current or retired registered representatives or full-time employees and
their spouses and minor children and plans of such persons;
(3) former limited partners and participants of certain investment partnerships
and pooled trusts previously managed by the Investment Adviser;
(4) investors who exchange their shares from an

<PAGE>

unaffiliated investment company which has a sales charge, so long as shares are
purchased within 60 days of the redemption;
(5) trustees or other fiduciaries purchasing shares for certain retirement
plans of organizations with 50 or more eligible employees;
(6) investment advisers and financial planners who place trades for their own
accounts or the accounts of their clients either individually or through a
master account and who charge a management, consulting or other fee for their
services;
(7) employee-sponsored benefit plans in connection with purchases of shares of
Series A Portfolios made as a result of participant-directed exchanges between
options in such a plan;
(8) "wrap accounts" for the benefit of clients of broker-dealers, financial
institutions or financial planners having sales or service agreements with the
Distributor or another broker-dealer or financial institution with respect to
sales of shares of the Series A Portfolios; and
(9) such other persons as are determined by the Board of Trustees (or by the
Distributor pursuant to guidelines established by the Board) to have acquired
shares under circumstances not involving any sales expense to the Trust or the
Distributor.

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Each Portfolio has adopted a distribution plan in accordance with Rule 12b-1
under the Investment Company Act. Portfolios B and C may pay a fee to the
Distributor in an amount computed at an annual rate of .75% of the average daily
net assets of each Portfolio to finance any activity which is principally
intended to result in the sale of shares. Portfolio A and the Money Market
Portfolio may pay the Distributor at the annual rate of .25% of the average
daily net assets. The schedule of such fees and the basis upon which such
fees will be paid will be determined from time to time by the Distributor.

Each of the Portfolios has adopted a shareholder services plan under which it
will reimburse the Distributor up to .25% of the average daily assets to pay
financial institutions for certain personal services for shareholders and for
the maintenance of shareholder accounts.

In addition to the payments described above, the Distributor may also pay
additional compensation to financial institutions in connection with selling
shares of the Portfolios. Compensation may include financial assistance for
conferences, shareholder services, computer software, training programs or
promotional activities. The Distributor may offer additional compensation to
financial institutions that execute NAV exchanges from unafiliated investment
companies or to those that the Distributor expects will sell a significant
amount of shares. Financial institutions may obtain more information by calling
(800) 551-8045.

THE DISTRIBUTOR OF THE TRUST'S SHARES
Nicholas-Applegate Securities
600 West Broadway, 30th Floor
San Diego, California 92101

YOUR ACCOUNT
- --------------------------------------------------------------------------------
TRANSACTION POLICIES

VALUATION OF SHARES The net asset value per share (NAV) for each Portfolio is
determined each business day at the close of regular trading on the New York
Stock Exchange (usually 4 p.m. Eastern Time) by dividing a Portfolio's net
assets by the number of its shares outstanding.

BUY AND SELL PRICES When you buy shares, you pay the NAV plus any applicable
sales charge, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charge.

EXECUTION OF REQUESTS Each Portfolio is open on those days when the New York
Stock Exchange is open, usually Monday - Friday. Buy and sell requests are
executed at the NAV next calculated after your request is received in good order
by the transfer agent.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing. Each Portfolio
reserves the right to reject any purchase or to suspend or modify the continuous
offering of its shares. Your financial representative is responsible for
forwarding payment promptly to the transfer agent. The Trust reserves the right
to cancel any buy request if payment is not received within three days.

In unusual circumstances, any Portfolio may temporarily suspend the processing
of sell requests, or may postpone payment of proceeds for up to three business
days or longer, as allowed by federal securities laws.

TELEPHONE TRANSACTIONS For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition the Trust will take measures
to verify the identity of the caller, such as asking for name, account number,
Social Security or taxpayer ID number and other relevant information. If these
measures are not taken, your Portfolio may be responsible for any losses

<PAGE>

that may occur in your account due to an unauthorized telephone call.

EXCHANGES You may exchange shares of any Portfolio for shares of the same
Series (A, B, or C) of any other Portfolio, generally without paying any
additional sales charges. You may also exchange shares of any Portfolio for
shares of the Money Market Portfolio. Series B Portfolio shares and Series C
Portfolio shares purchased through an exchange from a like Series Portfolio
will continue to age from the original date and will retain the same CDSC rate
as they had before the exchange. The holding period of Money Market Portfolio
shares purchased through an exchange from Series B or C Portfolios is excluded
from the calculation of the holding period on Series B and C Portfolio shares.

To protect the interests of other investors in a Portfolio, the Trust may cancel
the exchange privileges of any parties that, in the opinion of the Investment
Adviser, are using market timing strategies that adversely affect the Portfolio.
Guidelines for exchanges are available from the Distributor upon request. A
Portfolio may also refuse any exchange order.

CERTIFICATED SHARES Most shares are electronically recorded. If you wish to
have certificates for your shares, please write to the transfer agent.
Certificated shares can only be sold by returning the certificates to the
transfer agent, along with a letter of instruction or a stock power and a
signature guarantee.

SALES IN ADVANCE OF PURCHASE PAYMENTS When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the Portfolio will not release the proceeds to
you until your purchase payment clears. This may take up to fifteen calendar
days after the purchase.

SHAREHOLDER INQUIRIES Shareholder inquiries should be addressed to the Trust,
c/o the Trust's transfer agent,

State Street Bank and Trust Company
Attention: Nicholas-Applegate Mutual Funds
P.O. Box 8326
Boston, MA 02266-8326

Telephone inquiries can be made by calling 1-800-551-8043 or, from outside the
U.S., 1-617-774-5000 (collect).

The services referred to may be terminated or modified at any time upon 60 days'
written notice to shareholders. Shareholders seeking to add to, change or
cancel their selection of available services should contact the Transfer Agent
at the address and telephone number provided above.

FEATURES AND ACCOUNT POLICIES

RETIREMENT PLANS You may invest in each Portfolio through various retirement
plans, including IRAs, Simplified Employee Plan (SEP) IRAs, 403(b) plans, 457
plans, and all qualified retirement plans. 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, consult
your tax adviser.

ACCOUNT STATEMENTS In general, you will receive account statements as follows:
- After every transaction that affects your account balance.
- After any changes of name or address of the registered owner(s).
- In all other circumstances, every quarter.

Every year you will also receive an applicable tax information statement, mailed
by January 31.

DIVIDENDS The Portfolios generally distribute most or all of their net earnings
in the form of dividends. Each Portfolio pays dividends as follows:

ANNUALLY QUARTERLY MONTHLY
Large Cap Balanced Growth Government
Income
Core Growth Income & Growth Money Market
Emerging
Growth
Worldwide
Growth
International
Small Cap
International Core
Growth
Emerging Countries

Any net capital gains are distributed annually.

DIVIDEND REINVESTMENTS If you choose this option, or if you do not indicate any
choice, your dividends will be reinvested on the ex-dividend date.
Alternatively, you

<PAGE>

can choose to have a check for your dividends mailed to you.

TAXABILITY OF DIVIDENDS As long as a Portfolio meets the requirements for being
a tax-qualified regulated investment company, which each Portfolio has in the
past and intends to in the future, it pays no federal income tax on the earnings
it distributes to shareholders.

Consequently, dividends you receive from a Portfolio whether reinvested or taken
as cash, are generally considered taxable. Dividends from a Portfolio's
long-term capital gains are taxable as capital gains; dividends from other
sources are generally taxable as ordinary income.

Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.

The tax information statement that is mailed to you details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.

TAXABILITY OF TRANSACTIONS Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the
sale price of the shares you sell or exchange, you may have a gain or a loss on
the transaction. You are responsible for any tax liabilities generated by your
transactions.

SMALL ACCOUNTS (NON-RETIREMENT ONLY) If you draw down a non-retirement account
so that its total value is less than the Portfolio minimum, you may be asked to
purchase more shares within 60 days. If you do not take action, the Portfolio
may close out your account and mail you the proceeds. You will not be charged a
CDSC if your account is closed for this reason, and your account will not be
closed if its drop in value is due to Fund performance or the effects of sales
charges.

AUTOMATIC WITHDRAWALS You may make automatic withdrawals from a Portfolio of
$50 or more on a monthly or quarterly basis if you have an account of $5,000 or
more in the Portfolio. Withdrawal proceeds will normally be received prior to
the end of the month or quarter. See the account application for further
information.

AUTOMATIC INVESTMENT PLAN You may make regular monthly or quarterly investments
in each Portfolio through automatic withdrawals of specified amounts from your
bank account once an automatic investment plan is established. See the account
application for further details about this service or call the transfer agent at
1-800-551-8043.

CROSS-REINVESTMENT You may cross-reinvest dividends or dividends and capital
gains distributions paid by one Portfolio into shares of another Portfolio
within the same Series (A, B or C), subject to conditions outlined in the
Statement of Additional Information. Generally, to use this service the value
of your account in the Portfolio which paid the dividend or capital gain
distribution must equal at least $5,000.

CHECK WRITING (Money Market Portfolio only) You may establish checkwriting
privileges by completing the necessary forms. The minimum amount is $250 per
check and checks may only be signed by an authorized person. Costs are $5 per
checkbook and $1 for each check presented for payment.

AUTOMATIC EXCHANGES You may automatically exchange shares (in increments of $50
or more) among any of the Portfolios within the same Series (A, B or C) on a
monthly or quarterly basis. You must either meet the minimum initial investment
requirement for the receiving Portfolio or the originating Portfolio's balance
must be at least $5,000 and the receiving Portfolio's minimum must be met within
one year.

CONVERSION OF SERIES B PORTFOLIO SHARES Series B Portfolio shares may be
exchanged for corresponding Series A shares seven years after purchase.
Exchanges will be made at relative net asset value free of any charges. The
exchange will be treated as a sale for income tax purposes. The Trust currently
intends to establish, prior to 2002, an additional class of shares of each
Series B Portfolio into which the Series B Shares will convert after seven years
of ownership provided the conversion does not constitute a taxable event for
income tax purposes. The new class will have the same expenses as the Series A
Portfolios. The amount of time shares were held in the Money Market Portfolio
will be excluded from the calculation of the holding period.

<PAGE>

Simplified Account Information

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
OPENING AN ACCOUNT
-------------------------------------------------------------------------------------------
FOR THIS TYPE REGULAR INVESTMENT RETIREMENT
OF ACCOUNT -------------------------------------------------------------------------------------------
Regular For a Minor Automatic IRA, Rollover,
(UGMA/UTMA) Investment SEP, etc.
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
This is the minimum $2,000 $250 $50 $250
initial investment
- --------------------------------------------------------------------------------------------------------------------
Use this type of
application New Account Form (Non-Retirement) IRA Application
- --------------------------------------------------------------------------------------------------------------------
Before completing the Each Portfolio offers a variety of features, which are described in the "Your Account"
application section of this prospectus. Please read this section before completing the application.
- --------------------------------------------------------------------------------------------------------------------
Completing the If you need assistance, contact your financial representative,
application or call us at (800) 551-8043.
- --------------------------------------------------------------------------------------------------------------------
If you are sending Mail application and check, payable to: NICHOLAS-APPLEGATE MUTUAL FUNDS,
money by CHECK PO BOX 8326, BOSTON, MA 02266-8326. The Trust WILL NOT accept third-party checks.
- --------------------------------------------------------------------------------------------------------------------
If you are sending Please read the bank wire or ACH section under the "Buying Shares" section below.
money by BANK WIRE or You will need to obtain an account number with the Trust by sending a completed
ACH application to:
NICHOLAS-APPLEGATE MUTUAL FUNDS, PO BOX 8326, BOSTON, MA 02266-8326.
To receive your account number, call either your financial representative or us
at (800)551-8043.
- --------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------
BUYING SHARES
-------------------------------------------------------------------------------------------
FOR THIS TYPE REGULAR INVESTMENT RETIREMENT
OF ACCOUNT -------------------------------------------------------------------------------------------
Regular For a Minor Automatic IRA, Rollover,
(UGMA/UTMA) Investment SEP, etc.
- --------------------------------------------------------------------------------------------------------------------
This is the minimum $100 $100 $50 $100
initial investment
- --------------------------------------------------------------------------------------------------------------------
The price you will
receive The Trust is open on days that the New York Stock Exchange is open.
All transactions received in good order before the market closes receives that day's price.
- --------------------------------------------------------------------------------------------------------------------
If you are sending
money by CHECK Mail application and check, payable to:
NICHOLAS-APPLEGATE MUTUAL FUNDS, PO BOX 8326, BOSTON, MA 02266 8326.
For your convenience, you may use the form included in your statement. If you don't,
please provide with your check a note providing your name, Portfolio and account
number.
The Trust WILL NOT accept third-party checks.
- --------------------------------------------------------------------------------------------------------------------
If you are sending Instruct your bank to wire the amount you wish to invest to:
money by BANK WIRE STATE STREET BANK & TRUST CO. - ABA #011000028
DDA #9904-645-0
STATE STREET BOS, ATTN: MUTUAL FUNDS
CREDIT: NICHOLAS-APPLEGATE [PORTFOLIO NAME], [YOUR NAME],[ACCOUNT NAME OR NUMBER]
- --------------------------------------------------------------------------------------------------------------------
If you are sending Call your bank to ensure (1) that your bank supports ACH, and (2) this feature is active
money by ACH on your bank account. To establish this option, either complete the appropriate sections
when opening an account, or contact your financial representative or the Trust at (800)
551-8043 for further information.
To initiate an ACH purchase, call us at (800)551-8043.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXCHANGING SHARES
-------------------------------------------------------------------------------------------

FOR THIS TYPE REGULAR INVESTMENT RETIREMENT
OF ACCOUNT
-------------------------------------------------------------------------------------------
Regular For a Minor Automatic IRA, Rollover,
(UGMA/UTMA) Investment SEP, etc.
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
This is the minimum $2,000 $250 $50 $250
exchange amount to
open a new account
- --------------------------------------------------------------------------------------------------------------------
The price you
will receive The Trust is open on days that the New York Stock Exchange is open.
All transactions received in good order before the market closes receives that day's price.
- --------------------------------------------------------------------------------------------------------------------
Things you should The exchange must be to a portfolio in the same series in an account
know with the same registration.
If opening an account as part of an exchange, you must obtain and read the prospectus.
If you intend to keep money in the portfolio you are exchanging from, make sure that
you leave an amount equal to or greater than the portfolio's minimum account size (see
the "Opening an Account" section).
To protect other investors, the Trust may limit the number of exchanges you can make.
- --------------------------------------------------------------------------------------------------------------------
How to request an Either contact your financial representative, or call us at (800) 551-8043.
exchange by PHONE The Trust will accept a request by phone if this feature was previously established on
your account.
See the "Your Account" section for further information.
- --------------------------------------------------------------------------------------------------------------------
How to request an Please put your exchange request in writing, including: the name on the account, the
exchange by MAIL name of the portfolio and the account number you are exchanging from, the shares or
dollar amount you wish to exchange, and the portfolio you wish to exchange to. Mail
this request to: PO BOX 8326, BOSTON, MA 02266-8326.
- --------------------------------------------------------------------------------------------------------------------

SELLING OR REDEEMING SHARES
-------------------------------------------------------------------------------------------

IN WRITING BY PHONE
- --------------------------------------------------------------------------------------------------------------------

Things you Certain requests may require a SIGNATURE Selling shares by phone is a service option
should know GUARANTEE. See that section below for which must be established on your account
further information. You may sell up to prior to making a request. See page 28 in
the full account value, less any the "Your Account" section, or contact
applicable sales charge. The Trust may your financial representative, or call us
have additional requirements for at (800) 551-8043 for further
redeeming shares. Please call us for information.
more information. The maximum amount which may be
requested by phone, regardless of account
size, is $50,000.
An amount greater than that must be
requested in writing. I you wish to receive
your monies by bank wire, the minimum
request is $5,000.

- --------------------------------------------------------------------------------------------------------------------
If you purchased shares through a financial representative, you should call him or her
regarding the most efficient way to sell shares.
If you bought shares recently by check, they may not be available to be sold for up to 15
calendar days from the date of purchase.
Sales by a corporation, trust or fiduciary may have special
requirements.
Please call your financial representative or us for further information.
- --------------------------------------------------------------------------------------------------------------------
The price you The Trust is open on days that the New York Stock Exchange is open.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------------------------
will receive All transactions received in good order before the market closes receive that day's price.
- --------------------------------------------------------------------------------------------------------------------
If you want to receive Please put your request in writing, Either contact your financial representative
your monies by CHECK including: the name of the account owners, or call us at (800) 551-8043.
account number and portfolio you are The proceeds will be sent to the
redeeming from, the share or dollar address listed on the account.
amount you wish to sell, signed by all
account owners. Mail this request to:
NICHOLAS-APPLEGATE MUTUAL FUNDS,
PO BOX 8326, BOSTON, MA 02266-8326.
The check will be sent to the address listed
on the account.
- --------------------------------------------------------------------------------------------------------------------
If you want to receive Please put your request in writing, Either contact your financial representative
your monies by BANK including: the name of the account owners, or call us at (800) 551-8043.
WIRE account number and portfolio you are The proceeds will be sent to the existing
redeeming from, the share or dollar bank wire address listed on the account.
amount you wish to sell, signed by
all account owners. Mail this request
to: NICHOLAS-APPLEGATE MUTUAL FUNDS,
PO BOX 8326, BOSTON, MA 02266-8326.
The check will be sent to the existing
bank wire address listed on the account.
- --------------------------------------------------------------------------------------------------------------------
If you want to receive Please call us at (800) 551-8043. Either contact your financial representative
your monies by ACH or call us at (800) 551-8043.
The proceeds will be sent to the existing
ACH instructions on the account and will
generally be received at your bank two
business days after your request is
received.
- --------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------
SIGNATURE GUARANTEES
-------------------------------------------------------------------------------------------
A definition A signature guarantee is required of a financial institution to verify the
authenticity of the individual's signature.
It can usually be obtained from a broker, commercial or savings bank, or credit union.
- --------------------------------------------------------------------------------------------------------------------
When do you need one A signature guarantee is needed when making a written request for the following
reasons:
1. When selling more than $50,000 worth of shares;
2. When you want a check or bank wire sent to a name or address that is not currently
listed on the account;
3. To sell shares from an account controlled by a corporation, partnership, trust or
fiduciary; or
4. If your address was changed within the last 60 days.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

ORGANIZATION AND MANAGEMENT

MASTER/FEEDER STRUCTURE

The Portfolios are series of shares of Nicholas-Applegate Mutual Funds (the
"Trust"). Unlike other mutual funds that acquire their securities directly, the
Portfolios invest their assets in the Funds, which is a series of Nicholas-
Applegate Investment Trust (the "Master Trust"). This two-tier structure is
known as a "master/ feeder" structure. One to five Portfolios, or feeder funds,
each designated A, B, C, I or Q invest in each Fund. (For example a Portfolio
seeking capital appreciation by investing in securities of issuers located in
countries with emerging securities markets invests in the Emerging Countries
Fund.) The major variations among the Portfolios that invest in the same Fund
are sales charges, expenses, and investment minimums. The Board of Trustees
believes that the aggregate per share expenses of each Portfolio are no greater
than the expenses that the Portfolio would incur if it retained the services of
an investment adviser and invested assets directly into the types of securities
held by the Fund. You can obtain more information about the I and Q
Portfolios from your investment representative, or from Nicholas-Applegate
Securities at telephone (800) 551-8643.

A Board of Trustees supervises the overall activities of the Master Trust. The
Board selects an investment adviser, an administrator, and a custodian for the
Fund. The Board has the right to terminate these relationships and retain a
different company if it believes it is in the best interests of the Master
Trust.

A separate Board of Trustees supervises the overall activities of the Trust. It
selects the Funds in which to invest, a distributor to market its shares to
investors, a transfer agent, administrators, and others to provide services.
Individual investors purchase shares of the Portfolios through financial
intermediaries or directly from the Trust.

Each Portfolio may withdraw its investment from the corresponding Fund at any
time if the Board determines that it is in the best interests of the
shareholders and only with approval of the Portfolio's shareholders. In that
event, the Board of Trustees would consider alternative arrangements such as
investing a Portfolio's assets in another investment company with the same
investment objectives as the Portfolio or hiring an investment manager to invest
the assets in accordance with the Portfolio's investment policies.

A Portfolio may also be liquidated at any time. The net proceeds of any
liquidation will be distributed to all shareholders of the Portfolio in
proportion to their respective holdings.

Whenever a Portfolio is requested to vote, as shareholder, on a matter
pertaining to the corresponding Fund, the Portfolio will hold a meeting of its
shareholders so that shareholders can provide instructions. The Portfolio will
in turn vote in the same proportion as directed by the shareholders. Approval
of changes in a Fund's investment objective, policies, and limitations by a
majority of the Portfolios may require non-assenting Portfolios to withdraw
their investment in the Fund.

<PAGE>

MASTER FEEDER STRUCTURE

-----------------------------------
SHAREHOLDERS

-----------------------------------
|
|
| BUY SHARES IN

-----------------------------------
PORTFOLIOS
OF
NICHOLAS-APPLEGATE MUTUAL FUNDS
-----------------------------------
|
|
| INVEST IN

-----------------------------------
MASTER FUNDS
OF
NICHOLAS-APPLEGATE INVESTMENT TRUST
-----------------------------------
|
|
| INVEST IN

-----------------------------------
STOCKS, BONDS & OTHER SECURITIES
-----------------------------------
<PAGE>

INVESTMENT ADVISER COMPENSATION. Each Fund pays the Investment Adviser a
monthly fee pursuant to an investment advisory agreement. The Emerging
Countries Fund pays a monthly fee at the annual rate of 1.25% of the Fund's net
assets. The Worldwide, International Small Cap and International Core Growth
Funds each pay at the annual rate of 1.00% of the first $500 million net
assets, .90% of the next 500 million of net assets, and .85% of net assets of
each Fund in excess of $1 billion. The Emerging Growth Fund pays at the annual
rate of 1.00% of the Fund's net assets. The Large Cap Growth, Core Growth
Fund, Income & Growth Fund and Balanced Growth Fund each pay at the annual rate
of 0.75% of the first $500 million of the Fund's net assets, 0.675% of the next
$500 million of net assets, and 0.65% of net assets in excess of $1 billion;
The Government Income Fund pays at the annual rate of 0.40% of the first $500
million of the Fund's net assets, and 0.35% of net assets in excess of $500
million. The Money Market Fund pays at the annual rate of .25% of the first
$500 million of the Fund's net assets, and .2275% of net assets in excess of
$500 million.

The Investment Adviser has agreed to waive or defer its management fees payable
by the Funds, and to absorb other operating expenses of the Funds and the
Portfolios, so that the expenses for each Portfolio will not exceed the
following expense ratios on an annual basis through March 31, 1998: Worldwide
Growth Portfolios A, B & C - 1.85%, 2.50%, and 2.50%; International Small Cap
Growth Portfolios A, B & C - 1.95%, 2.60% and 2.60%; Emerging Countries
Portfolios A, B & C - 2.25%, 2.90% and 2.90%; International Core Growth
Portfolios A , B & C - 1.95%, 2.60% and 2.60%; Income & Growth, Balanced
Growth, Large Cap Growth, Core Growth Portfolios A, B & C - 1.60%, 2.25% and
2.25%; Emerging Growth Portfolios A, B & C - 1.95%, 2.60% and 2.60%; Government
Income Portfolios A, B & C - .90%, 1.30% and 1.30%; Money Market Portfolio -
1.10%. Each Portfolio will reimburse the Investment Adviser for fees deferred
or other expenses paid pursuant to this Agreement in later years in which
operating expenses for the Portfolio are less than the percentage limitation set
forth above for any such year.

ADMINISTRATOR COMPENSATION. The Funds and the Portfolios pay administrative
fees for administrative personnel and services (including certain legal and
financial reporting services). Each Portfolio pays Nicholas-Applegate Capital
Management an annual fee of .10% of net assets. Each Portfolio pays Investment
Company Administration Corporation (ICAC) an annual fee of $5,000 - $35,000. In
addition, each Fund pays ICAC a fee at an annual rate equal to 0.15% of net
assets.

PORTFOLIO TRADES. The Investment Adviser is responsible for the Funds'
portfolio transactions. In placing portfolio trades, the Investment Adviser may
use brokerage firms that sell shares of the Portfolios or that provide research
services to the Funds, but only when the Investment Adviser believes no other
firm offers a better combination of quality execution (i.e., timeliness and
completeness) and favorable price. The Investment Adviser expects high annual
portfolio turnover up to 200%. This is generally higher than other funds and
will result in the Funds incurring higher brokerage costs.

INVESTMENT OBJECTIVE. Each Fund's and each Portfolio's investment objective is
fundamental and may only be changed with shareholder approval.

DIVERSIFICATION. All the Funds are diversified.

<PAGE>

PORTFOLIO TEAMS
- --------------------------------------------------------------------------------

EQUITY MANAGEMENT - INTERNATIONAL/GLOBAL

NAME

Catherine Somhegyi, Partner
Chief Investment Officer - Global Equity Management
Joined firm in 1987; prior investment
experience with Professional Asset Securities Inc.
and Pacific Century Advisers
M.B.A. and B.S. - University of Southern California

Larry Speidell, CFA, Partner
Director of Global/Systematic Portfolio Management and Research
Joined firm in 1994; 23 years prior investment experience with Batterymarch
Financial Management and Putnam Management Company
M.B.A. - Harvard University; B.E. - Yale University

John J. Kane, Partner
Portfolio Manager - U.S. Systematic
Joined firm in 1994; 25 years prior investment/economics experience with ARCO
Investment Management Company and General Electric Company
M.A. and B.A. - Columbia University; M.B.A. - University of California, Los
Angeles

Aaron Harris
Portfolio Manager - Emerging Countries
Joined firm in 1995; 1 year prior investment experience
at Chemical Bank
B.A. - Princeton University

Pedro V. Marcal
Portfolio Manager - Emerging Countries
Joined firm in 1994; 5 years prior investment experience with A. B. Laffer, V.
A. Canto & Associates, and A-Mark Precious Metals
B.A. - University of California, San Diego

Eswar Menon
Portfolio Manager - Emerging Countries
Joined firm in 1995; 5 years prior investment experience
with Koeneman Capital Management and
Integrated Device Technology
M.B.A., - University of
Chicago; M.S. - University of California,
Santa Barbara; B.S. - Indian Institute of
Technology, Madras

Portfolio Manager - International;
Joined firm in 1990; 10 years prior investment experience with Collins
Associates
Attended California State University, Long Beach; CFA Level II candidate

Alex Muromcew
Portfolio Manager - International
Joined firm in 1996; 6 years prior investment experience with Jardine Fleming
Securities (Japan); Emerging Markets Investors Corporation; Teton Partners LP
M.B.A. - Stanford University, B.A. - Dartmouth College

Ernesto Ramos, Ph.D.
Portfolio Manager - International
Joined firm in 1994; 14 years prior investment and quantitative research
experience with Batterymarch Financial Management; Bolt Beranek & Newman Inc.;
and Harvard University
Ph.D. - Harvard University; B.S. - Massachusetts Institute of Technology

FUND

Worldwide Growth
International Core Growth
International Small Cap Growth
Emerging Countries

International Core Growth
Worldwide Growth
International Small Cap Growth
Emerging Countries
Balanced Growth

<PAGE>

Worldwide Growth
Balanced Growth

Emerging Countries, Balanced Growth

Worldwide Growth
Emerging Countries

Emerging Countries

Worldwide Growth
International Core Growth
International Small Cap Growth

EQUITY MANAGEMENT- U.S.

John C. Marshall Jr., Partner
Chief Investment Officer - Institutional Equity Management
Joined firm in 1989; 8 years prior investment experience with Pacific Century
Advisers; San Diego Trust & Savings Bank; Howard, Weil, Labouisse, Friedrichs
Inc.
M.B.A. and B.B.A. - Southern Methodist University

Catherine Somhegyi, Partner
Chief Investment Officer - Global Equity Management
Joined firm in 1987.
M.B.A. and B.S. - University of Southern
California

Thomas E. Bleakley
Portfolio Manager
Joined firm in 1995; 3 years prior investment experience with Twentieth Century
Investors and Dell Computer Corporation
M.B.A. - University of Texas; B.S. - Boston University

Sandra K. Durn
Portfolio Manager
Joined firm in 1994; prior experience at Science Solutions, Inc. and San Diego
State University, economics department (instructor)
M.A. - San Diego State University; B.A. - University of Maryland

Andrew B. Gallagher
Portfolio Manager
Joined firm in 1992; 7 years prior investment experience with Pacific Century
Advisors and Sentinel Asset Management Inc.
M.B.A. - San Diego State University; B.A. - University of California, Irvine

Ronald J. Krystyniak, CFA
Portfolio Manager
Joined firm in 1996; 7 years prior investment experience with Pilgrim Baxter &
Associates and Peterson Consulting & Company
B.S. - Syracuse University

Maren Lindstrom
Portfolio Manager
Joined firm in 1994; 5 years prior investment experience with Societe Generale;
Banque D'Orsay; and Prudential Asset Management
M.B.A. - University of California, Los Angeles; B.A. - University of Michigan

John C. McCraw
Portfolio Manager
Joined firm in 1992; prior experience with Nations Bank

<PAGE>

M.B.A. - University of California, Irvine; B.A. - Flagler College

Thomas J. Sullivan
Portfolio Manager
Joined firm in 1994; 2 years prior investment experience with Donaldson, Lufkin
& Jenrette Securities Corp.
B.S. - Rochester Institute of Technology

Core Growth, Large Cap Growth

Emerging Growth
Balanced Growth
Income & Growth

Emerging Growth

Income & Growth

Core Growth
Large Cap Growth

Emerging Growth

Core Growth
Income & Growth

Emerging Growth

Core Growth

<PAGE>

FIXED INCOME

Fred S. Robertson, III, Partner
Joined firm in 1995; 22 years prior investment experience with Criterion
Investment Management Company and DuPont Chemical Pension Fund
M.B.A. - College of William and Mary; B.S. - Cornell University

James E. Kellerman, Partner
Portfolio Manager
Joined firm in 1995; 20 years prior investment experience with Criterion
Investment Management Company, Brown Brothers Harriman and Equitable Life
Insurance Co.
M.B.A. - St. John's University;
B.B.A. - Susquehanna University

Claudia L. Bengston
Portfolio Manager
Joined firm in 1995; 18 years prior investment experience with Criterion
Investment Management Company and Gibraltar Savings
B.S. - University of Oklahoma

Malcom S. Day, CFA
Portfolio Manager
Joined firm in 1995; 3 years prior investment experience with Payden & Rygel
M.B.A. - University of California, Los Angeles;
B.S. - Northwestern University

Susan Malone
Portfolio Manager
Joined firm in 1996; 7 years prior investment experience with BEA Associates
M.B.A. - New York University; B.S. - Carnegie Mellon University

Chief Investment Officer - Fixed Income

Balanced Growth
Government Income
Money Market

Government Income
Balanced Growth
Money Market

Money Market

Balanced Growth
Government Income
Money Market

Government Income
Balanced Growth

<PAGE>

RISK FACTORS AND SPECIAL CONSIDERATIONS

MUTUAL FUND CONSIDERATIONS IN GENERAL

Prospective investors should know that any mutual fund investment is subject to
normal market fluctuations and other risks inherent in investing in securities.
There can be no assurance that your investment will increase in value. The
value of your investment will go up and down depending upon market forces and
you may not recoup your original investment. Given the fact that the Portfolios
may charge a sales related fee, you should consider an investment in any of the
Portfolios as a long-term investment.

GLOBAL INVESTING CONSIDERATIONS

CURRENCY FLUCTUATIONS
Because the assets of each Fund (except the Money Market Fund) may be invested
in instruments issued by foreign companies, the principal income and sales
proceeds may be paid to the Funds in local foreign currencies. A reduction in
the value of local currencies relative to the U.S. dollar could mean a
corresponding reduction in the value of the Funds. The value of a foreign
security generally tends to decrease when the value of the U.S. dollar rises
against the foreign currency in which the security is denominated and tends to
increase when the value of the dollar falls against such currency. The Funds
may incur costs in connection with conversions between currencies.

SOCIAL, POLITICAL AND ECONOMIC FACTORS
The economies of many of the countries where the Funds may invest may be subject
to a substantially greater degree of social, political and economic instability
than the United States. Such instability may result from, among other things,
the following: authoritarian governments, popular unrest associated with
demands for improved political, economic and social conditions, internal
insurgencies and terrorist activities, hostile relations with neighboring
countries, and drug trafficking. This instability might impair the financial
conditions of issuers or disrupt the financial markets in which the Funds
invest.

The economies of foreign countries may differ favorably or unfavorably and
significantly from the economy of the United States in such respects as the rate
of growth of gross domestic product, rate of inflation, currency depreciation,
savings rates, fiscal balances, and balance of payments positions. Governments
of many foreign countries continue to exercise substantial control over private
enterprise and own or control many companies. Government actions could have a
significant impact on economic conditions in certain countries which could
affect the value of the securities of the Funds. For example, a foreign country
could nationalize an entire industry. In such a case, the Funds may not be
fairly compensated for their losses and might lose their entire investment in
the country involved.

The economies of certain foreign countries are heavily dependent upon
international trade and accordingly are affected by protective trade barriers
and the economic conditions of their trading partners. The enactment by the
United States or other principal trading partners of protectionist legislation
could have a significant adverse effect on the securities markets of these
countries. Some foreign countries (mostly in Africa and Latin America) are
large debtors of commercial banks, foreign governments, and supranational
organizations. These obligations, as well as future restructurings of debt, may
affect the economic performance and political and social stability of these
countries.

INFLATION
Certain foreign countries, especially many emerging countries, have experienced
substantial, and in some periods extremely high and volatile, rates of
inflation. Rapid fluctuations in inflation rates and wage and price controls
may continue to have unpredictable effects on the economies, companies and
securities markets of these countries.

MARKET CHARACTERISTICS

DIFFERENCES IN SECURITIES MARKETS. The securities markets in foreign countries
have substantially less trading volume than the markets in the United States and
debt and equity securities of many companies listed on such markets may be less
liquid and more volatile than comparable securities in the United States. Some
of the stock exchanges in foreign countries, to the extent that established
markets exist, are in the earlier stages of their development. The limited
liquidity of certain securities markets may affect the ability of a Fund to buy
and sell securities at the desired price and time. In addition, the securities
markets of some foreign countries are susceptible to being influenced by large
investors trading significant blocks of stocks.
Trading practices in certain foreign countries are also significantly different
from those in the United States. Local commercial, corporation and securities
laws govern the sale and resale of securities, and certain restrictions may
apply. Although brokerage

<PAGE>

commissions are generally higher than those in the U.S. the Investment Adviser
will seek to achieve the most favorable net results. In addition, securities
settlements and clearance procedures may be less developed and less reliable
than those in the United States. Delays in settlement could result in temporary
periods in which the assets of a Fund are not fully invested, or it could
result in the Fund being unable to sell a security in a falling market.

GOVERNMENT SUPERVISION OF SECURITIES MARKETS. Disclosure and regulatory
standards in many foreign countries are in many respects less stringent than
those in the United States. There may be less government supervision and
regulation of securities exchanges, listed companies, investors, and brokers in
foreign countries than in the United States, and enforcement of existing
regulations may be extremely limited.

FINANCIAL INFORMATION AND REPORTING STANDARDS. Issuers in foreign countries are
generally subject to accounting, auditing, and financial standards and
requirements that differ, in some cases materially, from those in the United
States. In particular, the assets and profits appearing in financial statements
may not reflect their financial position or results in the way they would be
reflected had the statements been prepared in accordance with U.S. generally
accepted accounting principles. Consequently, financial data may not reflect
the true condition of those issuers and securities markets.

THE FUNDS' INVESTMENTS

EQUITY SECURITIES.
Each of the Funds (except the Government Income and Money Market Funds) may buy
equity securities, including common stocks, convertible securities, and
warrants. Equity securities represent an ownership in a company. The Funds may
invest in growth companies, cyclical companies, companies with smaller market
capitalizations, or companies believed to be undergoing a basic change in
operations or markets. Although equity securities have a history of long-term
growth in value, their prices rise and fall as a result of changes in the
company's financial condition as well as movements in the overall securities
markets.

SMALLER ISSUERS.
Each Fund (except the Government Income Fund) may invest in small to medium-size
companies. Smaller and medium-size issuers may be less seasoned, have more
limited product lines, markets, financial resources and management depth, and be
more susceptible to adverse market conditions than larger issuers. As a result,
the securities of such smaller issuers may be less actively traded than those of
larger issuers and may also experience greater market volatility.

CONVERTIBLE SECURITIES.
Each Fund (except the Money Market Fund) may invest in convertible securities.
A convertible security is a fixed income equity security that may be converted
into a prescribed amount of common stock at a specified formula. A convertible
security entitles the owner to receive dividends until the security matures or
is converted. Convertibles have several unique investment characteristics such
as: (a) higher yields than common stocks but lower yields than straight debt
securities; (b) lesser degree of fluctuation in value than the underlying stock
since they have fixed income characteristics; and (c) potential for capital
appreciation if the market price of the underlying security increases.

CORPORATE DEBT SECURITIES.
Each Fund may invest in corporate debt securities. Corporate debt securities
are subject to the risk of an issuer's inability to meet principal and interest
payments on the obligation (credit risk) and may also be subject to price
volatility due to such factors as interest rate sensitivity, market perception
of the credit-worthiness of the issuer and general market liquidity (market
risk). When interest rates decline, the value of the Funds' debt securities can
be expected to rise, and when interest rates rise, the value of those securities
can be expected to decline.

Each Fund, (except the Balanced Growth and Income & Growth Funds) will purchase
debt obligations only if they are deemed investment grade -- that is, they
carry a rating of at least BAA from Moody's or BBB from Standard and Poor's, or
comparable rating from another rating agency or, if not rated by an agency, are
determined by the Investment Adviser to be of comparable quality. Bonds rated
BBB or Baa may have speculative characteristics and changes in economic
circumstances are more likely to lead to a weakened capacity to make interest
and principal payments than higher-rated bonds. The Funds (except the Balanced
Growth and Income & Growth Funds) intend to dispose, in an orderly manner, of
any security which is downgraded below investment grade.

LOWER RATED SECURITIES CONSIDERATIONS.
The Balanced Growth Fund and the Income & Growth Fund may invest in debt
securities that are not in the four highest rating categories but will in no
event purchase securities rated below "C" or

<PAGE>

equivalent. A description of these rating categories is contained in this
Statement of Additional Information.

Lower-rated debt securities usually offer higher yields than the higher-rated
securities because of reduced creditworthiness and increased risk of default.
Lower-rated or unrated debt obligations are more likely to react to developments
affecting market and credit risks than are the more highly rated securities,
which react primarily to movements in general level of interest rates. In the
past, economic downturns or increases in interest rates have caused a higher
incidence of default by the issuers of lower-rated securities.

In some cases, such obligations may be highly speculative, and may have poor
prospects for reaching investment grade. To the extent that the issuer
defaults, the Fund may incur additional expenses in order to enforce its rights
or to participate in a restructuring of the obligation. In addition, the prices
of lower quality securities generally tend to be more volatile and the market
less liquid than those of investment grade securities. Consequently, the Funds
may at times experience difficulty in liquidating their investments at the
desired time and price.

In purchasing such securities, the Investment Adviser will rely on its analysis,
judgment and experience in evaluating the creditworthiness of the issuer of such
securities. The Investment Adviser will consider, among other things, the
issuer's financial resources, its operating history, its sensitivity to economic
conditions and trends, the quality of issuer's management and regulatory
matters.

U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Some U.S. Government securities, such as U.S. Treasury
bills, notes bonds, and certificates issued by the Government National
Mortgage Association (GNMA) are supported by the full faith and credit of the
United States. Other U.S. Government securities, such as securities issued
by the Federal National Mortgage Association (FNMA) and the Federal Home Loan
Bank Board, are supported by the right of the issuer to borrow from the U.S.
Treasury. Still others, such as the Student Loan Marketing Association., are
supported only by the credit of the issuer. U.S. Government securities may
include zero coupon securities that are issued or purchased at a significant
discount from face value.

MORTGAGE RELATED SECURITIES.
Each Fund, and in particular the Government Income Fund, may invest in mortgage
related securities. Collateralized mortgage obligations (CMOs) are debt
obligations collateralized by a pool of mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by certificates issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, such as
GNMA or FNMA.

In a CMO, a series of bonds are issued in multiple classes referred to as
"tranche." Each tranche is issued at a fixed or floating coupon rate and has a
stated maturity or final distribution date. The principal of and interest on
the underlying mortgage assets may be allocated among the several tranches in
innumerable ways. The Funds intend to invest only in those tranches that have
the most stable cash flows from principal and interest payments.

Each Fund may invest in certificates issued by the Government National Mortgage
Association (GNMA). 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. Timely payment of interest and principal on each mortgage is
quaranteed by GNMA and backed by the full faith and credit of the U.S
Government.

Because the mortgages underlying mortgage-related securities may be prepaid
without penalty or premium, mortgage-related securities are generally subject to
higher prepayment risks than most other types of debt instruments. Prepayment
risks tend to increase during periods of declining mortgage interest rates
because many borrowers refinance their mortgages to take advantage of the more
favorable market rates. Accordingly, mortgage-related securities may be a less
effective means of "locking in" interest rates than other types of debt
securities having the same maturity and may also have less potential for capital

<PAGE>

appreciation.

COMMERCIAL PAPER
The Money Market Fund will, while each of the other Funds may, invest in
commercial paper which is rated P-1 or P-2 by Moody's or A-1 or a-2 by S & P (or
other equivalent), or, if not rated, is issued by an entity which the Investment
Adviser determines to be of minimal credit risk and comparable quality.

INVESTMENT COMPANY SECURITIES.
Each Fund may invest up to 10% of its total assets in the shares of other
investment companies. The Funds may invest in money market mutual funds in
connection with the management of their daily cash positions. The Funds may
also make indirect foreign investments through other investment companies that
have comparable investment objectives and policies to the Funds. In addition to
the advisory and operational fees each Fund bears directly in connection with
its own operation, the Funds would also bear their pro rata portions of each
other investment company's advisory and operational expenses.

ILLIQUID SECURITIES.
Each Fund may invest up to 15% of its net assets in securities that are
considered illiquid (10% for the Money Market Fund). An illiquid investment is
generally an investment that is not registered under U.S. securities laws,
cannot be offered for public sale in the U.S. without first being registered
under U.S. securities laws, or cannot be disposed of within seven days in the
normal course of business at approximately the amount at which the Fund values
it. Limitations on resale may adversely affect the marketability of illiquid
securities and the Fund may not be able to dispose of these securities at the
desired time and price. A Fund may bear additional expenses if it has to
register these securities under U.S. securities laws before being resold.

TEMPORARY INVESTMENTS.
The Funds may from time to time on a temporary basis, to maintain liquidity or
when the Investment Adviser determines that market conditions call for a
temporary defensive posture, invest all of their assets in short-term
instruments. These temporary investments include: notes issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; commercial paper
rated in the highest two rating categories; certificates of deposit; repurchase
agreements and other high grade corporate debt securities.

THE FUNDS' INVESTMENT TECHNIQUES

REPURCHASE AGREEMENTS.
Each Fund may enter into repurchase agreements, such as the purchase by the
Fund of a security that the seller has agreed to buy back, usually within one to
seven days. The seller's promise to repurchase the security is fully
collateralized by securities equal in value to 102% of the purchase price,
including accrued interest. If the seller defaults and the collateral value
declines, the Fund might incur a loss. If the seller declares bankruptcy, the
Fund may not be able to sell the collateral at the desired time. The Funds
enter into these agreements only with brokers, dealers, or banks that meet
credit quality standards established by the Board of Trustees of the Master
Trust.

SHORT SALES.
The Worldwide, International Small Cap Growth, International Core Growth, Core
Growth and Emerging Growth Funds may maintain short positions in securities.
A "short sale" is the sale by the Fund of a security which has been borrowed
from a third party on the expectation that the market price will drop. If the
price of the security drops, the Fund will make a profit by purchasing the
security in the open market at a lower price than at which it sold the security.
If the price of the security rises, the Fund may have to cover its short
position at a higher price than the short sale price, resulting in a loss. A
short sale can be covered or uncovered. In a covered short sale, the Fund
either (1) borrows and sells securities it already owns (also known as a short
sale "against the box"), or (2) deposits in a segregated account cash, U.S.
Government securities, or other liquid securities in an amount equal to the
difference between the market value of the securities and the short sale price.
Use of uncovered short sales is a speculative investment technique and has
potentially unlimited risk. Accordingly, a Fund will not make uncovered short
sales in an amount exceeding the lesser of 2% of the Fund's net assets or 2% of
the securities of such class of the issuer. The Board of Trustees has
determined that no Fund will make short sales if to do so would create
liabilities or require collateral deposits of more than 25% of the Fund's total
assets to be segregated.

WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS.
Each Fund may purchase or sell securities for delivery at a future date,
generally 15 to 45 days after the commitment is made. The other party's failure
to complete the transaction may cause the Fund to miss a price or yield
considered to be

<PAGE>

advantageous. A Fund may not purchase when-issued securities or enter into firm
commitments if, as a result, more than 15% of the Fund's net assets would be
segregated to cover such securities.

BORROWING.
Each Fund may borrow up to 20% of its total assets for temporary, extraordinary
or emergency purposes, such as to provide cash for redemption requests without
having to sell portfolio securities at an inopportune time. Each Fund may also
borrow money through reverse repurchase agreements, uncovered short sales, and
other techniques. All borrowings by a Fund cannot exceed one-third of a Fund's
total assets.
As a consequence of borrowing, a Fund will incur obligations to pay interest,
resulting in an increase in expenses.

SECURITIES LENDING.
Each Fund may lend securities to financial institutions such as banks,
broker/dealers and other recognized institutional investors in amounts up to 30%
of the Fund's total assets. These loans earn income for the Fund and are
collateralized by cash, securities, letters of credit or any combination
thereof. A Fund might experience a loss if the financial institution defaults
on the loan.

FOREIGN CURRENCY TRANSACTIONS
To the extent a Fund invests in foreign securities, it may enter into
foreign currency transactions either on a spot or cash basis at prevailing
rates or through forward foreign currency exchange contracts in order to have
the necessary currencies to settle transactions. Each Fund may also enter
into foreign currency transactions to protect Fund assets against adverse
changes in foreign currency exchange rates. Such efforts could limit
potential gains that might result from a relative increase in the value of
such currencies, and might, in certain cases, result in losses to a Fund.

OPTIONS
The Funds (except the Government Income and Money Market Funds) may deal in
options on securities, securities indexes and foreign currencies. The Funds
may use options to manage stock prices, interest rates and currency risks. A
Fund may not purchase or sell options if more than 25% of its net assets would
be hedged. The Funds may also write covered call options and secured put
options to seek to generate income or lock in gains on up to 25% of their net
assets.

FUTURES AND OPTIONS ON
FUTURES
The Funds (except the Balanced Growth and Money Market Funds) may enter into
futures contracts, or options thereon, involving foreign currency, interest
rates, securities, and securities indexes, for hedging purposes only.

As a general rule, no Fund will purchase or sell futures if, immediately
thereafter, more than 25% of its net assets would be hedged.

RISKS OF FUTURES AND OPTIONS TRANSACTIONS
When a Fund uses options, futures and options on futures as hedging devices,
there is a risk that the prices of the hedging vehicles may not correlate
perfectly with the prices of the securities in the Portfolio. This may cause
the futures contract or options to react differently than the Fund's portfolio
securities to market changes. In addition, the Investment Adviser could be
incorrect in its expectations about the direction or the extent of market
movements. In these events, a Fund could lose money on the futures contracts or
option.

It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Investment Adviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market will exist for these instruments.

<PAGE>

New Account Form (Non-IRA)
A B C Portfolios
For an IRA account application, call 800 - 551 - 8043

Nicholas|Applegate-Registered Trademark-
Mutual Funds

MAIL TO:
Nicholas|Applegate Mutual Funds
PO Box 8326
Boston, MA 02266-8326
800 - 551 - 8043

1. YOUR ACCOUNT REGISTRATION

Please Print. Complete One Section Only. Joint account owners will be
registered joint tenants with the right of survivorship unless otherwise
indicated. It is the shareholder(s) responsibility to specify ownership
designations which comply with applicable state law.

/ / INDIVIDUAL OR JOINT ACCOUNT

- --------------------------------------------------------------------------------
First Name Middle Initial Last Name

- ----------------------
Social Security Number

- --------------------------------------------------------------------------------
Joint Tenant (if any) Middle Initial Last Name

- -----------------------
Social Security Number

/ / GIFT OR TRANSFER TO MINOR (UGMA/UTMA)

- --------------------------------------------------------------------------------
Custodian's First Name (only one) Middle Initial Last Name

- --------------------------------------------------------------------------------
Minor's First Name (only one) Middle Initial Last Name

- --------------------------------------------------------------------------------
(Minor's State of Residence) Minor's Date of Birth

- --------------------------------------------------
Minor's Social Security Number

/ / TRUST, CORPORATION, PARTNERSHIP OR OTHER ENTITY ENTITY (CORPORATE
RESOLUTION REQUIRED)

- -------------------------------------------------
Name of Trust, Corporation or Other Entity

- --------------------------------------------------
Trustee Name(s) or Type of Entity

- --------------------------------------------------
Date of Trust Agreement

- --------------------------------------------------
Name of Beneficiary

- ------------------------------
Taxpayer Identification Number

2. YOUR ADDRESS
Do you have any other identically registered Nicholas|Applegate accounts?
/ / Yes / / No

Citizenship:
/ / U.S. / / Resident Alien / / Non-resident Alien --------------------
specify country (if not U.S.)

- --------------------------------------------------------------------------------
Street Address or PO Box Number Apartment Number

- --------------------------------------------------------------------------------
City State ZIP

( )
- --------------------------------------------------------------------------------
Area Code Home Phone

( )
- --------------------------------------------------------------------------------
Area Code Business Phone

3. YOUR INVESTMENT
- - Please select your fund choices and appropriate share class.
- - See prospectus for investment minimums.

CLASS CLASS CLASS

AMOUNT
- --------------------------------------------------------------------------------
Emerging Growth A(357) / / B(765) / / C(358) / / $
- --------------------------------------------------------------------------------
Core Growth A(360) / / B(758) / / C(366) / / $
- --------------------------------------------------------------------------------
Large Cap Growth A(966) B(967) c(968) $

Income & Growth A(361) / / B(759) / / C(367) / / $
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
Balanced Growth A(362) / / B(760) / / C(368) / / $
- --------------------------------------------------------------------------------
Government Income A(364) / / B(762) / / C(370) / / $
- --------------------------------------------------------------------------------
Money Market A(365) / / $
- --------------------------------------------------------------------------------
Emerging Countries A(177) / / B(766) / / C(178) / / $
- --------------------------------------------------------------------------------
International Small Cap A(353) / / B(764) / / C(355) / / $
- --------------------------------------------------------------------------------
International Core Growth A(674) / / B(675) / / C(754) / / $
- --------------------------------------------------------------------------------
Worldwide Growth A(363) / / B(761) / / C(369) / / $
- --------------------------------------------------------------------------------
Total $

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

4. YOUR METHOD OF PAYMENT

/ / By Check: Payable to NICHOLAS-APPLEGATE MUTUAL FUNDS
(THIRD PARTY CHECKS WILL NOT BE ACCEPTED.)

/ / By Wire: Please call (800) 551-8043 for your account number

/ / By Exchange: Portfolio from which you are exchanging

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

/ / By Confirm Trade Order: Trade Order #-----------------------

5. TO REDUCE YOUR SALES CHARGE - A SHARES ONLY

/ / AGGREGATION/COMBINED PURCHASES - you may aggregate investments for yourself
and your immediate family as well as through concurrent purchases of shares of
two or more of the Nicholas|Applegate Series A Portfolios.

/ / RIGHTS OF ACCUMULATION - list below the account numbers of all shares of
other Nicholas-Applegate funds that you and your immediate family already own.
I apply for reduced sales charges subject to the Agent's confirmation of the
following holdings of my account(s) of eligible related investors as described
in the applicable Prospectus.

- --------------------------------------------------------------------------------
FUND SHAREHOLDER(S) & RELATIONSHIP ACCOUNT NO. (IF KNOWN)

- --------------------------------------------------------------------------------
FUND SHAREHOLDER(S) & RELATIONSHIP ACCOUNT NO. (IF
KNOWN)

/ / NET ASSET VALUE FOR RETIREMENT PLANS - I certify that I am purchasing shares
for a Retirement Plan of an organization with 50 or more eligible employees.

- - LETTER OF INTENT - A letter of intent option is also available. Please contact
us at (800) 551-8043 for further details.

6. YOUR DIVIDEND AND CAPITAL GAIN PAYMENT OPTIONS

Distribution will automatically be reinvested in additional shares of your
Fund(s) unless you check the box(es) below.

DIVIDENDS (CHECK ONE) / / REINVEST / / CASH
- --------------------------------------------------------------------------------
CAPITAL GAINS (CHECK ONE) / / REINVEST / / CASH
- --------------------------------------------------------------------------------

/ / CROSS FUND REINVESTMENT+ (OPTIONAL) - REINVEST ALL DIVIDENDS AND CAPITAL
GAINS INTO AN EXISTING ACCOUNT IN ANOTHER NICHOLAS-APPLEGATE PORTFOLIO.

FROM
- --------------------------------------------------------------------------------
PORTFOLIO NAME

TO
- --------------------------------------------------------------------------------
PORTFOLIO NAME

+Must be same account type and class of shares. Must be a $5,000 minimum
account value for this service.

SERVICE OPTIONS

7. TELEPHONE REDEMPTIONS AND EXCHANGES

This allows you to use the telephone to redeem or exchange shares, unless you
check the box below. Redemptions will be made payable to the registered owner(s)
and mailed to the address of record. Maximum redemption by telephone is $50,000.

/ / I do not want telephone redemption privilege.

/ / I do not want telephone exchange privilege.

8. SYSTEMATIC INVESTMENT - TO MY MUTUAL FUND ACCOUNT VIA ACH

/ / Check this box to invest on a regular basis from your bank account. Please
complete "Checking Account Information" (Section 11).

- --------------------------------------
Fund Name

<PAGE>

- --------------------------------------
Fund Name

$ / // /,/ // // /./ // / / / / / / / / /
- ---------------------------------------------------------------------------
Amount ($50 minimum) Day* Monthly Quarterly
(Jan/April/July/Oct

* If you do not provide a date, then it will default to the 15th of the month/.

9. SYSTEMATIC EXCHANGES - FROM ONE NICHOLAS-APPLEGATE MUTUAL FUND ACCOUNT TO
ANOTHER

/ / Check this box to invest on a regular basis from one Nicholas-Applegate
mutual funds account to another. (Must be same share class and registration.)

- --------------------------------------
Fund Name

- -----------------------------------------
Account Number (if known)

- -----------------------------------
Fund Name

- ---------------------------------
Account Number (if known)

$ / // /,/ // // /./ // / / / / / / / / /
- ---------------------------------------------------------------------------
Amount ($50 minimum) Day* Monthly Quarterly
(Jan/April/July/Oct

* If you do not provide a date, then it will default to the 15th of the month/.

10. SYSTEMATIC WITHDRAWAL

/ / Check this box to withdraw on a regular basis from my mutual funds account.
Please complete "Checking Account Information" below (Section 11).

By ACH to my bank account

- -------------------------------------
Fund Name

$ / // /,/ // // /./ // / / / / / / / / /
- ---------------------------------------------------------------------------
Amount ($50 minimum) Day* Monthly Quarterly
(Jan/April/July/Oct

By check (do not need to complete Section 11)

- -------------------------------------
Fund Name

$ / // /,/ // // /./ // / / / / / / / / /
- ---------------------------------------------------------------------------
Amount ($50 minimum) Day* Monthly Quarterly
(Jan/April/July/Oct

SEND PROCEEDS TO:
/ / Address of record
/ / Special Payee (list below)

- --------------------------------------------------------------------------------
First Name Middle Initial Last Name

/ // /
- --------------------------------------------------------------------------------
Address City State Zip

*IF YOU DO NOT PROVIDE A DATE, THEN IT WILL DEFAULT TO THE 15TH OF THE MONTH.

11. CHECKING ACCOUNT INFORMATION - FOR ACH OR REDEMPTIONS BY WIRE

Must be completed for Sections 8 and 10. PLEASE ATTACH A VOIDED CHECK OR DEPOSIT
SLIP.

- --------------------------------------------------------------------------------
Name of Institution

/ // /
- --------------------------------------------------------------------------------
Address City State Zip

<PAGE>

/ // // // // // // // // / / // // // // // // // // // // // // // // /
- --------------------------------------------------------------------------------
Bank ABA Routing Number Bank Account Number

- --------------------------------------------------------------------------------
Any joint owner of your bank account who is not a joint owner of your Portfolio
account(s) must sign above.

12. DUPLICATE STATEMENTS
/ / I wish to have a duplicate statement sent to the interested party listed
below.

- --------------------------------------------------------------------------------
Name of Interested Party

/ // /
- --------------------------------------------------------------------------------
Address City State Zip

(SEE REVERSE)

CHECK WRITING SIGNATURE CARD

FOR THE NICHOLAS-APPLEGATE MONEY MARKET PORTFOLIO A
STATE STREET BANK AND TRUST COMPANY

/ // // // // // // // // /
- ------------------------------------
Account Number

- ----------------------------------------
Account Name(s) as Registered

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

Authorized Signature(s)

1.
----------------------------------------

2.
----------------------------------------

/ / Check if ALL signatures are required.
/ / Check if ONLY ONE signature is required.

SUBJECT TO CONDITIONS ON REVERSE SIDE.

13. DEALER INFORMATION

HOME OFFICE INFORMATION
(TO BE COMPLETED BY INVESTMENT REPRESENTATIVE)

( )
- --------------------------------------------------------------------------------
Dealer Name and Number (if known) Area Code Phone

- --------------------------------------------------------------------------------
Home Office Address

- --------------------------------------------------------------------------------
City State ZIP

BRANCH OFFICE INFORMATION

( )
- --------------------------------------------------------------------------------
Branch Office Number Area Code Phone

- --------------------------------------------------------------------------------
Branch Office Address

- --------------------------------------------------------------------------------
City State ZIP

REPRESENTATIVE INFORMATION

<PAGE>

- --------------------------------------------------------------------------------
Representative's Name Representative's Number

14. SIGNATURES

BY SIGNING THIS NEW ACCOUNT FORM BELOW, I ASSURE THAT:
- - I have received and read the prospectus for each of the Funds in which I am
investing, and I believe each investment is suitable for me. I understand that
the prospectus terms are incorporated into this New Account Form by reference.
- - I authorize the Nicholas-Applegate Funds, their affiliates and agents to
act on any instructions believed to be genuine for any service authorized
on this form. I agree they will not be liable for any resulting loss or
expense.
- - I am of legal age in my state and have the authority and legal capacity to
purchase mutual fund shares.
- - I understand that neither the fund(s) nor the distributor,
Nicholas-Applegate Securities, is a bank and that fund shares are not
obligations of or guaranteed by any bank or insured by the FDIC.
- - I understand that mutual funds involve risks, including possible loss of
principal.

I CERTIFY, UNDER PENALTIES OF PERJURY, THAT:
1. The Social Security or Taxpayer Identification Number shown on this form is
correct. (If I fail to give the correct number or to sign this form, the
Nicholas-Applegate Funds may reject or redeem my investment. I may also be
subject to any applicable IRS Backup Withholding for all distributions and
redemptions.)

2. / / I am NOT currently subject to IRS Backup Withholding because (a) I have
not been notified of it or (b) notification has been revoked.

/ / I am currently subject to IRS Backup Withholding.

I agree that neither Nicholas-Applegate Securities, the Funds, nor any of their
affiliates will be responsible for the authenticity of any instructions given
and shall be fully indemnified as to and held harmless from any and all direct
and indirect liabilities, losses, or costs resulting from acting upon such
transactions.

- --------------------------------------------------------------------------------
Custodian, Trustee or Authorized Officer
Date

- --------------------------------------------------------------------------------
Joint owner, Custodian, Trustee or Authorized Officer
Date

(BACK) CHECK WRITING SIGNATURE CARD

The payment of funds is authorized by the signature(s) appearing on the reverse
side.

If this card is signed by more than one person, all checks require all
signatures appearing on the reverse side unless a lesser number is indicated.
If no indication is given, all checks will require all signatures. Each
signatory guarantees the genuineness of the other signatures.

The Bank is hereby appointed agent for the person(s) (the "Depositor(s)" signing
this card and, as agent, is authorized and directed to present checks drawn on
this checking account to the Fund or its transfer agent as requested to redeem
units of the Fund registered in the name of the Depositor(s) in the amounts of
such check and to deposit the proceeds of such redemptions in this checking
account. The Bank will be liable only for its own negligence.

The Depositor(s) agree to be subject to the rules and regulations of the Bank
pertaining to this checking account as amended from time to time. The Bank
reserves the right to change, modify or terminate this checking account and
authorization at any time.

<PAGE>

[back cover: Nicholas Applegate logo with address lower left hand corner]
FOR MORE INFORMATION

Two documents are available that offer further information on the
Nicholas/Applegate Mutual Funds:

ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS
Include financial statements, detailed performance information, portfolio
holdings, a statement from portfolio management, and the auditor's report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI contains more detailed information on all aspects of the Portfolios.

A current SAI has been filed with the Securities and
Exchange Commission and is incorporated by reference into this prospectus.

To request a free copy of the current annual or semi-annual report or SAI,
please call or write:

Nicholas Applegate-Registered Trademark- Mutual Funds
600 West Broadway
San Diego, California 92101
800 - 551 - 8045
Nicholas-Applegate Securities, Distributor
www.nacm.com

<PAGE>

NICHOLAS-APPLEGATE-Registered Trademark- MUTUAL FUNDS
SERIES A, B AND C PORTFOLIOS
600 WEST BROADWAY, 30TH FLOOR
SAN DIEGO, CALIFORNIA 92101
(800) 551-8043

STATEMENT OF ADDITIONAL INFORMATION

JULY 17, 1997

Nicholas-Applegate Mutual Funds (the "Trust") is an open-end
management investment company currently offering a number of separate
diversified portfolios. This Statement of Additional Information
contains information regarding 31 of these portfolios (each a
"Portfolio" and collectively the "Portfolios"): Nicholas-Applegate
Large Cap Growth Portfolio A, Portfolio B and Portfolio C (the "Large
Cap Portfolios"); Nicholas-Applegate Core Growth Portfolio A,
Portfolio B and Portfolio C (the "Core Growth Portfolios");
Nicholas-Applegate Emerging Growth Portfolio A, Portfolio B and
Portfolio C (the "Emerging Growth Portfolios"); Nicholas-Applegate
Income & Growth Portfolio A, Portfolio B and Portfolio C (the "Income
& Growth Portfolios"); Nicholas-Applegate Balanced Growth Portfolio A,
Portfolio B and Portfolio C (the "Balanced Portfolios");
Nicholas-Applegate Worldwide Growth Portfolio A, Portfolio B and
Portfolio C (the "Worldwide Portfolios"); Nicholas-Applegate
International Core Growth Portfolio A, Portfolio B and Portfolio C
(the "International Core Growth Portfolios"); Nicholas-Applegate
International Small Cap Growth Portfolio A, Portfolio B, and Portfolio
C (the "International Small Cap Portfolios"); Nicholas-Applegate
Emerging Countries Portfolio A, Portfolio B and Portfolio C (the
"Emerging Countries Portfolios"); Nicholas-Applegate Government Income
Portfolio A, Portfolio B and Portfolio C (the "Government
Portfolios"); and Nicholas-Applegate Money Market Portfolio (the
"Money Market Portfolio"). The Portfolios invest all of their assets
in corresponding series of the Nicholas-Applegate Investment Trust
(the "Master Trust"), a diversified open-end management investment
company organized as a Delaware business trust.

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

TABLE OF CONTENTS

Page
----

General Information B-1
Investment Objectives, Policies and Risks B-1
Investment Restrictions B-27
Principal Holders of Securities B-30
Trustees and Principal Officers B-33
Investment Adviser B-37
Administrators B-39
Distributor B-41
Portfolio Transactions and Brokerage B-44
Purchase and Redemption of Portfolio Shares B-46
Shareholder Services B-49
Net Asset Value B-51
Dividends, Distributions and Taxes B-53
Performance Information B-58
Custodian, Transfer and Dividend Disbursing Agent,
Independent Auditors and Legal Counsel B-70
Miscellaneous B-70
Appendix A - Description of Securities Ratings A-1

B-1
<PAGE>

GENERAL INFORMATION

The Trust and the Master Trust were organized in December 1992 as
business trusts under the laws of Delaware. Information regarding 31 of the
Portfolios of the Trust is included in this Statement of Additional Information.
Ten Portfolios (each a "Series A Portfolio" and collectively the "Series A
Portfolios") have an initial sales charge and lower annual distribution fees;
ten Portfolios (each a "Series B Portfolio" and collectively the "Series B
Portfolios") have a contingent deferred sales charge and annual distribution
fees; ten Portfolios (each a "Series C Portfolio" and collectively the "Series C
Portfolios") have a different contingent deferred sales charge and annual
distribution fees; and one Money Market Portfolio has no initial or contingent
deferred sales charges and lower annual distribution fees.

The Master Trust offers shares of eleven separate series (each a
"Fund" and collectively the "Funds") to the Portfolios and other investment
companies and institutional investors: the Nicholas-Applegate Large Cap Growth
Fund, in which the Large Cap Portfolios invest (the "Large Cap Fund"); the
Nicholas-Applegate Core Growth Fund (the "Core Growth Fund"), in which the Core
Growth Portfolios invest; the Nicholas-Applegate Emerging Growth Fund (the
"Emerging Growth Fund"), in which the Emerging Growth Portfolios invest; the
Nicholas-Applegate Income & Growth Fund (the "Income & Growth Fund"), in which
the Income & Growth Portfolios invest; the Nicholas-Applegate Balanced Fund (the
"Balanced Fund"), in which the Balanced Growth Portfolios invest; the
Nicholas-Applegate Worldwide Growth Fund (the "Worldwide Fund"), in which the
Worldwide Portfolios invest; the Nicholas-Applegate International Core Growth
Fund (the "International Core Growth Fund"), in which the International Core
Growth Portfolios invest; the Nicholas-Applegate International Small Cap Growth
Fund (the "International Small Cap Fund"), in which the International Small Cap
Portfolios invest; the Nicholas-Applegate Emerging Countries Fund (the "Emerging
Countries Fund"), in which the Emerging Countries Portfolios invest; the
Nicholas-Applegate Government Income Fund (the "Government Fund"), in which the
Government Portfolios invest; and the Nicholas-Applegate Money Market Fund (the
"Money Market Fund"), in which the Money Market Portfolio invests.

INVESTMENT OBJECTIVES, POLICIES AND RISKS

As each Portfolio seeks to achieve its investment objective by
investing all of its assets in a corresponding Fund with the same investment
objective as the Portfolio, the following discussion describes the various
investment policies and techniques employed by the Funds. There can be no
assurance that any of the Funds or Portfolios will achieve their investment
objectives.

EQUITY SECURITIES OF GROWTH COMPANIES

Each Fund (except the Government and Money Market Funds) may invest in
equity securities of domestic and foreign companies, the earnings and stock
prices of which are expected by the Master Trust's Investment Adviser to grow at
an above-average rate. Such investments will be diversified over a
cross-section of industries and individual companies. For Funds other than the
Large Cap Fund, some of these companies will be organizations with market
capitalizations of $500 million or less or companies that have limited product
lines, markets and financial resources and are dependent upon a limited
management group. Examples of possible investments include emerging growth
companies employing new technology, cyclical

B-2
<PAGE>

companies, initial public offerings of companies offering high growth potential,
or other corporations offering good potential for high growth in market value.
The securities of such companies may be subject to more abrupt or erratic market
movements than larger, more established companies both because the securities
typically are traded in lower volume and because the issuers typically are
subject to a greater degree to changes in earnings and prospects.

PREFERRED STOCK

Each Fund (except the Money Market Fund) may invest in preferred
stock. Preferred stock, unlike common stock, offers a stated dividend rate
payable from a corporation's earnings. Such preferred stock dividends may be
cumulative or non-cumulative, participating, or auction rate. If interest rate
rise, the fixed dividend on preferred stocks may be less attractive, causing the
price of preferred stocks to decline. Preferred stock may have mandatory
sinking fund provisions, as well as call/redemption provisions prior to
maturity, a negative feature when interest rates decline. Dividends on some
preferred stock may be "cumulative," requiring all or a portion of prior unpaid
dividends to be paid before dividends are paid on the issuer's common stock.
Preferred stock also generally has a preference over common stock on the
distribution of a corporation's assets in the event of liquidation of the
corporation, and may be "participating," which means that it may be entitled to
a dividend exceeding the stated dividend in certain cases. The rights of
preferred stocks on the distribution of a corporation's assets in the event of a
liquidation are generally subordinate to the rights associated with a
corporation's debt securities.

CONVERTIBLE SECURITIES AND WARRANTS

Each Fund (except the Money Market Fund) may invest in convertible
securities and 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.

The market value of convertible debt securities tends to vary
inversely with the level of interest rates. The value of the security declines
as interest rates increase and increases as interest rates decline. Although
under normal market conditions longer term debt securities have greater yields
than do shorter term debt securities of similar quality, they are subject to
greater price fluctuations. 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 a Fund is called
for redemption, the Fund must permit the issuer to redeem the security, convert
it into the underlying common stock or sell it to a third party. Rating
requirements do not apply to convertible debt securities purchased by the Funds.

B-3
<PAGE>

As a matter of operating policy, no Fund will invest more than 5% of
its net assets in warrants. A warrant gives the holder a right to purchase at
any time during a specified period a predetermined number of shares of common
stock at a fixed price. Unlike convertible debt securities or preferred stock,
warrants do not pay a fixed dividend. Investments in warrants involve certain
risks, including the possible lack of a liquid market for resale of the
warrants, potential price fluctuations as a result of speculation or other
factors, and failure of the price of the underlying security to reach or have
reasonable prospects of reaching a level at which the warrant can be prudently
exercised (in which event the warrant may expire without being exercised,
resulting in a loss of the Fund's entire investment therein).

SYNTHETIC CONVERTIBLE SECURITIES.

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

EURODOLLAR CONVERTIBLE SECURITIES

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

RISKS OF INVESTING IN DEBT SECURITIES

There are a number of risks generally associated with an investment in
debt securities (including convertible securities). Yields on short,
intermediate, and long-term securities depend on a variety of factors, including
the general condition of the money and bond

B-4
<PAGE>

markets, the size of a particular offering, the maturity of the obligation, and
the rating of the issue. Debt securities with longer maturities tend to produce
higher yields and are generally subject to potentially greater capital
appreciation and depreciation than obligations with short maturities and lower
yields.

Securities with ratings below "Baa" and/or "BBB" are commonly referred
to as "junk bonds." Such bonds are subject to greater market fluctuations and
risk of loss of income and principal than higher rated bonds for a variety of
reasons, including the following:

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

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

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

CREDIT RATINGS. Credit ratings evaluate the safety of principal and
interest payments, not the market value risk of high yield bonds. The rating of
an issuer is also heavily weighted by past developments and does not necessarily
reflect probable future conditions. There is frequently a lag between the time
a rating is assigned and the time it is updated. Also, since credit rating
agencies may fail to timely change the credit ratings to reflect subsequent
events, the Investment Adviser must monitor the issuers of high yield bonds in
the Funds' portfolios to determine if the issuers will have sufficient cash flow
and profits to meet required principal and interest payments, and to assure the
bonds' liquidity so the Funds can meet redemption requests. The Income & Growth
and Balanced Funds will not retain more than 35% of their respective net assets
in non-investment grade debt securities, and the other Funds will not retain
more than 5% of their respective net assets in such securities.

B-5
<PAGE>

SHORT-TERM INVESTMENTS

Each Fund may invest in any of the following securities and
instruments:

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

A Fund holding instruments of foreign banks or financial institutions
may be subject to additional investment risks that are different in some
respects from those incurred by a fund which invests only in debt obligations of
U.S. domestic issuers. See "Foreign Investments" below. Domestic banks and
foreign banks are subject to different governmental regulations with respect to
the amount and types of loans which may be made and interest rates which may be
charged. In addition, the profitability of the banking industry depends largely
upon the availability and cost of funds for the purpose of financing lending
operations under prevailing money market conditions. General economic conditions
as well as exposure to credit losses arising from possible financial
difficulties of borrowers play an important part in the operations of the
banking industry. Federal and state laws and regulations require domestic
banks to maintain specified levels of reserves, limited in the amount which
they can loan to a single borrower, and subject to other regulations designed to
promote financial soundness. However, such laws and regulations do not
necessarily apply to foreign bank obligations that a Fund may acquire.

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

SAVINGS ASSOCIATION OBLIGATIONS. The Funds may invest in certificates
of deposit (interest-bearing time deposits) issued by savings banks or savings
and loan associations that have capital, surplus and undivided profits in
excess of $100 million, based on latest published reports, or less than $100
million if the principal amount of such obligations is fully insured by the U.S.
Government.

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

B-6
<PAGE>

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

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

GOVERNMENT OBLIGATIONS

Each Fund may make short-term investments in U.S. Government
obligations. Such obligations include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of such entities as the Government
National Mortgage Association ("GNMA"), Export-Import Bank of the United States,
Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation, and the Student Loan Marketing Association. No assurance can be
given that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.

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

ZERO COUPON SECURITIES

The Income & Growth, Balanced, and Government Funds may each invest up
to 35% of its net assets in zero coupon securities issued or guaranteed by the
U.S. Government and its agencies and instrumentalities. Zero coupon securities
may be issued by the U.S. Treasury or by a U.S. Government agency, authority or
instrumentality (such as the Student

B-7
<PAGE>

Loan Marketing Association or the Resolution Funding Corporation). In addition,
the Money Market Fund may invest up to 5% of its net assets in separately trade
interest and principal component parts of U.S. Treasury securities that are sold
as zero coupon securities and are transferable through the Federal book-entry
system known as Separately Traded Registered Interest and Principal Securities
("STRIPS") and Coupons Under Book Entry Safekeeping ("CUBES"). Zero coupon
securities are sold at a substantial discount from face value and redeemed at
face value at their maturity date without interim cash payments of interest and
principal. This discount is amortized over the life of the security and such
amortization will constitute the income earned on the security for both
accounting and tax purposes. Because of these features, such securities may be
subject to greater volatility as a result of changes in prevailing interest
rates than interest paying investments in which the Funds may invest. Because
income on such securities is accrued on a current basis, even though the Funds
do not receive the income currently in cash, the Funds may have to sell other
portfolio investments to obtain cash needed by the related Portfolios to make
income distributions.

VARIABLE AND FLOATING RATE INSTRUMENTS

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

MORTGAGE-RELATED SECURITIES

Each Fund (other than the International Core Growth, International
Small Cap, Emerging Countries and Large Cap Funds) may invest in
mortgage-related securities. Mortgage-related securities are derivative
interests in pools of mortgage loans made to U.S. residential home buyers,
including mortgage loans made by savings and loan institutions, mortgage
bankers, commercial banks and others. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-related and
private organizations. The Government Fund may also invest in debt securities
which are secured with collateral consisting of U.S. mortgage-related
securities, and in other types of U.S. mortgage-related securities.

U.S. MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly

B-8
<PAGE>

payments made by the individual borrowers on their residential mortgage loans,
net of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs which may be incurred. Some mortgage-related securities (such as
securities issued by the Government National Mortgage Association) are described
as "modified pass-throughs." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
at the scheduled payment dates regardless of whether or not the mortgagor
actually makes the payment.

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

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

Although the underlying mortgage loans in a pool may have maturities
of up to 30 years, the actual average life of the pool certificates typically
will be substantially less because the mortgages will be subject to normal
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the pool certificates. Conversely, when
interest rates are rising, the rate of prepayments tends to decrease, thereby
lengthening the actual average life of the certificates. Accordingly, it is not
possible to predict accurately the average life of a particular pool.

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

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

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

"ROLL" TRANSACTIONS

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

The Fund will engage in roll transactions for the purpose of acquiring
securities for its portfolio consistent with its investment objective and
policies and not for investment leverage. Nonetheless, roll transactions are
speculative techniques and are considered to be the economic equivalent of
borrowings by the Fund. To avoid leverage, the Fund will establish a
segregated account with its Custodian in which it will maintain liquid assets in
an amount sufficient to meet its payment obligations with respect to these
transactions. The Fund will not enter into roll transactions if, as a result,
more than 15% of the Fund's net assets would be segregated to cover such
contracts.

FOREIGN INVESTMENTS

Each Fund may invest in securities of foreign issuers that are not
publicly traded in the United States. Each Fund (other than the Government and
Money Market Funds) may also invest in depository receipts.

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<PAGE>

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

DEPOSITORY RECEIPTS. Each of the Funds (other than the Government
and Money Market Funds) may invest in American Depository Receipts ("ADRs"),
which are receipts issued by an American bank or trust company evidencing
ownership of underlying securities issued by a foreign issuers. ADRs, in
registered form, are designed for use in U.S. securities markets. Such
depository receipts may be sponsored by the foreign issuer or may be
unsponsored. The International Core Growth, Worldwide, International Small Cap
and Large Cap Funds may also invest in European and Global Depository Receipts
("EDRs" and "GDRs"), which, in bearer form, are designed for use in European
securities markets, and in other instruments representing securities of foreign
companies. Such depository receipts may be sponsored by the foreign issuer or
may be unsponsored. Unsponsored depository receipts are organized independently
and without the cooperation of the foreign issuer of the underlying securities;
as a result, available information regarding the issuer may not be as current as
for sponsored depository receipts, and the prices of unsponsored depository
receipts may be more volatile than if they were sponsored by the issuer of the
underlying securities. ADRs may be listed on a national securities exchange or
may trade in the over-the-counter market. ADR prices are denominated in United
States dollars; the underlying security may be denominated in a foreign
currency, although the underlying security may be subject to foreign government
taxes which would reduce the yield on such securities.

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

MARKET CHARACTERISTICS. Settlement practices for transactions in
foreign markets may include delays beyond periods customary in the United
States. Foreign security trading practices, including those involving
securities settlement where Fund assets may be released prior to receipt of
payment or securities, may expose the Funds to increased risk in the event of a
failed trade or the insolvency of a foreign broker-dealer.

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

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<PAGE>

LEGAL AND REGULATORY MATTERS. In addition to nationalization,
foreign governments may take other actions that could have a significant effect
on market prices of securities and payment of interest including restrictions
on foreign investment, expropriation of goods and imposition of taxes, currency
restrictions and exchange control regulations.

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

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

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

SECURITIES SWAPS

The International Core Growth, Worldwide, International Small Cap and
Emerging Countries Funds may enter into securities swaps, a technique primarily
used to indirectly participate in the securities market of a country from which
a Fund would otherwise be precluded for lack of an established securities
custody and safekeeping system. The Fund deposits an amount of cash with its
custodian (or the broker, if legally permitted) in an amount equal to the
selling price of the underlying security. Thereafter, the Fund pays or receives
cash from the broker equal to the change in the value of the underlying
security.

OPTIONS ON SECURITIES AND SECURITIES INDICES

PURCHASING PUT AND CALL OPTIONS. Each Fund (other than the Government
and Money Market Funds) is authorized to purchase put and call options with
respect to securities which are otherwise eligible for purchase by the Fund and
with respect to various stock indices subject to certain restrictions. Put and
call options are derivative securities traded on United States and foreign
exchanges, including the American Stock Exchange, Chicago Board Options
Exchange, Philadelphia Stock Exchange, Pacific Stock Exchange and New York Stock
Exchange. The Funds will engage in trading of such derivative securities
exclusively for hedging purposes.

If a Fund purchases a put option, the Fund acquires the right to sell
the underlying security at a specified price at any time during the term of the
option (for "American-style" options) or on the option expiration date (for
"European-style" options). Purchasing put options may be used as a portfolio
investment strategy when the Investment Adviser perceives significant short-term
risk but substantial long-term appreciation for the underlying security. The

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<PAGE>

put option acts as an insurance policy, as it protects against significant
downward price movement while it allows full participation in any upward
movement. If the Fund holds a stock which the Investment Adviser believes has
strong fundamentals, but for some reason may be weak in the near term, the Fund
may purchase a put option on such security, thereby giving itself the right to
sell such security at a certain strike price throughout the term of the option.
Consequently, the Fund will exercise the put only if the price of such security
falls below the strike price of the put. The difference between the put's
strike price and the market price of the underlying security on the date the
Fund exercises the put, less transaction costs, is the amount by which the Fund
hedges against a decline in the underlying security. If during the period of
the option the market price for the underlying security remains at or above the
put's strike price, the put will expire worthless, representing a loss of the
price the Fund paid for the put, plus transaction costs. If the price of the
underlying security increases, the premium paid for the put option less any
amount for which the put may be sold reduces the profit the Fund realizes on the
sale of the securities.

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

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

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

Effecting a closing transaction in the case of a written call option
will permit a Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. Also, effecting a
closing transaction allows the cash or proceeds from

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<PAGE>

the concurrent sale of any securities subject to the option to be used for other
investments of the Fund. If the Fund desires to sell a particular security from
its portfolio on which it has written a call option, it will effect a closing
transaction prior to or concurrent with the sale of the security.

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

STOCK INDEX OPTIONS. Each Fund (other than the Balanced, Government
and Money Market Funds) may also purchase put and call options with respect to
the S&P 500 and other stock indices. The Funds may purchase such options as a
hedge against changes in the values of portfolio securities or securities
which it intends to purchase or sell, or to reduce risks inherent in the
ongoing management of the Fund.

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

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

RISKS OF INVESTING IN OPTIONS. There are several risks associated
with transactions in options on securities and indices. Options may be more
volatile than the underlying instruments and, therefore, on a percentage basis,
an investment in options may be subject to greater fluctuation than an
investment in the underlying instruments themselves. There are also significant
differences between the securities and options markets that could result in an
imperfect correlation between these markets, causing a given transaction not to
achieve its objective. In addition, a liquid secondary market for particular
options may be absent for reasons which include the following: there may be
insufficient trading interest in certain options; restrictions may be imposed by
an exchange on opening transactions or closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of option of underlying securities; unusual or
unforeseen

B-14
<PAGE>

circumstances may interrupt normal operations on an exchange; the facilities of
an exchange or clearing corporation may not at all times be adequate to handle
current trading volume; or one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.

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

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

DEALER OPTIONS. Each Fund (other than the Income & Growth, Balanced,
Government, and Money Market Funds) may engage in transactions involving dealer
options as well as exchange-traded options. Certain risks are specific to
dealer options. While the Funds might look to a clearing corporation to
exercise exchange-traded options, if a Fund purchases a dealer option it must
rely on the selling dealer to perform if the Fund exercises the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the Fund as well as loss of the expected benefit of the transaction.

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

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<PAGE>

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

FOREIGN CURRENCY OPTIONS

The International and Core Growth, Worldwide, International Small Cap,
Emerging Countries and Large Cap Funds may buy or sell put and call options on
foreign currencies. A put or call option on a foreign currency gives the
purchaser of the option the right to sell or purchase a foreign currency at the
exercise price until the option expires. The Funds use foreign currency
options separately or in combination to control currency volatility. Among the
strategies employed to control currency volatility is an option collar. An
option collar involves the purchase of a put option and the simultaneous sale of
call option on the same currency with the same expiration date but with
different exercise (or "strike") prices. Generally, the put option will have an
out-of-the-money strike price, while the call option will have either an
at-the-money strike price or an in-the-money strike price. Foreign currency
options are derivative securities. Currency options traded on U.S. or other
exchanges may be subject to position limits which may limit the ability of the
Funds to reduce foreign currency risk using such options.

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

FORWARD CURRENCY CONTRACTS

The International Core Growth, Worldwide, International Small Cap,
Emerging Countries and Large Cap Funds may enter into forward currency contracts
in anticipation of changes in currency exchange rates. A forward currency
contract is an obligation to purchase or sell a specific currency at a future
date, which may be any fix number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract. For example, a
Fund might purchase a particular currency or enter into a forward currency
contract to preserve the U.S. dollar price of securities it intends to or has
contracted to purchase. Alternatively, it might sell a particular currency on
either a spot or forward basis to hedge against an anticipated decline in the
dollar value of securities it intends to or has contracted to sell. Although
this strategy could minimize the risk of loss due to a decline in the value of
the hedged currency, it could also limit any potential gain from an increase in
the value of the currency.

FUTURES CONTRACTS AND RELATED OPTIONS

Each of the Funds (other than the Balanced and Money Market Funds) may
invest in futures contracts and options on futures contracts as a hedge against
changes in

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<PAGE>

market conditions or interest rates. Such Funds trade in such derivative
securities for bona fide hedging purposes and otherwise in accordance with the
rules of the Commodity Futures Trading Commission ("CFTC"). Each such Fund
segregates liquid assets in a separate account with its Custodian when required
to do so by CFTC guidelines in order to cover its obligation in connection with
futures and options transactions.

A Fund does not pay or receive funds upon the purchase or sale of a
futures contract. When it enters into a domestic futures contract, the Fund
deposits in a segregated account with its Custodian liquid assets equal to
approximately 5% of the contract amount. This amount is known as initial
margin. The margin requirements for foreign futures contracts may be different.

The nature of initial margin in futures transactions differs from
that of margin in securities transactions. Futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination of the
futures contract, assuming it satisfies all contractual obligations.
Subsequent payments (called variation margin) to and from the broker will be
made on a daily basis as the price of the underlying stock index fluctuates, to
reflect movements in the price of the contract making the long and short
positions in the futures contract more or less valuable. For example, when the
Fund purchases a stock index futures contract and the price of the underlying
stock index rises, that position will have increased in value and the Fund will
receive from the broker a variation margin payment equal to that increase in
value. Conversely, when the Fund purchases a stock index futures contract and
the price of the underlying stock index declines, the position will be less
valuable requiring the Fund to make a variation margin payment to the broker.

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

STOCK INDEX FUTURES CONTRACTS. Each Fund (other than the Government,
Balanced and Money Market Funds) may invest in futures contracts on stock
indices. A stock index futures contracts is a bilateral agreement pursuant to
which the parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the index value at the
close of the last trading day of the contract and the price at which the
contract is originally struck. No physical delivery of the underlying stocks in
the index is made. Currently, stock index futures contracts can be purchased or
sold with respect to the S&P 500 Stock Price Index on the Chicago Mercantile
Exchange, the Major Market Index on the Chicago Board of Trade, the New York
Stock Exchange Composite Index on the New York Futures Exchange and the Value
Line Stock Index on the Kansas City Board of Trade. Foreign financial and stock
index futures are traded on foreign exchanges including the London International
Financial Futures Exchange, the Singapore International Monetary Exchange, the
Sydney Futures Exchange Limited and the Tokyo Stock Exchange.

INTEREST RATE OR FINANCIAL FUTURES CONTRACTS. Each Fund (other than
the Core Growth, Emerging Growth, Balanced and Money Market Funds) may invest in
interest rate or financial futures contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the

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<PAGE>

futures market, a contract is made to purchase or sell a bond in the future for
a set price on a certain date. Historically, the prices for bonds established
in the futures markets have generally tended to move in the aggregate in concert
with cash market prices, and the prices have maintained fairly predictable
relationships.

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

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

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

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

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<PAGE>

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

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

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

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

Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange or board of trade

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will exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures position, and in the event of
adverse price movements, the Funds would continue to be required to make daily
cash payments of variation margin. When futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract.

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

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

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

OPTIONS ON FUTURES CONTRACTS. The Funds may purchase options on the
futures contracts they can purchase or sell, as described above. A futures
option gives the holder, in return for the premium paid, the right to buy (call)
from or sell (put) to the writer of the option a futures contract at a specified
price at any time during the period of the option. Upon exercise, the writer of
the option is obligated to pay the difference between the cash value of the
futures contract and the exercise price. Like the buyer or seller of a futures
contract, the holder or writer of an option has the right to terminate its
position prior to the scheduled expiration of the option by selling, or
purchasing an option of the same series, at which time the person entering into
the closing transaction will realize a gain or loss. There is no guarantee that
such closing transactions can be effected.

Investments in futures options involve some of the same considerations
as investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the risk
that changes in the value of the underlying futures contract will not be fully
reflected in the value of the option. Depending on the

B-20
<PAGE>

pricing of the option compared to either the futures contract upon which it is
based, or upon the price of the securities being hedged, an option may or may
not be less risky than ownership of the futures contract or such securities. In
general, the market prices of options are more volatile than the market prices
on the underlying futures contracts. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Funds because the
maximum amount at risk is limited to the premium paid for the options (plus
transaction costs).

RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND RELATED OPTIONS. A
Fund will not engage in transactions in futures contracts or related options for
speculation, but only as a hedge against changes resulting from market
conditions in the values of securities held in the Fund's portfolio or which it
intends to purchase and where the transactions are economically appropriate to
the reduction of risks inherent in the ongoing management of the Fund. A Fund
also may not purchase or sell futures or purchase related options if,
immediately thereafter, the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for such options would exceed 5% of
the market value of the Fund's net assets.

Upon the purchase of futures contracts, a Fund will deposit an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, in a segregated account with the Custodian or in a margin account
with a broker to collateralize the position and thereby insure that the use of
such futures is unleveraged.

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

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

REPURCHASE AGREEMENTS

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

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<PAGE>

WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS

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

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

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

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

BORROWING

Short sales "not against the box" and roll transactions are
considered borrowings for purposes of the percentage limitations applicable to
borrowings.

The use of borrowing by a Fund involves special risk considerations
that may not be associated with other funds having similar objectives and
policies. Since substantially all of a Fund's assets fluctuate in value,
whereas the interest obligation resulting from a borrowing remain fixed by the
terms of the Fund's agreement with its lender, the asset value per share of the
Fund tends to increase more when its portfolio securities increase in value and
to decrease more when its portfolio assets decrease in value than would
otherwise be the case if the Fund did not borrow funds. In addition, interest
costs on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds. Under adverse
market conditions, the Fund might have to sell portfolio securities to meet
interest or principal payments at a time when fundamental investment
considerations would not favor such sales.

B-22
<PAGE>

The Trust entered into a Credit Agreement on behalf of its various
series, including the Portfolios, with several banks and The Chase Manhattan
Bank, as administrative agent for the lenders, to borrow up to $75,000,000 from
time to time to satisfy shareholder redemption requests without the necessity
of requiring the Funds to sell portfolio securities, at times when the
Investment Adviser believes such sales are not in the best interests of the
shareholders of the Portfolios or other series of the Trust, in order to provide
the Portfolios or such other series with cash to meet such redemption requests.
The Credit Agreement expires on April 10, 1998, unless renewed by the parties.

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

While outstanding, the Revolving Credit Loans bear interest,
fluctuating daily and payable monthly, at either of the following rates or a
combination thereof, at the Trust's option: (i) at the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, plus 0.625% per annum; or (ii)
the prime rate of interest of Chemical Bank. If, as a result of changes in
applicable laws, regulations or guideline with respect to the capital adequacy
of any lender, the return on such lender's capital is reduced, the Trust may be
required to adjust the rate of interest to compensate such lender for such
reduction. Each Revolving Credit Loan is payable in thirty days, and may be
prepaid at any time in increments of $100,000 without premium or penalty. No
Portfolio is liable for repayment of a Revolving Credit Loan to any other
Portfolio.

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

LENDING PORTFOLIO SECURITIES

Under the present regulatory requirements which govern loans of
portfolio securities, the loan collateral must, on each business day, at least
equal the value of the loaned securities and must consist of cash, letters of
credit of domestic banks or domestic branches of foreign banks, or securities of
the U.S. Government or its agencies. To be acceptable as collateral, letters of
credit must obligate a bank to pay amounts demanded by the Fund if the demand
meets the terms of the letter. Such terms and the issuing bank must satisfy
the Fund. Any loan might be secured by any one or more of the three types of
collateral. The terms of the Fund's loans must permit the Fund to reacquire
loaned securities on five days' notice or in time to vote on any serious matter
and must meet certain tests under the Internal Revenue Code.

SHORT SALES

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<PAGE>

The Core Growth, Emerging Growth, Worldwide and International Small
Cap Funds may make short sales of securities they own or have the right to
acquire at no added cost through conversion or exchange of other securities they
own (referred to as short sales "against the box") and short sales of
securities which they do not own or have the right to acquire.

In a short sale that is not "against the box," a Fund sells a security
which it does not own, in anticipation of a decline in the market value of the
security. To complete the sale, the Fund must borrow the security generally
from the broker through which the short sale is made) in order to make delivery
to the buyer. The Fund must replace the security borrowed by purchasing it at
the market price at the time of replacement. The Fund is said to have a "short
position" in the securities sold until it delivers them to the broker. The
period during which the Fund has a short position can range from one day to more
than a year. Until the Fund replaces the security, the proceeds of the short
sale are retained by the broker, and the Fund must pay to the broker a
negotiated portion of any dividends or interest which accrue during the period
of the loan. To meet current margin requirements, the Fund must deposit with
the broker additional cash or securities so that it maintains with the broker
a total deposit equal to 150% of the current market value of the securities sold
short (100% of the current market value if a security is held in the account
that is convertible or exchangeable into the security sold short within 90 days
without restriction other than the payment of money).

Short sales by a Fund that are not made "against the box" create
opportunities to increase the Fund's return but, at the same time, involve
specific risk considerations and may be considered a speculative technique.
Since the Fund in effect profits from a decline in the price of the securities
sold short without the need to invest the full purchase price of the securities
on the date of the short sale, the Fund's net asset value per share tends to
increase more when the securities it has sold short decrease in value, and to
decrease more when the securities it has sold short increase in value, than
would otherwise be the case if it had not engaged in such short sales. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of any premium, dividends or interest the Fund may be required to pay
in connection with the short sale. Short sales theoretically involve unlimited
loss potential, as the market price of securities sold short may continually
increase, although a Fund may mitigate such losses by replacing the securities
sold short before the market price has increased significantly. Under adverse
market conditions the Fund might have difficulty purchasing securities to meet
its short sale delivery obligations, and might have to sell portfolio securities
to raise the capital necessary to meet its short sale obligations at a time when
fundamental investment considerations would not favor such sales.

If a Fund makes a short sale "against the box," the Fund would not
immediately deliver the securities sold and would not receive the proceeds from
the sale. The seller is said to have a short position in the securities sold
until it delivers the securities sold, at which time it receives the proceeds of
the sale. To secure its obligation to deliver securities sold short, a Fund
will deposit in escrow in a separate account with the Custodian an equal amount
of the securities sold short or securities convertible into or exchangeable for
such securities. The Fund can close out its short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund might want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short.

A Fund's decision to make a short sale "against the box" may be a
technique to hedge against market risks when the Investment Adviser believes
that the price of a security

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<PAGE>

may decline, causing a decline in the value of a security owned by the Fund or a
security convertible into or exchangeable for such security. In such case, any
future losses in the Fund's long position would be reduced by a gain in the
short position. The extent to which such gains or losses in the long position
are reduced will depend upon the amount of securities sold short relative to the
amount of the securities the Fund owns, either directly or indirectly, and, in
the case where the Fund owns convertible securities, changes in the investment
values or conversion premiums of such securities.

In the view of the Commission, a short sale involves the creation of a
"senior security" as such term is defined in the 1940 Act, unless the sale is
"against the box" and the securities sold short are placed in a segregated
account (not with the broker), or unless the Fund's obligation to deliver the
securities sold short is "covered" by placing in a segregated account (not with
the broker) cash, U.S. Government securities or other liquid debt or equity
securities in an amount equal to the difference between the market value of the
securities sold short at the time of the short sale and any such collateral
required to be deposited with a broker in connection with the sale (not
including the proceeds from the short sale), which difference is adjusted daily
for changes in the value of the securities sold short. The total value of the
cash, U.S. Government securities or other liquid debt or equity securities
deposited with the broker and otherwise segregated may not at any time be less
than the market value of the securities sold short at the time of the short
sale. Each Fund will comply with these requirements. In addition, as a matter
of policy, the Master Trust's Board of Trustees has determined that no Fund will
make short sales of securities or maintain a short position if to do so could
create liabilities or require collateral deposits and segregation of assets
aggregating more than 25% of the Fund's total assets, taken at market value.

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

ILLIQUID SECURITIES

Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placement or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have
an adverse effect on the marketability of portfolio securities and the Fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemption within seven days. The Fund might also have to register such
restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.

In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the

B-25
<PAGE>

unregistered security can be readily resold or on an issuer's ability to honor a
demand for repayment. The fact that there are contractual or legal restrictions
on resale to the general public or to certain institutions may not be indicative
of the liquidity of such investments. If such securities are subject to
purchase by institutional buyers in accordance with Rule 144A promulgated by the
Commission under the Securities Act, the Master Trust's Board of Trustees has
determined that such securities are not illiquid securities notwithstanding
their legal or contractual restrictions on resale. In all other cases, however,
securities subject to restrictions on resale will be deemed illiquid. Investing
in restricted securities eligible for resale under Rule 144A could have the
effect of increasing the level of illiquidity in the Funds to the extent that
qualified institutional buyers become uninterested in purchasing such
securities.

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

INVESTMENT TECHNIQUES AND PROCESSES

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

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

The Investment Adviser's techniques and processes include
relationships with an extensive network of brokerage research firms located
throughout the world. These analysts are often located in the same geographic
regions as the companies they follow, have followed those companies for a number
of years, and have developed excellent sources of information about them. The
Investment Adviser does not employ in-house analysts other than the personnel
actually engaged in managing investments for the Funds and the Investment
Adviser's other clients. However, information obtained from a brokerage
research firm is confirmed with

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<PAGE>

other research sources or the Investment Adviser's computer-assisted
quantitative analysis (including "real time" pricing data) of a substantial
universe of potential investments.

DIVERSIFICATION

Each Fund is "diversified" within the meaning of the 1940 Act. In
order to qualify as diversified, a Fund must diversify its holdings so that at
all times at least 75% of the value of its total assets is represented by cash
and cash items (including receivables), securities issued or guaranteed as to
principal or interest by the United States or its agencies or instrumentalities,
securities of other investment companies, and other securities (for this purpose
other securities of any one issuer are limited to an amount not greater than 5%
of the value of the total assets of the Fund and to not more than 10% of the
outstanding voting securities of the issuer).

The equity securities of each issuer that are included in the
investment portfolio of a Fund are purchased by the Investment Adviser in
approximately equal amounts, and the Investment Adviser attempts to stay fully
invested within the applicable percentage limitations set forth in the
Prospectus. In addition, for each issuer whose securities are added to an
investment portfolio, the Investment Adviser sells the securities of one of the
issuers currently included in the portfolio.

INVESTMENT RESTRICTIONS

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

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

No Portfolio or Fund:

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

B-27
<PAGE>

apply to investments by a Portfolio or Fund in securities of the U.S. Government
or any of its agencies and instrumentalities.

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

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

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

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

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

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

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

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

B-28
<PAGE>

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

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

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

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

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

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

MONEY MARKET FUND RESTRICTIONS

Investment by the Money Market Portfolio and Fund are subject to
limitations imposed under regulations adopted by the Commission. These
regulations generally require the Money Market Portfolio and Fund to acquire
only U.S. dollar denominated obligations maturing in 397 days or less and to
maintain a dollar-weighted average portfolio maturity of 90 days or less. In
addition, the Money Market Portfolio and Fund may acquire only obligations that
present minimal credit risks and that are "eligible securities" which means they
are (i) rated, at the time of investment, by at least two nationally recognized
security rating organizations (one if it is the only organization rating such
obligation) in the highest short-term rating category or, if unrated, determined
to be of comparable quality (a "first tier security"), or (ii) rated according
to the foregoing criteria in the second highest short-term rating category or,
if unrated, determined to be of comparable quality ("second tier security"). A
security is not considered to be unrated if its issuer has outstanding
obligations of comparable priority and security that have a short-term rating.
The Investment Adviser will determine that an obligation presents minimal credit
risks or that unrated instruments are of comparable quality in accordance with
guidelines established by the Boards of Trustees of the Trust and Master Trust.
The Trustees must also approve or ratify the acquisition of unrated securities
or securities rated by only one rating organization. In

B-29
<PAGE>

addition, investments in second tier securities are subject to the further
constraints that (i) no more than 5% of the Money Market Portfolio's or Fund's
assets may be invested in such securities in the aggregate, and (ii) any
investment in such securities of one issuer is limited to the greater of 1% of
the Portfolio's or Fund's total assets or $1 million. In addition, the
Portfolio or Fund may only invest up to 25% of its total assets in the first
tier securities of a single issuer for three business days.

OPERATING RESTRICTIONS

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

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

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

PRINCIPAL HOLDERS OF SECURITIES

As of March 31, 1997, the following persons held of record more than
5% of the outstanding shares of the Portfolios:

Core Growth Portfolio A: Merrill Lynch Pierce Fenner & Smith ("Merrill Lynch")
for the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake
Drive East, 3rd Floor, Jacksonville, Florida 32246-6484 (61.30%).

Emerging Growth Portfolio A: Merrill Lynch for the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (66.27%).

Income and Growth Portfolio A: Merrill Lynch for the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Dr. East, 3rd Floor,
Jacksonville, Florida 32246-6484 49.31%); First Union National Bank Cust. for
Attorney Title Insurance Fund Corp., A/C 4028213723, 401 South Tryon Street,
CMG-1151, Charlotte, North Carolina 28202-1911 (26.45%).

Balanced Growth Portfolio A: Merrill Lynch for the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (73.39%).

Government Income Portfolio A: Merrill Lynch for the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (45.34%); Nicholas Applegate 401k Profit
Sharing Plan, c/o Thomas Pindelski, Trustee, 600 West Broadway, San Diego,
California 92101-3311 (11.40%); PaineWebber for the benefit of

B-30
<PAGE>

Helen E. Lawson, TOD Paul E. Lawson & John A. Lawson, 739 Birch Street, Anoka,
Minnesota 65303-2833 (23.01%).

International Core Growth Portfolio A: Lewco Securities Corp., FBO A/C #
W63-604767-2-01, 34 Exchange Place, 4th Floor, Jersey City, New Jersey
07302-3901 (5.52%); J. Phillip Jordan, 9213 Town Gate Lane, Bethesda, Maryland
20817-4116 (7.04%); PaineWebber for the benefit of Mr. Arthur Rademaekers, 3842
Echo Brook Lane, Dallas, Texas 75229-5221 (7.17%); Lewco Securities Corp., FBO
A/C # W63-605661-6-01, 34 Exchange Place, 4th Floor, Jersey City, New Jersey
07302-3901 (15.95%).

Worldwide Growth Portfolio A: Merrill Lynch for the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (71.53%).

International Small Cap Growth Portfolio A: Merrill Lynch for the sole benefit
of its customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd
Floor, Jacksonville, Florida 32246-6484 (34.08%); PaineWebber for the benefit of
Preston Ingram, Crossfire Ranch, 8440 Crockett Lane, College Grove, Tennessee
37046-9103 (17.19%).

Emerging Countries Portfolio A: Merrill Lynch for the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (17.83%).

Money Market Portfolio: Arthur E. Nicholas, P.O. Box 2169, Del Mar, California
92014-1469 (28.19%); Nicholas Applegate Capital Management, LP, Attn: Thomas
Pindelski, 600 West Broadway, Floor 30, San Diego, California 92101-3311
(8.42%); NFSC FEBO # ATE-584916, DCIP Limited Partnership, a Partnership. Daniel
G. Calugar, 1350 East Flamingo Road, #780, Las Vegas, Nevada 89119-5263
(15.78%); NFSC FEBO # ATE-584924, RCIP Limited Partnership, a Partnership,
Donald C. Calugar, 1350 East Flamingo Road, #780, Las Vegas, Nevada 89119-5263
(20.74%); Raymond James & Associates, Inc., CSDN, Sidney B. Hooper IRA, 342
Laborcita Canyon Road, La Luz, New Mexico 88337-9303 (5.35%); James E. Cantrall,
Trustee, UA DTD 1-1-85, Cantrall Enterprises Pen Tr., 108 West 8th Street,
Roswell, New Mexico 88201-4816 (7.64%); Neilson A. Smith & Alice M. Smith, Rev.
Trustees, UA DTD 09-10-83, Neilson A. & Alice M. Smith Rev. Trust, 2639 Desert
Hills Drive, Alamogordo, New Mexico 88310-7733 (11.38%); Raymond James &
Associates, Inc., CSDN, Michael A. Moore IRA, 12332 Humphrey Drive, Austin,
Texas 78729-8005 (8.66%); PaineWebber CDN. JG00449, FBO Patricia T. Wadden, P.O.
Box 1108, New York, New York 16268-1108 (5.08%).

Core Growth Portfolio B: Merrill Lynch for the sole benefit of its customers,
Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville,
Florida 32246-6484 (33.83%).

Emerging Growth Portfolio B: Merrill Lynch for the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (57.41%).

Income and Growth Portfolio B: Merrill Lynch for the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (30.02%).

B-31
<PAGE>

Balanced Growth Portfolio B: Merrill Lynch for the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (13.36%); PaineWebber for the benefit of
PaineWebber CDN., FBO, Dorthe B. Calimbas IRA, P.O. Box 3321, Weehawken, New
Jersey 07087-8154 (9.88%).

Government Income Portfolio B: Con AGG Recycling Corp. 401(K) Plan, James A.
Granito, Attn: Gloria Danaher, Personal and Confidential, 1020 East 148th
Street, Bronx, New York 10455-5014 (5.92%); Merrill Lynch for the sole benefit
of its customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd
Floor, Jacksonville, Florida 32246-6484 (66.03%).

International Core Growth Portfolio B: Merrill Lynch for the sole benefit of
its customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (9.88%); Wheat First FBO A/C 3688-3975, Bernard
Greenberg Et Al Trustees, Store Automated Systems, Inc. 01/01/85 DEF Benefit
Plan, 311 Sinclair Road, Bristol, Pennsylvania 19007-1524 (6.53%); PaineWebber
for the benefit of Thomas A. Landles & Alice M. Landles, Co-Trustees, UA DTD
5/22/86, P.O. Box 141, Mendocino, California 95460-0141 (7.17%); PaineWebber for
the benefit of Antoinette Infranco, 1856 Galli Drive, Vineland, New Jersey
08360-2532 (11.07%).

Worldwide Growth Portfolio B: Merrill Lynch for the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (38.46%).

International Small Cap Growth Portfolio B: Merrill Lynch for the sole benefit
of its customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd
Floor, Jacksonville, Florida 32246-6484 (19.70%); Donaldson Lufkin Jenrette
Securities Corporation Inc., P.O. Box 2052, Jersey City, New Jersey 07303-2052
(7.51%).

Emerging Countries Portfolio B: Merrill Lynch for the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (36.13%).

Core Growth Portfolio C: Merrill Lynch for the sole benefit of its customers,
Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville,
Florida 32246-6484 (81.83%).

Emerging Growth Portfolio C: Merrill Lynch for the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (85.36%).

Income & Growth Portfolio C: Merrill Lynch for the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (85.55%).

Balanced Growth Portfolio C: Merrill Lynch for the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (84.54%).

Government Income Portfolio C: Merrill Lynch for the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (83.91%).

B-32
<PAGE>

International Core Growth Portfolio C: Merrill Lynch for the sole benefit of
its customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (52.99%); Resources TRSUT CD Cust. FBO Robert
E. Carlton IRA, D/T/D 4/8/88 #R521286520, P.O. Box 5900, Denver, Colorado 80217-
5900 (12.13%); Donaldson Lufkin Jenrette Securities Corporation Inc., P.O. Box
2052, Jersey City, New Jersey 07303-2052 (5.23%).

Worldwide Growth Portfolio C: Merrill Lynch for the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (87.53%).

International Small Cap Growth Portfolio C: Merrill Lynch for the sole benefit
of its customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd
Floor, Jacksonville, Florida 32246-6484 (44.40%); PaineWebber for the benefit of
Thomas H. Mallory, Trustee, Mallory 1993A QTIP Trust Account FBO National City
Bank, 720 East Broad Street, Columbus, Ohio 43215-3947 (5.72%).

Emerging Countries Portfolio C: Merrill Lynch for the sole benefit of its
customers, Attn: Fund Administration, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, Florida 32246-6484 (56.50%).

As of such date, the Trustees and officers of the Trust, as a group,
owned beneficially and of record less than 1% of the outstanding shares of each
of the Portfolios except for the shares indicated above that are held by
Nicholas-Applegate Capital Management.

TRUSTEES AND PRINCIPAL OFFICERS

TRUST

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

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

ARTHUR B. LAFFER, TRUSTEE.* 5405 Morehouse Drive, Suite 340, San
Diego, California. Chairman, A.B. Laffer, V.A. Canto & Associates, an economic
consulting firm (since 1979); Chairman, Laffer Advisers Incorporated, economic
consultants (since 1981); Director, Nicholas-Applegate Fund, Inc. (since 1987);
Director, U.S. Filter Corporation (since March 1991), MasTec Inc., construction
(since 1994), and Coinmach Laundry Corporation (since 1996); Chairman, Calport
Asset Management, Inc. (since 1992); formerly Distinguished University Professor
and Director, Pepperdine University (from September 1985 to May 1988) and
Professor of Business Economics, University of Southern California (1976 to
1984). Mr.

B-33
<PAGE>

Laffer is considered to be an "interested person" of the Trust because
A.B. Laffer, V.A. Canto & Associates or its affiliates received $100,000 in
1995 and $100,000 in 1996 from the Investment Adviser as compensation for
consulting services provided from time to time to the Investment Adviser, and
because his son is an employee of the Investment Adviser.

CHARLES E. YOUNG, TRUSTEE. UCLA, 2224 Murphy Hall, Los Angeles,
California. Chancellor, UCLA (1968-1997); Director, Nicholas-Applegate Fund,
Inc. (since 1992); Director, Intel Corp. (since 1974), Academy of Television
Arts and Sciences Foundation (since October 1988), Los Angeles World Affairs
Council (since 1977) and Town Hall of California (since 1982).

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

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

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

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

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

The following table sets forth the aggregate compensation paid by the
Trust for the fiscal year ended March 31, 1997, to the Trustees who are not
affiliated with the Investment Adviser and the aggregate compensation paid to
such Trustees for service on the Trust's board and that of all other funds in
the "Trust complex" (as defined in Schedule 14A under the Securities Exchange
Act of 1934):

B-34
<PAGE>

<TABLE>
<CAPTION>
Total Compensation
Aggregate Pension or Retirement Estimated Annual from Trust and Trust
Compensation from Benefits Accrued as Benefits Upon Complex Paid to
Name Trust Part of Trust Expenses Retirement Trustee
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fred C. Applegate $ 10,635 None N/A $ 36,250 (54*)

Arthur B. Laffer $ 9,558 None N/A $ 31,750 (54*)

Charles E. Young $ 9,827 None N/A $ 31,750 (54*)
</TABLE>

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

MASTER TRUST

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

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

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

WALTER E. AUCH, TRUSTEE.* 6001 North 62nd Place, Paradise Valley,
Arizona. Director, Geotech Communications, Inc., a mobile radio communications
company (since 1987); Fort Dearborn Fund (since 1987); Brinson Funds (since
1994), Smith Barney Trak Fund (since 1992), registered investment companies;
Pimco Advisors L.P., an investment manager (since 1994); and Banyan Realty Fund
(since 1987), Banyan Strategic Land Fund (since 1987), Banyan Strategic Land
Fund II (since 1988), and Banyan Mortgage Fund (since 1988), real estate
investment trusts. Formerly Chairman and Chief Executive Officer, Chicago Board
Options Exchange (1979 to 1986) and Senior Executive Vice President, Director
and Member of the Executive Committee, PaineWebber, Inc. (until 1979). Mr. Auch
is considered to be an "interested person" of the Trust under the 1940 Act
because he is on the board of a company a subsidiary of which is a broker-
dealer.

B-35
<PAGE>

THEODORE J. COBURN, TRUSTEE. 17 Cotswold Road, Brookline,
Massachusetts. Partner, Brown Coburn & Co. an investment banking firm (since
1991), and research associate, Harvard Graduate School of Education (since
1996). Director, Nicholas-Applegate Fund, Inc. (since 1987), Emerging Germany
Fund (since 1991), Moovies, Inc. (since 1995). Formerly Managing Director of
Global Equity Transactions Group and member of Board of Directors, Prudential
Securities (from 1986 to June 1991).

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

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

JOHN D. WYLIE, PRESIDENT.

THOMAS PINDELSKI, CHIEF FINANCIAL OFFICER.

PETER J. JOHNSON, VICE PRESIDENT.

E. BLAKE MOORE, JR., SECRETARY.

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

The following table sets for the aggregate compensation paid by the
Master Trust for the fiscal year ended March 31, 1997, to the Trustees who are
not affiliated with the Investment Adviser and the aggregate compensation paid
to such Trustees for service on the Master Trust's board and that all other
funds in the "Master Trust complex" (as defined in Schedule 14A under the
Securities Exchange Act of 1934):

B-36
<PAGE>

<TABLE>
<CAPTION>
Pension or Retirement Total Compensation
Aggregate Benefits Accrued as Estimated Annual from Master Trust and
Compensation from Part of Master Trust Benefits Upon Master Trust Complex
Name Master Trust Expenses Retirement Paid to Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dann V. Angeloff $ 10,635 None N/A $ 36,750 (13*)

Walter E. Auch $ 9,827 None N/A $ 18,250 (11*)

Theodore J. Coburn $ 9,827 None N/A $ 34,250 (13*)

Darlene Deremer $ 9,558 None N/A $ 17,250 (11*)

George F. Keane $ 9,827 None N/A $ 18,250 (11*)
</TABLE>

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

INVESTMENT ADVISER

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

The Investment Adviser was organized in August 1984 to manage
discretionary accounts investing primarily in publicly traded equity securities
and securities convertible into or exercisable for publicly traded equity
securities, with the goal of capital appreciation. Its general partner is
Nicholas-Applegate Capital Management Holdings, L.P., a California limited
partnership, the general partner of which is Nicholas-Applegate Capital
Management Holdings, Inc., a California corporation owned by Mr. Nicholas.

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

THE INVESTMENT ADVISORY AGREEMENT

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

The Investment Advisory Agreement provides that the Investment Adviser
will not be liable for any error of judgment or for any loss suffered by a Fund
or the Master Trust in connection with the matters to which the Investment
Advisory Agreement relates, except for liability resulting from willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by

B-37
<PAGE>

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

The amounts of the advisory fees earned by the Investment Adviser for
the fiscal year ended March 31, 1997, and the amounts of the reductions in fees
(or recoupment of fees previously deferred) as a result of the expense
limitations and fee waivers described below under "Expense Limitation" were as
follows:

B-38
<PAGE>

<TABLE>
<CAPTION>
Fund Advisory Fees Fee Reductions
- ---- ------------- --------------
<S> <C> <C>
Large Cap Growth Fund $ 2,359 ($7,907)

Core Growth Fund 3,594,196 0

Emerging Growth Fund 5,836,182 0

Income & Growth Fund 902,615 39,067

Balanced Growth Fund 196,321 (68,056)

Government Fund 23,112 (84,903)

Money Market Fund 44,318 (76,932)

International Core Growth Fund 5,726 (5,696)

Worldwide Growth Fund 1,028,250 (62,497)

International Small Cap Growth Fund 477,212 (13,583)

Emerging Countries Fund 915,695 22,429
</TABLE>

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

EXPENSE LIMITATION

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

ADMINISTRATORS

The principal administrator of the Trust is Investment Company
Administration Corporation ("ICAC"), 4455 East Camelback Road, Suite 261-E,
Phoenix, Arizona 85018.

Pursuant to an Administration Agreement with the Trust, ICAC is
responsible for performing all administrative services required for the daily
business operations of the Trust, subject to the supervision of the Board of
Trustees of the Trust. ICAC has no supervisory responsibility over the
investment operations of the Portfolios. The management or administrative
services of ICAC for

B-39
<PAGE>

the Trust are not exclusive under the terms of the Administration Agreement
and ICAC is free to, and does, render management and administrative services
to others. ICAC also serves as the administrator for the Master Trust.

For its services, ICAC receives under the Administration Agreement
$35,000 for each grouping of five similar portfolios (e.g., Core Growth
Portfolio A, Portfolio B, Portfolio C, Institutional and Qualified
Portfolios), $25,000 for each grouping of three similar portfolios, $20,000
for a grouping of two similar portfolios and $5,000 for one portfolio, except
as follows: The Administrator receives $15,000 for its services with respect
to the Emerging Growth Portfolios. As a result, ICAC currently receives
aggregate compensation at the rate of $581,542 per year for all of the series
of the Trust. Such fees will be allocated among the series in each grouping
based on relative net asset values. For its services to the Master Trust,
ICAC receives, pursuant to an Administration Agreement, a monthly fee at the
following annual rates: 0.05% on the first $100 million of aggregate net
assets of the Funds, 0.04% on the next $150 million, 0.03% on the next $300
million, 0.02% on the next $300 million, and 0.01% on the portion of
aggregate net assets of the Funds in excess of $850 million. ICAC will
receive a minimum of $150,000 per year allocated among the Funds based on
average net assets.

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

Under the terms of the Administration Agreement, the Trust is
responsible for the payment of the following expenses: (a) the fees and
expenses incurred by the Trust in connection with the management of the
investment and reinvestment of their assets, (b) the fees and expenses of
Trustees and officers of the Trust who are not affiliated with ICAC or the
Investment Adviser, (c) out-of-pocket travel expenses for the officers and
Trustees of the Trust and other expenses of Board of Trustees' meetings, (d)
the fees and certain expenses of the Custodian, (e) the fees and expenses of
the Transfer and Dividend Disbursing Agent that relate to the maintenance of
each shareholder account, (f) the charges and expenses of the Trust's legal
counsel and independent accountants, (g) brokerage commissions and any issue
or transfer taxes chargeable to Trustees and officers of the Trust in
connection with securities transactions, (h) all taxes and corporate fees
payable by the Trust to federal, state and other governmental agencies, (i)
the fees of any trade association of which the Trust may be a member, (j) the
cost of maintaining the Trust's existence, taxes and interest, (k) the cost
of fidelity and liability insurance, (l) the fees and expenses involved in
registering and maintaining the registration of the Trust and of its shares
with the Commission and registering the Trust as a broker or dealer and
qualifying their shares under state securities laws, including the
preparation and printing of the Trust's registration statement, prospectuses
and statements of additional information, (m) allocable communication
expenses with respect to investor services and all expenses of shareholders'
and Board of Trustees' meetings and of preparing, printing and mailing
prospectuses and reports to shareholders, (n) litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course
of the business of the Trust, and (o) expenses assumed by the Trust pursuant
to any plan of distribution adopted in conformity with Rule 12b-1 under the
Investment Company Act.

The Administration Agreement provides that ICAC will not be liable
for any error of judgment or for any loss suffered by the Trust in connection
with the matters to which the Administration Agreement relates, except a loss
resulting from ICAC's willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties. The Administration Agreement will terminate
automatically if assigned, and may be terminated without penalty by either
ICAC or the Trust (by the

B-40
<PAGE>

Board of Trustees of the Trust or vote of a majority of the outstanding
voting securities of the Trust, as defined in the Investment Company Act),
upon 60 days' written notice. The Administration Agreement will continue in
effect only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act.

Pursuant to an Administrative Services Agreement with the Trust,
the Investment Adviser is responsible for providing all administrative
services which are not provided by ICAC or by the Trust's Distributor,
transfer agents, accounting agents, independent accountants and legal
counsel. These services are comprised principally of assistance in
coordinating with the Trust's various service providers, providing certain
officers of the Trust, responding to inquiries from shareholders which are
directed to the Trust rather than other service providers, calculating
performance data, providing various reports to the Board of Trustees, and
assistance in preparing reports, prospectuses, proxy statements and other
shareholder communications. The Agreement contains provisions regarding
liability and termination similar to those of the Administration Agreement.

DISTRIBUTOR

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

DISTRIBUTION AGREEMENT

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

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

The aggregate commissions received by the Distributor in connection
with sales of the Portfolios for the fiscal year ended March 31, 1997 were
$2,065,411.

DISTRIBUTION PLAN

Under a plan of distribution for the Trust with respect to the
Series A Portfolios, Series B Portfolios and Series C Portfolios (the
"Distribution Plan") adopted pursuant to Rule 12b-1 under the Investment
Company Act and distribution agreement (the "Distribution Agreement"), the
Distributor incurs the expense of distributing shares of the Portfolios. The
Distribution Plan provides for compensation to the Distributor for the
services it provides, and the costs and expenses it incurs,

B-41
<PAGE>

related to marketing shares of the Portfolios. The Distributor is paid for:
(a) expenses incurred in connection with advertising and marketing shares of
the Portfolios including but not limited to any advertising by radio,
television, newspapers, magazines, brochures, sales literature, telemarketing
or direct mail solicitations; (b) periodic payments of fees or commissions
for distribution assistance made to one or more securities brokers, dealers
or other industry professionals such as investment advisers, accountants,
estate planning firms and the Distributor itself in respect of the average
daily value of shares owned by clients of such service organizations, and (c)
expenses incurred in preparing, printing and distributing the Portfolios'
prospectuses and statements of additional information.

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

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

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

The aggregate payments received by the Distributor pursuant to the
Distribution Plan for the fiscal year ended March 31, 1997, were as follows:

B-42
<PAGE>

<TABLE>
<CAPTION>
Payments under
Distribution
Portfolio Plan
- --------- --------------
<S> <C>
Core Growth Portfolio A.......................................................... $ 209,589
Core Growth Portfolio B.......................................................... 170,941
Core Growth Portfolio C.......................................................... 1,367,835
Emerging Growth Portfolio A...................................................... 382,408
Emerging Growth Portfolio B...................................................... 179,975
Emerging Growth Portfolio C...................................................... 1,673,336
Income & Growth Portfolio A...................................................... 77,395
Income & Growth Portfolio B...................................................... 51,856
Income & Growth Portfolio C...................................................... 463,340
Balanced Portfolio A............................................................. 14,817
Balanced Portfolio B............................................................. 12,844
Balanced Portfolio C............................................................. 133,791
Worldwide Portfolio A............................................................ 60,693
Worldwide Portfolio B............................................................ 28,354
Worldwide Portfolio C............................................................ 539,559
Government Portfolio A........................................................... 3,408
Government Portfolio B........................................................... 4,279
Government Portfolio C........................................................... 17,533
International Small Cap Portfolio A.............................................. 7,047
International Small Cap Portfolio B.............................................. 22,586
International Small Cap Portfolio C.............................................. 20,268
Emerging Countries Portfolio A................................................... 123,152
Emerging Countries Portfolio B................................................... 86,600
Emerging Countries Portfolio C................................................... 106,711
Money Market Portfolio........................................................... 26,500
</TABLE>

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

SHAREHOLDER SERVICE PLAN

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

Support services include, among other things, establishing and
maintaining accounts and records relating to their clients that invest in
Portfolio shares; processing dividend and distribution payments from the
Portfolios on behalf of clients; preparing tax reports; arranging for

B-43
<PAGE>

bank wires; responding to client inquiries concerning their investments in
Portfolio shares; providing the information to the Portfolios necessary for
accounting and subaccounting; preparing tax reports, forms and related
documents; forwarding shareholder communications from the Trust (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to clients; assisting in processing
exchange and redemption requests from clients; assisting clients in changing
dividend options, account designations and addresses; and providing such
other similar services.

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

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

MISCELLANEOUS

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

PORTFOLIO TRANSACTIONS AND BROKERAGE

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

The Funds have no obligation to deal with any broker or group of
brokers in executing transactions in portfolio securities. Subject to
obtaining the best price and execution,

B-44
<PAGE>

brokers who sell shares of the Portfolios or provide supplemental research,
market and statistical information and other research services and products
to the Investment Adviser may receive orders for transactions by the Funds.
Such information, services and products are those which brokerage houses
customarily provide to institutional investors, and include items such as
statistical and economic data, research reports on particular companies and
industries, and computer software used for research with respect to
investment decisions. Information, services and products so received are in
addition to and not in lieu of the services required to be performed by the
Investment Adviser under the Investment Advisory Agreement, and the expenses
of the Investment Adviser are not necessarily reduced as a result of the
receipt of such supplemental information, services and products. Such
information, services and products may be useful to the Investment Adviser in
providing services to clients other than the Master Trust, and not all such
information, services and products are used by the Investment Adviser in
connection with the Funds. Similarly, such information, services and products
provided to the Investment Adviser by brokers and dealers through whom other
clients of the Investment Adviser effect securities transactions may be
useful to the Investment Adviser in providing services to the Funds. The
Investment Adviser may pay higher commissions on brokerage transactions
for the Funds to brokers in order to secure the information, services and
products described above, subject to review by the Master Trust's Board of
Trustees from time to time as to the extent and continuation of this practice.

Although the Investment Adviser makes investment decisions for the
Master Trust independently from those of its other accounts, investments of
the kind made by the Funds may often also be made by such other accounts.
When the Investment Adviser buys or sells the same security at the same time
on behalf of the Funds and one or more other accounts managed by the
Investment Adviser, the Investment Adviser allocates available investments by
such means as, in its judgment, result in fair treatment. The Investment
Adviser aggregates orders for purchases and sales of securities of the same
issuer on the same day among the Funds and its other managed accounts, and
the price paid to or received by the Funds and those accounts is the average
obtained in those orders. In some cases, such aggregation and allocation
procedures may affect adversely the price paid or received by the Funds or
the size of the position purchased or sold by the Funds.

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

During the fiscal year ended March 31, 1997, the following Funds
acquired securities of their regular brokers or dealers (as defined in Rule
10b-1 under the Investment Company Act) or their parents: Large Cap Growth
Fund -- J.P. Morgan & Co.; Core Growth Fund -- Merrill Lynch & Co., UBS
Securities, Inc., Household Finance Co., J.P.Morgan & Co., American Express
Credit Corp.; Emerging Growth Fund -- J.P. Morgan & Co., Associates Corp. of
North America, Merrill Lynch & Co., UBS Securities, Inc., Everen Securities,
Hambrecht & Quist Group, Household Finance Co., American Express Credit
Corp.; Income & Growth Fund -- Merrill Lynch & Co., Associates Corp. of North
America, First Chicago NBD Corp., Morgan Stanley Group, Inc., American
Express Credit Corp.; Balanced Growth Fund -- Bear, Stearns, Inc., Morgan
Stanley Group, Inc., Salomon Bros. Inc., Associates Corp of North America;
Government Fund -- Lehman Bros., UBS Securities, Inc., Merrill Lynch & Co.;
Money Market Fund -- Associates Corp. of North America, General Electric Credit
Corp., Norwest Corp., J.P. Morgan & Co., American Express Capital Corp.,
Chevron Corp.;

B-45
<PAGE>

International Core Growth Fund -- Associates Corp. of North America, Merrill
Lynch & Co.; Worldwide Growth Fund -- Morgan Stanley Group, Inc., Merrill Lynch
& Co.; International Small Cap Growth Fund -- Merrill Lynch & Co.; and Emerging
Countries Fund -- Associates Corp. of North America, Merrill Lynch & Co.,
Rashid Hussain Berhad Securities, Peregrine Brokerage. The holdings of
securities of such brokers and dealers were as follows as of March 31, 1997:
Large Cap Growth Fund -- J.P. Morgan & Co. ($176,000); Emerging Growth
Fund -- J.P. Morgan & Co. ($22,666,000); Income & Growth Fund -- Merrill Lynch &
Co. ($1,244,500), Associates Corp. Of North America ($5,742,000); Balanced
Growth Fund -- Bear, Stearns, Inc. ($118,650), Associates Corp of North America
($860,000); Government Fund--Lehman Bros. ($139,392); Money Market Fund --
Associates Corp. of North America ($999,706), General Electric Credit Corp.
($999,704); Norwest Corp., ($998,678), J.P. Morgan & Co. ($12,158,000);
International Core Growth Fund -- Associates Corp. of North America ($130,000),
Merrill Lynch & Co. ($194,000); and Emerging Countries Fund -- Associates Corp.
of North America ($3,036,000).

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

<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
<S> <C> <C> <C>
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1995
-------------- -------------- --------------
International Core Growth Fund.................................. $ 24,643 0 0
Worldwide Fund.................................................. 970,564 484,310 344,167
International Small Cap Growth Fund............................. 692,326 116,735 69,187
Emerging Countries Fund......................................... 1,427,861 169,728 20,701
Large Cap Growth Fund........................................... 4,620 0 0
Core Growth Fund................................................ 1,139,938 862,396 728,347
Emerging Growth Fund............................................ 987,245 1,038,140 649,053
Income & Growth Fund............................................ 114,523 83,459 174,247
Balanced Fund................................................... 35,105 51,038 44,386
Government Fund................................................. 0 3 0
Money Market Fund............................................... 0 0 0
</TABLE>

Of the total commissions paid during the fiscal year ended March 31, 1997,
$1,971,176 (36.52%) were paid to firms which provided research, statistical
or other services to the Investment Adviser.

PURCHASE AND REDEMPTION OF PORTFOLIO SHARES

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

B-46
<PAGE>

The price paid for purchase and redemption of shares of the
Portfolios is based on the net asset value per share, which is calculated
once daily at the close of trading (currently 4:00 P.M. New York time) each
day the New York Stock Exchange is open. The New York Stock Exchange is
currently closed on weekends and on the following holidays: New Year's Day,
Martin Luther King's Birthday, Washington's Birthday, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The
offering price is effective for orders received by the Transfer Agent prior
to the time of determination of net asset value. Dealers are responsible for
promptly transmitting purchase orders to the Transfer Agent. The Trust
reserves the right in its sole discretion to suspend the continued offering
of the Portfolios' shares and to reject purchase orders in whole or in part
when such rejection is in the best interests of the Trust and the affected
Portfolios. Payment for shares redeemed will be made more than seven days
after receipt of a written or telephone request in appropriate form, except
as permitted by the 1940 Act and the rules thereunder.

REDUCED SALES CHARGES

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

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

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

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

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

B-47
<PAGE>

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

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

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

DEALER COMMISSIONS

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

Current Market Value
of Accounts at
Commission Rate Time of Purchase
------------------- --------------------

1.00% $1,000,000 up to $2,000,000.
.80% over $2,000,000 up to $5,000,000.
.50% over $5,000,000 up to $25,000,000.
.25% over $25,000,000.

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

B-48
<PAGE>

REDEMPTION IN KIND

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

WAIVER OF CDSC

The CDSC is waived for redemptions by: (1) current or retired
directors, trustees, partners, officers and employees of the Trust, the
Master Trust, the Distributor, the Investment Adviser and its general
partner, certain family members of the above persons, and trusts or plans
primarily for such persons; (2) former limited partners and participants of
certain investment partnerships and pooled trusts previously managed by the
Investment Adviser; and (3) participants in certain pension, profit-sharing
or employee benefit plans that are sponsored by the Distributor and its
affiliates.

The CDSC is also waived for:

(1) exchanges of shares of the Series B or C Portfolios (however, the
shares acquired by exchange will continue to be subject to a CDSC on
the same basis as the shares exchanged);

(2) redemptions in connection with mergers, acquisitions and exchange
offers involving a Series B or C Portfolio;

(3) qualifying distributions from qualified retirement plans and other
employee benefit plans;

(4) distributions from custodial accounts under Section 403(b)(7) of the
Internal Revenue Code or IRAs due to death, disability or attainment
of age 59 1/2;

(5) tax-free returns of excess contributions to IRAs;

(6) any partial or complete redemptions following the death or
disability of a shareholder, provided the redemption is made within
one year of death or initial determination of disability; and

(7) redemptions when the Distributor did not pay an advance commission
to a broker upon the purchase of the shares being redeemed.

SHAREHOLDER SERVICES

SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of shares of a Portfolio, a Shareholder
Investment Account is established for each investor under which the shares
are held for the investor by the

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<PAGE>

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

AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS

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

AUTOMATIC INVESTMENT PLAN

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

CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS

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

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<PAGE>

AUTOMATIC WITHDRAWAL

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

NET ASSET VALUE

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

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

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

The Funds value long-term debt obligations at the quoted bid prices
for such securities or, if such prices are not available, at prices for
securities of comparable maturity, quality and type; however, the Investment
Adviser will use, when it deems it appropriate, prices obtained for the day
of valuation from a bond pricing service, as discussed below. The Funds
value debt securities with maturities of 60 days or less at amortized cost if
their term to maturity from date of purchase is less than 60 days, or by
amortizing, from the sixty-first day prior to maturity, their value on the
sixty-first day prior to maturity if their term to maturity from date of
purchase by the Portfolio or the Fund is more than 60 days, unless this is
determined by the Board of Trustees of the Master Trust not to represent fair
value. The Funds value repurchase agreements at cost plus accrued interest.

The Funds value U.S. Government securities which trade in the
over-the-counter market at the last available bid prices, except that
securities with a demand

B-51
<PAGE>

feature exercisable within one to seven days are valued at par. Such
valuations are based on quotations of one or more dealers that make markets
in the securities as obtained from such dealers, or on the evaluation of a
pricing service.

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

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

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

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

MONEY MARKET PORTFOLIO

The calculation of the net asset value per share of the Money
Market Portfolio, as well as the Money Market Fund, is based upon the
penny-rounding method of pricing pursuant to Rule 2a-7 under the Investment
Company Act. The net asset value per share of the Money Market Portfolios
and Fund will normally remain constant at $1.00.

The Money Market Fund determines the value of its portfolio
securities by the amortized cost method. This method involves valuing an
instrument at its cost and thereafter assuming a

B-52
<PAGE>

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

DIVIDENDS, DISTRIBUTIONS AND TAXES

The Balanced and Income & Growth Portfolios declare and pay
quarterly dividends of net investment income. The Government Portfolios
declare and pay monthly dividends of net investment income. The Money Market
Portfolio declares daily dividends of net investment income and distributes
the accrued dividends to shareholders each month. All other Portfolios
declares and pay annual dividends of all investment income. Each Portfolio
makes distributions at least annually of its net capital gains, if any. In
determining amounts of capital gains to be distributed by a Portfolio, any
capital loss carryovers from prior years will be offset against its capital
gains.

MASTER TRUST'S TAX STATUS

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

REGULATED INVESTMENT COMPANY

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

As a regulated investment company, a Portfolio will not be liable
for federal income tax on its income and gains provided it distributes all of
its income and gains currently. Qualification as a regulated investment
company under the Code requires, among other things, that each Portfolio (a)
derive at least 90% of its gross income from dividends, interest, payments
with respect to securities loans, and gains from the sale or other
disposition of securities or foreign currencies, or other income (including,
but not limited to, gains from options, futures or forward contracts) derived
with respect to its business of investing in such securities or currencies;
(b) derive less than 30% of its gross income from the sale or other
disposition of stock, securities, options, futures, forward contracts,
certain foreign currencies and certain options, futures, and forward
contracts on foreign currencies held less than three months; (c) diversify
its holdings so that, at the end of each fiscal quarter, (i) at least 50% of
the market value of the Portfolio's assets is represented by cash, U.S.
Government securities and securities of other regulated investment companies,
and other securities (for purposes of this calculation generally limited, in
respect of any one issuer, to an

B-53
<PAGE>

amount not greater than 5% of the market value of the Portfolio's assets and
10% of the outstanding voting securities of such issuer) and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. Government or foreign government securities or the
securities of other regulated investment companies), or two or more issuers
which the Trust controls and which are determined to be engaged in the same
or similar trades or businesses; and (d) distribute at least 90% of its
investment company taxable income (which includes dividends, interest, and
net short-term capital gains in excess of net long-term capital losses) each
taxable year.

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

Dividends paid by a Portfolio from ordinary income, and
distributions of the Portfolio's net realized short-term capital gains, are
taxable to its shareholders as ordinary income. Distributions to corporate
shareholders will be eligible for the 70% dividends received deduction to the
extent that the income of the Portfolios is derived from dividends on common
or preferred stock of domestic corporations. Dividend income earned by a
Portfolio will be eligible for the dividends received deduction only if the
Portfolio and corresponding Fund have satisfied a 46-day holding period
requirement with respect to the underlying portfolio security (91 days in the
case of dividends derived from preferred stock). In addition, a corporate
shareholder must have held its shares in the Portfolio for not less than 46
days (91 days in the case of dividends derived from preferred stock) in order
to claim the dividend received deduction. Not later than 60 days after the
end of its taxable year, the Portfolio will send to its shareholders a
written notice designating the amount of any distributions made during such
year which may be taken into account by its shareholders for purposes of such
deduction provisions of the Code. Net capital gain distributions are not
eligible for the dividends received deduction.

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

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<PAGE>

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

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

SPECIAL TAX CONSIDERATIONS

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

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

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

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

B-55
<PAGE>

transactions may increase the amount of short-term capital gain realized by a
Portfolio which is taxed as ordinary income when distributed to shareholders.

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

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

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

SECTION 988 GAINS AND LOSSES. Under the Code, gains or losses
attributable to fluctuations in exchange rates which occur between the time a
Fund accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or loss. Similarly, gains or losses on disposition of debt
securities denominated in a foreign currency and on disposition of certain
futures attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains and
losses, referred to under the Code as "section 988" gains or losses, may
increase or decrease the amount of the Portfolio's investment company taxable
income to be distributed to the shareholders.

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

Generally, a credit for foreign taxes is subject to the limitation
that it may not exceed the shareholder's U.S. tax attributable to his or her
total foreign source taxable income. For this purpose, if the Fund elects
pass-through treatment, the source of the Fund's income flows through to
shareholders of the Portfolio. With respect to such election, the Fund treats
gains from the sale of securities as derived from U.S. sources and certain
currency fluctuation gains, including fluctuation gains from foreign currency
denominated debt securities, receivables and payables as ordinary income
derived from U.S. sources. The limitation on the foreign tax credit applies
separately to foreign source passive income, and to certain other types of
income. Shareholders may be unable to claim a credit for the full amount of
their proportion at share of the foreign taxes paid by

B-56
<PAGE>

the Fund. The foreign tax credit is modified for purposes of the federal
alternative minimum tax and can be used to offset only 90% of the alternative
minimum tax imposed on corporations and individuals and foreign taxes
generally are not deductible in computing alternative minimum taxable income.

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

ORIGINAL ISSUE DISCOUNT. The Funds may treat some of the debt
securities (with a fixed maturity date of more than one year from the date of
issuance) they may acquire as issued originally at a discount. Generally, the
Funds treat the amount of the original issue discount ("OID") as interest
income and include it in income over the term of the debt security, even
though they do not receive payment of that amount until a later time, usually
when the debt security matures. The Funds treat a portion of the OID
includable in income with respect to certain high-yield corporation debt
securities as a dividend for Federal income tax purposes.

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

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

The Portfolios generally must distribute dividends to shareholders
representing discount on debt securities that is currently includable in
income, even though the Funds have yet to receive cash representing such
income . The Funds may obtain cash to pay such dividends from sales proceeds
of securities held by the Funds.

OTHER TAX INFORMATION

The Portfolios may be required to withhold for U.S. federal income
taxes 31% of all taxable distributions payable to shareholders who fail to
provide the Portfolios with their correct taxpayer identification number or
to make required certifications, or who have been notified by the

B-57
<PAGE>

Internal Revenue Service that they are subject to backup withholding.
Corporate shareholders and certain other shareholders specified in the Code
generally are exempt from such backup withholding. Backup withholding is not
an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal tax liability.

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

PERFORMANCE INFORMATION

The Trust may from time to time advertise total returns and yields
for the Portfolios, compare Portfolio performance to various indices, and
publish rankings of the Portfolios prepared by various ranking services. Any
performance information should be considered in light of the Portfolio's and
Fund's investment objectives and policies, characteristics and quality of the
its portfolio, and the market conditions during the given time period, and
should not be considered to be representative of what may be achieved in the
future.

TOTAL RETURN

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

Total return is computed according to the following formula:

n
P(1 + T) = ERV

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

YIELD

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

B-58
<PAGE>

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

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

Yields for the following Portfolios for the thirty-day period ended
March 31, 1997 were as follows:

<TABLE>
<S> <C>
Income & Growth Portfolio A......................................... 2.5419%
Income & Growth Portfolio B......................................... 2.0397%
Income & Growth Portfolio C......................................... 2.0194%
Balanced Growth Portfolio A......................................... 1.9619%
Balanced Growth Portfolio B......................................... 1.4278%
Balanced Growth Portfolio C......................................... 1.3901%
Government Income Portfolio A....................................... 5.8799%
Government Income Portfolio B....................................... 5.6144%
Government Income Portfolio C....................................... 5.6330%
</TABLE>

The Money Market Portfolio will prepare a current quotation of
yield daily. The yield quoted will be the simple annualized yield for an
identified seven-calendar-day period. The yield calculation will be based on
a hypothetical account having a balance of exactly one share at the beginning
of the seven-day period. The base return will be the change in the value of
the hypothetical account during the seven-day period, including dividends
declared on any shares purchased with dividends on the shares, but excluding
any capital changes. The yield will vary as interest rates and market
conditions change. Yield also depends on the quality, length of maturity and
type of instruments in the Money Market Fund, and its operating expenses. The
Money Market Portfolio may also prepare an effective annual yield computed by
compounding the unannualized seven-day period return as follows: by adding 1
to the unannualized seven-day period return, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result. The yield for the
Money Market Portfolio for the seven days ended March 31, 1997 was 5.08%.

PRIOR PERFORMANCE OF CERTAIN PORTFOLIOS AND THEIR PREDECESSORS

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

B-59
<PAGE>

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

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

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

B-60
<PAGE>

<TABLE>
<CAPTION>
SERIES A PORTFOLIOS

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

CORE GROWTH EMERGING GROWTH INCOME & GROWTH
PERFORMANCE PERFORMANCE PERFORMANCE
----------- --------------- ---------------

RUSSELL INCOME CS FIRST
CORE RUSSELL EMERGING 2000 & BOSTON
GROWTH S&P 500 MIDCAP GROWTH GROWTH GROWTH CONVERTIBLE
YEAR PORTFOLIO INDEX(1) INDEX(2) PORTFOLIO INDEX(3) PORTFOLIO INDEX(4)
- ------------- -------------- ----------- --------- ----------- ----------- ----------- -------------

<S> <C> <C> <C> <C> <C> <C> <C>
1985(7) 18.02% 17.14% 5.20% 6.97%

1986 25.14 18.64 17.55% 0.07 3.58

1987(7) (2.44) 5.27 2.76 (9.55) (10.48) (8.76%) (0.22%)

1988 6.12 16.55 12.92 19.46 20.37 12.92 13.41

1989 26.15 31.61 31.48 19.98 20.17 20.94 13.76

1990(7) (5.13) (3.04) (5.13) (13.81) (17.41) (4.08) (6.89)

1991 46.51 30.46 47.03 46.92 51.19 30.33 29.11

1992 6.95 7.62 8.71 6.04 7.77 3.45 17.58

1993 12.82 10.07 (11.19) 9.15 13.36 19.84 18.55

1994 (15.67) 1.32 (2.17) (9.07) (2.43) (13.05) (4.72)

1995 30.41 37.60 33.99 27.79 31.06 15.29 23.72

1996 10.36 22.96 22.96 14.48 11.26 10.23 13.84

1997(8) (13.11) 2.67 (3.64) (19.17) (10.56) (3.99) 0.52

Last
year(8) (4.22) 19.81 6.35 (11.18) (5.89) 7.76 8.12

Last
5 years(8) 11.26 16.42 13.09 9.85 8.64 12.11 12.41

Last
10 years(8) 12.38 13.38 11.90 10.91 7.05 12.39 9.94

Since
inception(8) 18.20 16.72 12.67 9.18 13.41 10.98

<CAPTION>
SERIES A PORTFOLIOS
---------------------------

INTERNATIONAL SMALL CAP
PERFORMANCE
---------------------------
INTER-
NATIONAL MSCI SALOMON
SMALL CAP EAFE EPAC/EMI
YEAR PORTFOLIO INDEX(5) Index(6)
- ---- ------------- ---------- ----------

<S> <C> <C> <C>
1990(7) (22.07%) (13.67%) (16.96)

1991 5.34 12.13 6.66

1992 (17.42) (12.17) (15.42)

1993 18.77 32.57 30.34

1994 3.10 7.76 9.44

1995 (0.03) 11.02 4.79

1996 6.13 6.05 6.47

1997(8) (1.42) (1.56) (1.98)

Last
year(8) 8.65 1.46 (1.25)

Last
5 years(8) 9.88 10.53 7.96

Since
inception(8) 4.27 5.14 2.31
</TABLE>

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

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

B-61
<PAGE>

(2) Russell Midcap Index measures the performance of the 800 smallest companies
in the Russell 1000 Index, which represent approximately 35% of the total
market capitalization of the Russell 1000 Index. As of the latest
reconstitution, the average market capitalization was approximately $2.5
billion; the median market capitalization was approximately $2.0 billion.
The largest company in the index had an approximate market capitalization of
$6.5 billion.

(3) The Russell 2000 Growth Stock Index contains those securities in the Russell
2000 Index with a greater-than-average growth orientation. Companies in the
Growth Stock Index generally have higher price-to-book and price-to-earnings
ratios than the average for all 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.

(4) The CS First Boston Convertible Index is an unmanaged market weighted index
representing the universe of convertible securities, whether they are
convertible preferred stocks or convertible bonds. The Index reflects the
reinvestment of income dividends and capital gains distributions, if any,
but does not reflect fees, brokerage commissions or markups, or other
expenses of investing.

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

(6) The Salomon EPAC Extended Market Index ("EMI") is an unmanaged index. It
is a top-down, float capitalization-weighted index that includes shares
of about 2,821 companies in 22 countries excluding Canada and the United
States. Companies within the Index are smaller capitalization companies
with available float market capitalizations greater than U.S. $100 million.
Only issues that are legally and practically available to outside investors
are included in the Index. Index returns reflect the reinvestment of
income dividends and capital gains distributions, if any, but do not
reflect fees, brokerage commissions, or other expenses of investing.

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

(8) Through March 31, 1997.

B-62
<PAGE>

<TABLE>
<CAPTION>
SERIES B PORTFOLIOS
--------------------------------------------------------------------------------------------

CORE GROWTH EMERGING GROWTH INCOME & GROWTH
PERFORMANCE PERFORMANCE PERFORMANCE
----------- ------------ ---------------
RUSSELL CS FIRST
CORE RUSSELL EMERGING 2000 INCOME & BOSTON
GROWTH S&P 500 MIDCAP GROWTH GROWTH GROWTH CONVERTIBLE
YEAR PORTFOLIO INDEX(1) INDEX(2) PORTFOLIO INDEX(3) PORTFOLIO INDEX(4)
- ------------- -------------- ----------- --------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1985(7) 18.16% 17.14% 5.20% 6.97%

1986 24.68 18.64 17.55% (0.32) 3.58

1987(7) (2.82) 5.27 2.76 (9.91) (10.46) (9.12%) (0.22%)

1988 5.72 16.55 12.92 19.02 20.37 12.49 13.41

1989 25.68 31.61 31.48 19.53 20.17 20.49 13.76

1990(7) (5.50) (3.04) (5.13) (14.15) (17.41) (4.45) (6.89)

1991 45.97 30.46 47.03 46.39 51.19 29.85 29.11

1992 6.55 7.62 8.71 5.64 7.77 3.06 17.58

1993 12.44 10.07 11.19 8.74 13.36 19.24 18.55

1994 (16.06) 1.32 (2.17) (9.64) (2.43) (13.31) (4.72)

1995 30.07 37.60 33.99 27.20 31.06 14.87 23.72

1996 10.15 22.96 17.48 14.02 11.26 10.10 13.84

1997(8) (13.04) 2.67 (3.64) (19.13) (10.56) (3.82) 0.52

Last (4.51) 19.81 6.35 (11.72) (5.89) 8.01 8.12
year(8)

Last 5 11.51 16.42 13.09 9.94 8.64 12.37 12.41
years(8)

Last 10 12.27 13.38 11.90 10.73 7.05 12.28 9.94
years(8)

Since inception(8) 17.46 16.72 12.41 9.18 13.29 10.98
</TABLE>

INTERNATIONAL SMALL CAP
PERFORMANCE
---------------------------

INTER-
NATIONAL MSCI SALOMON
SMALL CAP EAFE EPAC/EMI
YEAR PORTFOLIO INDEX(5) INDEX(6)
- ---- ------------- ---------- -----------

<S> <C> <C> <C>
1990(7) (22.17%) (13.67%) (16.96)

1991 4.94 12.13 6.66

1992 (17.75) (12.17) (15.42)

1993 18.32 32.52 30.34

1994 1.96 7.76 9.44

1995 (0.49) 11.02 4.79

1996 5.88 6.05 6.47

1997(8) (1.11) (1.56) (1.98)

Last 8.96 1.46 (1.25)
year(8)

Last 5 9.91 10.53 7.96
years(8)

Last 10
years(8)

Since
inception(8) 4.30 5.14 2.31
</TABLE>

B-63
<PAGE>

(3) The Russell 2000 Growth Stock Index contains those securities in the Russell
2000 Index with a greater-than-average growth orientation. Companies in
the Growth Stock Index generally have higher price-to-book and
price-to-earnings ratios than the average for all 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.

(6) The Salomon EPAC Extended Market Index ("EMI") is an unmanaged index. It
is a top-down, float capitalization-weighted index that includes shares
of about 2,821 companies in 22 countries excluding Canada and the United
States. Companies within the Index are smaller capitalization companies
with available float market capitalizations greater than U.S. $100
million. Only issues that are legally and practically available to
outside investors are included in the Index. Index returns reflect the
reinvestment of income dividends and capital gains distributions, if any,
but do not reflect fees, brokerage commissions, or other expenses of
investing.

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

(8) Through March 31, 1997

B-64
<PAGE>

<TABLE>
<CAPTION>
SERIES C PORTFOLIOS
------------------------------

CORE GROWTH EMERGING GROWTH INCOME & GROWTH
PERFORMANCE PERFORMANCE PERFORMANCE
---------------------- -------------------- -------------------------
RUSSELL CS FIRST
CORE RUSSELL EMERGING 2000 INCOME & BOSTON
GROWTH S&P 500 MIDCAP GROWTH GROWTH GROWTH CONVERTIBLE
NAME PORTFOLIO INDEX(1) INDEX(2) PORTFOLIO INDEX(3) PORTFOLIO INDEX(4)
- ------------ ----------- --------- ----------- ----------------- ----------- ----------- -----------------

<S> <C> <C> <C> <C> <C> <C> <C>
1985(7) 23.13% 17.14% 9.63% 6.97%

1986 31.24 18.64 17.55% 4.93 3.58

1987(7) 2.30 5.27 2.76 (5.17) (10.48) (4.33%) (0.22%)

1988 11.28 16.55 12.92 25.28 20.37 18.41 13.41

1989 32.30 31.61 31.48 25.82 20.17 26.83 13.76

1990(7) (0.52) (3.04) (5.13) (9.63) (17.41) 0.57 (6.89)

1991 53.66 30.46 47.03 54.09 51.19 36.68 29.11

1992 12.15 7.62 8.71 11.20 7.77 8.48 17.58

1993 18.23 10.07 11.19 14.46 13.36 25.51 18.55

1994 (11.53) 1.32 (2.17) (4.73) (2.43) (8.75) (4.72)

1995 36.80 37.60 33.99 34.22 31.06 20.83 23.72

1996 14.82 22.96 17.48 19.04 11.26 14.66 13.84

1997(8) (9.31) 2.67 (3.64) (15.69) (10.56) 0.11 0.52

Last year(8) 0.56 19.81 6.35 (6.81) (5.89) 12.91 8.12

Last 5
years(8) 11.78 16.42 13.09 10.35 8.69 12.58 12.41

Last 10
years(8) 12.28 13.38 11.90 10.81 7.05 12.26 9.94

Since
inception(8) 17.46 16.72 12.48 9.18 13.27 10.98
</TABLE>

<TABLE>
<CAPTION>
INTERNATIONAL
SMALL CAP
PERFORMANCE
----------------------------
INTER-
NATIONAL
SMALL MSCI SALOMON
CAP EAFE EPAC/EMI
NAME PORTFOLIO INDEX(5) INDEX(6)
- ------------ ----------- ----------- -----------
<S> <C> <C> <C>
1985(7)

1986

1987(7)

1988

1989

1990(7) (18.89%) (13.67%) (16.96)

1991 10.46 12.13 6.66

1992 (13.42) (12.17) (15.42)

1993 24.55 32.57 30.34

1994 8.77 7.76 9.44

1995 3.57 11.02 4.79

1996 10.40 6.05 6.47

1997(8) 2.86 (1.56) (1.98)

Last year(8) 13.98 1.46 (1.25)

Last 5
years(8) 10.23 10.53 7.96

Last 10
years(8)

Since
inception(8) 4.33 7.80 2.31
</TABLE>

B-65
<PAGE>

income dividends and capital gain distributions, if any, but
does not reflect fees, brokerage commissions, or other expenses of
investing.

(6) The Salomon EPAC Extended Market Index ("EMI") is an unmanaged index. It
is a top-down, float capitalization-weighted index that includes shares
of about 2,821 companies in 22 countries excluding Canada and the United
States. Companies within the Index are smaller capitalization companies
with available float market capitalizations greater than U.S. $100
million. Only issues that are legally and practically available to
outside investors are included in the Index. Index returns reflect the
reinvestment of income dividends and capital gains distributions, if any,
but do not reflect fees, brokerage commissions, or other expenses of
investing.

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

(8) Through March 31, 1997.

B-66
<PAGE>

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

The Investment Adviser's composite performance data shown below
were calculated in accordance with recommended standards of the Association
for Investment Management and Research ("AIMR"(1)), 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 loses. 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 composites include all actual,
fee-paying, discretionary institutional private accounts managed by the
Investment Adviser that have investment objectives, policies, strategies and
risks substantially similar to those of the Large Cap and Balanced
Portfolios. Securities transactions are accounted for on the trade date and
accrual accounting is utilized. Cash and equivalents are included in
performance returns. The monthly returns of the Investment Adviser's
composites 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 Large Cap and Balanced Portfolios are subject nor to the
diversification requirements, specific tax restrictions and investment
limitations imposed on the Portfolios by the Investment Company Act or
Subchapter M of the Internal Revenue Code. Consequently, the performance
results for the Investment Adviser's composites could have been adversely
affected if the institutional private accounts included in the composites had
been regulated as investment companies under the federal securities laws.

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

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

1/ 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.

B-67
<PAGE>

such Portfolios. Investors should also be aware that the uses of a
methodology different form that used below to calculated performance could
result in different performance data.

<TABLE>
<CAPTION>
60% S&P 500
INVESTMENT INDEX 40%
ADVISER'S BALANCED PORTFOLIOS LEHMAN BROS. LEHMAN BROS.
BALANCED ------------------------------------- S&P 500 GOVT./CORP. LEHMAN BROS.
YEAR COMPOSITE A B C INDEX(1) INDEX(2) INDEX
- --------------------- --------------- --------- --------------- --------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1988(3) 4.98% 10.25% 3.80% 7.45%

1989 17.61 31.61 14.23 23.94

1990 (3.13) (3.04) 8.29 1.97

1991 39.99 30.46 16.13 24.18

1992 9.61 7.62 7.57 7.51

1993 20.82 7.37% 12.05 10.07 11.06 9.61

1994 (6.25) 3.61 7.91 1.32 (3.51) 0.08

1995 30.98 (2.20) 5.66 2.47 37.60 19.24 28.29

1996 11.72 13.85 9.45 19.85 22.96 2.89 15.16

1997(4) (5.68) (10.09) 10.07) (6.22) 2.67 (0.86) 1.60

Last Year(4) 3.67 1.14 1.10 6.05 19.81 4.44 13.75

Last 5 Years(4) 12.24 16.42 7.32 12.53

Since Inception(4) 12.42 8.33 9.15 9.20 16.08 8.54 12.92
</TABLE>

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

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

(3) Inception dates are as follows: Balanced Growth Portfolios A and C--
October 1, 1993 and Balanced Growth Portfolio B--May 31, 1995.

(4) Through March 31, 1997.

B-68
<PAGE>

<TABLE>
<CAPTION>
INVESTMENT ADVISER'S
LARGE CAP GROWTH S&P 500
YEAR COMPOSITE(1) INDEX(1,2)
- ----------------------------------------- ------------------- -----------
<S> <C> <C>
1995(3). . . . . . . . . . . . . . . . 35.36% 25.37%
1996 . . . . . . . . . . . . . . . . 26.63 13.49
1997(4). . . . . . . . . . . . . . . . (1.86) 2.67
Since inception(4) . . . . . . . . . . 29.71 25.80
</TABLE>

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

(1) Annualized.

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

(3) Commencement of investment operations was April 1, 1995.

(4) Through March 31, 1997.

COMPARISON TO INDICES AND RANKINGS

A Portfolio may compare its performance to various unmanaged
indices such as the Dow Jones Composite Average or its component averages,
Standard and Poor's 500 Stock Index or its component indices, Standard and
Poor's 100 Stock Index, the Russell Midcap Index, the Russell 2000 Growth
Index, the Russell 1,000 Index, the CS First Boston Convertible Index, the
Lehman Brothers Governmental Bond Index, the Morgan Stanley Capital
International World Index, the Morgan Stanley Capital International Emerging
Markets Free Index, the Emerging Markets Investible Index, the Morgan Stanley
Capital International Europe, Australia and Far East Index, the IFC Emerging
Markets Investible Index, The New York Stock Exchange composite or component
indices, the Wilshire 5000 Equity Index, indices prepared by Lipper
Analytical Services and Morningstar, Inc., the CDA Mutual Fund Report
published by CDA Investment Technologies, Inc., performance statistics
reported in financial publications such as The Wall Street Journal, Business
Week, Changing Times, Financial World, Forbes, Fortune and Money magazines,
the Consumer Price Index (or Cost of Living Index) published by the U.S.
Bureau of Labor Statistics, Stocks, Bonds, Bills and Inflation published by
Ibbotson Associates, Savings and Loan Historical Interest Rates as published
in the U.S. Savings & Loan League Fact Book, and historical data supplied by
the research departments of First Boston Corporation, The J.P. Morgan
companies, Salomon Brothers, Merrill Lynch, Lehman Brothers, Smith Barney
Shearson and Bloomberg L.P. Unmanaged indices (i.e., other than Lipper)
generally do not reflect deductions for administrative and management costs
and expenses.

A number of independent mutual fund ranking entities prepare
performance rankings . These entities categorize and rank funds by various
criteria, including fund type, performance over a given period of years,
total return, standardized yield, variations in sales charges and risk\reward
considerations.

B-69
<PAGE>

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

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

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

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

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

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

MISCELLANEOUS

SHARES OF BENEFICIAL INTEREST

The Trust is currently comprised of 57 series of shares -- 10 A
Portfolios, 10 B Portfolios, 10 C Portfolios, 16 Institutional Portfolios,
one Money Market Portfolio, and 10 Qualified Portfolios.

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

Rule 18f-2 under the 1940 Act provides that any matter required to
be submitted to the holders of the outstanding voting securities of an
investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by a

B-70
<PAGE>

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

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

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

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

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

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

DECLARATIONS OF TRUST

B-71

<PAGE>

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

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

FINANCIAL STATEMENTS

The Trust's 1997 Annual Reports to Shareholders of the Portfolios
accompany this Statement of Additional Information. The financial statements
in such Annual Reports are incorporated in this Statement of Additional
Information by reference. Such financial statements for the fiscal years
ended March 31, 1996 and 1997 have been audited by the Fund's independent
auditors, Ernst & Young L.L.P., whose reports thereon appear in such Annual
Reports. Such financial statements have been incorporated herein in reliance
upon such reports given upon their authority as experts in accounting and
auditing. Additional copies of the Trust's 1997 Annual Reports to
Shareholders may be obtained at no charge by writing or telephoning the Trust
at the address or number on the front page of this Statement of Additional
Information.

REGISTRATION STATEMENT

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

B-72
<PAGE>

APPENDIX A

DESCRIPTION OF SECURITIES RATINGS

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

COMMERCIAL PAPER

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

MOODY'S INVESTORS SERVICE, INC.

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

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

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

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

STANDARD & POOR'S CORPORATION

Standard & Poor's ratings are a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
The ratings are based on current information furnished to Standard & Poor's by
the issuer and obtained by Standard & Poor's

A-1
<PAGE>

from other sources it considers reliable. Ratings are graded into four
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Issues within the "A" category are delineated with the numbers 1, 2,
and 3 to indicate the relative degree of safety, as follows:

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

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

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

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

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

FITCH INVESTORS SERVICE, INC.

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

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

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

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

DUFF & PHELPS

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

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

A-2
<PAGE>

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

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

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

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

DUFF 4 - Debt possesses speculative investment characteristics.

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

THOMSON BANKWATCH

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

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

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

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

IBCA

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

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

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

A-3
<PAGE>

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

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

CORPORATE BONDS

MOODY'S

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

Aaa: Bonds in this category are judged to be of the highest quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

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

A: Bonds in this category possess many favorable investment
attributes and are considered to be as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.

Baa: Bonds in this category are considered medium-grade obligations,
(I.E., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

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

A-4
<PAGE>

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

Caa: Bonds in this category are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

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

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

STANDARD & POOR'S

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

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

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

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

BBB: Bonds in this category have an adequate capacity to pay interest
and repay principal. Whereas such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.

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

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

A-5
<PAGE>

CCC: Bonds in this category have currently identifiable vulnerability
to default, and are dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial, or economic conditions, they are not
likely to have the capacity to pay interest and repay principal. The "CCC"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B-" rating.

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

DUFF & PHELPS

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

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

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

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

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

BB, B, CCC, DD, AND DP - Debt that possesses one of these ratings is
considered to be below investment grade. Although below investment grade, debt
rated "BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses the risk that obligations will not be met when due. Debt rated "CCC"
is well below investment grade and has considerable uncertainty as to timely
payment of principal, interest or preferred dividends. Debt rated "DD" is a
defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.

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

FITCH INVESTORS SERVICE, INC.

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

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

A-6
<PAGE>

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

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

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

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

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

ICBA

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

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

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

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

BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in

A-7
<PAGE>

business, economic or financial conditions are more likely to lead to increased
investment risk than for obligations in higher categories.

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

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

THOMSON BANKWATCH

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

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

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

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

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

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

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

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

A-8
<PAGE>

NICHOLAS-APPLEGATE MUTUAL FUNDS

FORM N-1A

PART C: OTHER INFORMATION

Item 24. FINANCIAL STATEMENTS AND EXHIBITS.

a. Registrant's Schedules of Investments as of March 31, 1997,
Statements of Assets and Liabilities as of March 31, 1997, Statements
of Changes in Net Assets for the period ended March 31, 1997, and
related Notes and Report of Independent Auditors with respect to
Registrant's A, B and C Portfolio series are incorporated by reference
in Part B and filed as Exhibit 19.7.

b. Exhibits:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(1.16) Form of Amendment No. 12 to Amended and Restated Declaration
of Trust (i).

(1.17) Amendment No. 13 to Amended and Restated Declaration of
Trust (j).

C-1
<PAGE>

(1.18) Form of Amendment No. 14 to Amended and Restated Declaration
of Trust (j).

(1.19) Form of Amendment No. 15 to Amended and Restated Declaration
of Trust (l).

(2.1) Amended Bylaws of Registrant (f).

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

(3) None.

(4) None.

(5) Form of Investment Advisory Agreement between Registrant and
Nicholas-Applegate Capital Management, with respect to
Global Blue Chip Fund and Emerging Markets Bond Fund (l).

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

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

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

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

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

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

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

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

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

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

(6.11) Form of letter agreement between Registrant and
Nicholas-Applegate Securities adding Core Growth
International Portfolio C series to Distribution Agreement
(i).

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<PAGE>

(6.12) Form of letter agreement between Registrant and
Nicholas-Applegate Securities adding Large Cap Growth
Portfolio A, B, C and Q series to Distribution Agreement
(j).

(6.13) Form of letter agreement between Registrant and
Nicholas-Applegate Securities, adding Global Blue Chip Fund
and Emerging Markets Bond Fund to Distribution Agreement
(l).

(7) None.

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

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

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

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

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

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

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

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

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

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

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

(8.12) Form of letter agreement between Registrant and PNC Bank
adding Core Growth International Portfolio C series to
Custodian Services Agreement (i).

(8.13) Form of letter agreement between Registrant and PNC Bank
adding Large Cap Growth Portfolio A, B, C and Q series to
Custodian Services Agreement (j).

(8.14) Form of letter agreement between Registrant and PNC Bank,
adding Global Blue Chip Fund and Emerging Markets Bond Fund
to Custodian Services Agreement (l).

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<PAGE>

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

(9.2) Administrative Services Agreement between Registrant and
Nicholas-Applegate Capital Management dated as of November
18, 1996 (i).

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

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

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

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

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

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

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

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

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

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

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

(9.14) Form of letter agreement between Registrant and State Street
Bank and Trust Company adding Core Growth International
Portfolio C series to Transfer Agency and Service Agreement
(i).

(9.15) Form of letter agreement between Registrant and State Street
Bank and Trust Company adding Large Cap Growth Portfolio A,
B, C and Q series to Transfer Agency and Service Agreement
(j).

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<PAGE>

(9.16) Form of letter agreement between Registrant and State Street
Bank and Trust company, adding Global Blue Chip Fund and
Emerging Markets Bond Fund to Transfer Agency and Service
Agreement (l).

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

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

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

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

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

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

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

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

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

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

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

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

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

(9.30) Form of letter agreement between Registrant and PFPC Inc.
adding Core Growth International Portfolio C series to
Accounting Services Agreement (i).

(9.31) Form of letter agreement between Registrant and PFPC Inc.
adding Large Cap Growth Portfolio A, B, C and Q series to
Accounting Services Agreement (j).

(9.32) Form of letter agreement between Registrant and PFPC Inc.,
adding Global Blue Chip Fund and Emerging Markets Bond Fund
to Accounting Services Agreement (l).

C-5
<PAGE>

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

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

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

(9.36) Letter agreement between Registrant and Nicholas-Applegate
Capital Management, adding Emerging Growth Institutional
Portfolio series, Global Growth & Income Portfolio series
and Mini-Cap Growth Portfolio series to agreement regarding
expense reimbursements (f).

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

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

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

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

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

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

(9.43) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding Core Growth
International Portfolio C series to agreement regarding
expense reimbursement (i).

(9.44) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding Large Cap
Growth Portfolio A, B, C and Q series to agreement regarding
expense reimbursement (j).

(9.45) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding Global Blue
Chip Fund and Emerging Markets Bond Fund to agreement
regarding expense reimbursement (l).

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

(9.47) First Amendment Agreement to Credit Agreement dated as of
April 9, 1997 among Registrant, The Chase Manhattan Bank,
and certain other banks (l).

C-6
<PAGE>

(10) Opinion of Counsel (c).

(11) Consent of independent auditors.

(12) Not Applicable.

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

(14.1) IRA Plan Materials (d).

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

(15) Amended Distribution Plan of Registrant (f)

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

(17) Financial data schedules.

(18) Not Applicable.

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

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

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

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

(19.5) Limited Power of Attorney of Thomas Pindelski (k).

(19.6) Certified Resolution of Board of Trustees regarding Limited
Power of Attorney of Thomas Pindelski (k).

(19.7) 1997 Annual Report of Registrant (filed pursuant to Rule 303
of Regulation S-T).

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

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

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

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

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

C-7
<PAGE>

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

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

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

(h) Filed as an Exhibit to Amendment No. 38 to Registrant's Form N-1A
Registration Statement on October 25, 1996 and incorporated herein by
reference.

(i) Filed as an Exhibit to Amendment No. 40 to Registrant's Form N-1A
Registration Statement on January 3, 1997 and incorporated herein by
reference.

(j) Filed as an Exhibit to Amendment No. 42 to Registrant's Form N-1A
Registration Statement on May 1, 1997 and incorporated herein by reference.

(k) Filed as an Exhibit to Amendment No. 44 to Registrant's Form N-1A
Registration Statement on May 22, 1997 and incorporated herein by
reference.

(l) Filed as an Exhibit to Amendment No. 45 to Registrant's Form N-1A
Registration Statement on July 14, 1997 and incorporated herein by
reference.

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

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

Item 26. NUMBER OF HOLDERS OF SECURITIES.

As of June 30, 1997, the number of record holders of each series of
Registrant was as follows:

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

Large Cap Growth Portfolio A -
Core Growth Portfolio A 6,807
Emerging Growth Portfolio A 11,164
Income & Growth Portfolio A 2,284
Balanced Growth Portfolio A 846
Government Income Portfolio A 434
Money Market Portfolio -
International Core Growth Portfolio A 3
Worldwide Growth Portfolio A 1,974
International Small Cap Growth Portfolio A 404
Emerging Countries Portfolio A 2,883
Large Cap Growth Portfolio B -
Core Growth Portfolio B 2,895
Emerging Growth Portfolio B 3,314

C-8
<PAGE>

Income & Growth Portfolio B 916
Balanced Growth Portfolio B 260
Government Income Portfolio B 178
International Core Growth Portfolio B 3
Worldwide Growth Portfolio B 495
International Small Cap Growth Portfolio B 502
Emerging Countries Portfolio B 2,141
Large Cap Growth Portfolio C -
Core Growth Portfolio C 14,157
Emerging Growth Portfolio C 17,204
Income & Growth Portfolio C 5,265
Balanced Growth Portfolio C 1,383
Government Income Portfolio C 476
International Core Growth Portfolio C 14
Worldwide Growth Portfolio C 5,682
International Small Cap Growth Portfolio C 642
Emerging Countries Portfolio C 2,068
Large Cap Growth Institutional Portfolio 31
Core Growth Institutional Portfolio 195
Emerging Growth Institutional Portfolio 191
Income & Growth Institutional Portfolio 112
Balanced Growth Institutional Portfolio 24
International Core Growth Institutional Portfolio 39
Worldwide Growth Institutional Portfolio 70
International Small Cap Growth Institutional Portfolio 81
Emerging Countries Institutional Portfolio 174
Mini Cap Growth Institutional Portfolio 164
Fully Discretionary Institutional Fixed Income Portfolio 12
Short-Intermediate Institutional Fixed Income Portfolio 14
Value Institutional Portfolio 26
High Yield Bond Institutional Portfolio 22
Strategic Income Institutional Portfolio 16
Global Growth & Income Institutional Portfolio -
Large Cap Growth Qualified Portfolio -
Core Growth Qualified Portfolio 203
Emerging Growth Qualified Portfolio 18
Income & Growth Qualified Portfolio 11
Balanced Growth Qualified Portfolio 11
Government Income Qualified Portfolio 9
International Core Growth Qualified Portfolio 2
Worldwide Growth Qualified Portfolio 10
International Small Cap Growth Qualified Portfolio 10
Emerging Countries Qualified Portfolio 61

Item 27. INDEMNIFICATION.

Registrant's trustees, officers, employees and agents against
liabilities incurred by them in connection with the defense or disposition of
any action or proceeding in which they may be involved or with which they may be
threatened, while in office or thereafter, by reason of being or having been in
such office, except with respect to matters

C-9
<PAGE>

as to which it has been determined that they acted with willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of their office ("Disabling Conduct").

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

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

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

Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

Nicholas-Applegate Capital Management, the investment adviser to the
Master Trust, is a California limited partnership, the general partner of which
is Nicholas-Applegate Capital Management, Inc. (the "General Partner"). During
the two fiscal years ended December 31, 1996, Nicholas-Applegate Capital
Management has engaged principally in the business of providing investment
services to institutional and other clients. All of the additional information
required by this Item 28 with respect to the Investment Adviser is set forth in
the Form ADV, as amended, of Nicholas-Applegate Capital Management (File No.
801-21442), which is incorporated herein by reference.

Item 29. PRINCIPAL UNDERWRITERS.

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

(b) Nicholas-Applegate Securities, the Distributor of the shares of
Registrant's Portfolios, is a California limited partnership and its general
partner is Nicholas-Applegate Capital Management Holdings, L.P. (the "General
Partner"). Information is furnished below with respect to the officers,
partners and directors of the General Partner and

C-10
<PAGE>

Nicholas-Applegate Securities. The principal business address of such persons
is 600 West Broadway, 30th Floor, San Diego, California 92101, except as
otherwise indicated below.

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

Arthur E. Nicholas Chairman None
John D. Wylie President President
Peter J. Johnson Vice President Vice President
Thomas Pindelski Chief Financial Officer Chief Financial Officer
E. Blake Moore, Jr. Secretary Secretary
Todd Spillane Director of Compliance None

Item 30. LOCATION OF ACCOUNTS AND RECORDS.

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

Item 31. MANAGEMENT SERVICES.

Not Applicable.

Item 32. UNDERTAKINGS.

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

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

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<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Diego, State of California, on the 14th
day of July, 1997. The undersigned hereby certifies that this amendment meets
all of the requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933.

NICHOLAS-APPLEGATE MUTUAL FUNDS

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

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

John D. Wylie* Principal Executive Officer July 14, 1997
- -----------------------
John D. Wylie

Principal Financial and Accounting
Thomas Pindelski* Officer July 14, 1997
- -----------------------
Thomas Pindelski

Fred C. Applegate* Trustee July 14, 1997
- -----------------------
Fred C. Applegate

Arthur B. Laffer* Trustee July 14, 1997
- -----------------------
Arthur B. Laffer

Charles E. Young* Trustee July 14, 1997
- -----------------------
Charles E. Young

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

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<PAGE>

SIGNATURES

Nicholas-Applegate Investment Trust has duly caused this Amendment to
Registration Statement on Form N-1A of Nicholas-Applegate Mutual Funds to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of San Diego, State of California, on the 14th day of July, 1997. The
undersigned hereby certifies that this Amendment meets all of the requirements
for effectiveness pursuant to Rule 485(b) under the Securities Act of 1933.

NICHOLAS-APPLEGATE INVESTMENT TRUST

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

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

John D. Wylie* Principal Executive Officer July 14, 1997
- ------------------------
John D. Wylie

Principal Financial
Thomas Pindelski* and Accounting Officer July 14, 1997
- ------------------------
Thomas Pindelski

George F. Keane* Trustee July 14, 1997
- ------------------------
George F. Keane

Dann V. Angeloff* Trustee July 14, 1997
- ------------------------
Dann V. Angeloff

Walter E. Auch* Trustee July 14, 1997
- ------------------------
Walter E. Auch

Theodore J. Coburn* Trustee July 14, 1997
- ------------------------
Theodore J. Coburn

Darlene Deremer* Trustee July 14, 1997
- ------------------------
Darlene Deremer

Arthur E. Nicholas* Trustee July 14, 1997
- ------------------------
Arthur E. Nicholas

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

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<PAGE>

EXHIBIT INDEX
-------------
NICHOLAS-APPLEGATE MUTUAL FUNDS
AMENDMENT NO. 46 TO
FORM N-1A REGISTRATION STATEMENT
FILE NO. 811-7428

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

(11) Consent of Independent Auditors.

(17) Financial Data Schedules.

(19.7) 1997 Annual Report of Registrant (filed pursuant to Rule 303
of Regulation S-T).

C-14

<PAGE>

EXHIBIT 11

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights", "Independent Auditors" and "Financial Statements" in the
Prospectus and the related Statement of Additional Information in
Post-Effective Amendment No. 44 to the Registration Statement of
Nicholas-Applegate Mutual Funds.

Los Angeles, California
July 11, 1997

<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997
- ------------------------------------------------------------------------
EMERGING GROWTH FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
COMMON STOCK -- 90.9%
- ----------------------------------------------------------------------------
ADVERTISING -- 0.5%
CKS Group, Inc.*........................... 15,700 $ 329,700
Lamar Advertising Co.*..................... 30,900 625,725
Universal Outdoor Holdings, Inc.*.......... 59,000 1,711,000
------------
2,666,425
------------
AEROSPACE -- 0.3%
AAR Corp................................... 35,500 1,065,000
Doncasters PLC*............................ 27,100 525,062
------------
1,590,062
------------
AGRICULTURE -- 0.5%
Dekalb Genetics Corp. Class B.............. 48,500 2,582,625
------------
AIR FREIGHT/SHIPPING -- 0.5%
Airnet Systems, Inc.*...................... 22,400 358,400
Expeditors International of Washington,
Inc...................................... 90,400 2,169,600
------------
2,528,000
------------
AIRLINES -- 0.7%
Alaska Air Group Inc.*..................... 91,800 2,352,375
Midwest Express Holdings, Inc.*............ 25,900 980,962
------------
3,333,337
------------
APPAREL -- 3.6%
Authentic Fitness Corp..................... 54,600 805,350
Cole Kenneth Productions, Inc.*............ 121,000 2,541,000
Genesco, Inc.*............................. 41,100 462,375
Nautica Enterprises, Inc.*................. 119,350 2,998,669
Playtex Products, Inc.*.................... 40,000 435,000
St. John Knits, Inc........................ 53,900 2,331,175
Tultex Corp.*.............................. 53,600 415,400
Vans, Inc.*................................ 61,800 726,150
Wolverine Worldwide, Inc................... 199,000 7,263,500
------------
17,978,619
------------
AUTOMOTIVE EQUIPMENT -- 0.4%
Special Devices, Inc.*..................... 25,300 430,100
Tower Automotive, Inc.*.................... 43,400 1,692,600
------------
2,122,700
------------
BIOTECHNOLOGY -- 1.5%
Arqule, Inc.*.............................. 22,100 342,550
Bio-Technology General Corp.*.............. 88,400 1,105,000
Biopsys Medical, Inc.*..................... 38,000 940,500
DepoTech Corp.*............................ 8,800 133,051
Guilford Pharmaceuticals, Inc.*............ 73,300 1,520,975
Martek Biosciences Corp.*.................. 32,300 565,250
Matritech, Inc............................. 13,700 69,356
Molecular Biosystems, Inc.*................ 59,500 542,938
Pharmaceutical Product Development,
Inc.*.................................... 44,600 892,000
Sonus Pharmaceuticals, Inc.*............... 18,700 493,212

<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
</TABLE>

BIOTECHNOLOGY (CONTINUED)
<TABLE>
<S> <C> <C>
Vertex Pharmaceuticals, Inc.*.............. 19,700 $ 792,925
------------
7,397,757
------------
BROADCASTING -- 1.6%
Argyle Television, Inc. Class A*........... 27,300 689,325
Emmis Broadcasting Corp. Class A*.......... 41,100 1,590,056
Evergreen Media Corp. Class A*............. 93,450 2,727,572
Saga Communications, Inc. Class A*......... 50,062 1,038,787
Telemundo Group, Inc. Class A*............. 10,000 286,250
Westwood One, Inc.*........................ 82,700 1,529,950
------------
7,861,940
------------
BUILDING MATERIALS -- 1.0%
Advanced Lighting Technologies, Inc.*...... 20,100 442,200
AFC Cable Systems, Inc.*................... 21,800 452,350
Falcon Building Products, Inc. Class A*.... 45,000 787,500
Hexcel Corp.*.............................. 115,300 2,032,163
NCI Building Systems, Inc.*................ 20,000 647,500
Northwest Pipe Co.*........................ 500 8,312
Triangle Pacific Corp.*.................... 15,200 418,000
------------
4,788,025
------------
BUILDING MATERIAL CHAIN -- 0.3%
Eagle Hardware & Garden, Inc.*............. 95,400 1,717,200
------------
CATALOG/OUTLET STORES -- 0.1%
Coldwater Creek, Inc.*..................... 14,100 195,638
Insight Enterprises, Inc.*................. 3,700 91,575
------------
287,213
------------
CHEMICALS -- 0.7%
Lilly Industries, Inc. Class A............. 12,200 221,125
Mississippi Chemical Corp.................. 60,700 1,449,212
OM Group, Inc.............................. 64,650 1,818,281
Spartech Corp.............................. 17,900 201,375
------------
3,689,993
------------
CLOTHING CHAINS -- 2.0%
99 Cents Only Stores*...................... 34,000 684,250
Buckle, Inc. (The)*........................ 7,500 200,625
Gadzooks, Inc.*............................ 52,300 1,647,450
Men's Wearhouse, Inc.*..................... 72,800 2,002,000
Pacific Sunwear of California*............. 3,700 121,175
Paul Harris Stores, Inc.*.................. 24,500 379,750
Ross Stores, Inc........................... 61,800 1,568,175
Stage Stores, Inc.*........................ 57,200 1,258,400
Stein Mart, Inc.*.......................... 69,400 1,977,900
------------
9,839,725
------------
COAL MINING -- 0.3%
Zeigler Coal Holding Co.................... 54,600 1,296,750
------------
COMMERCIAL/INDUSTRIAL SERVICES -- 0.1%
Phymatrix Corp.*........................... 52,800 699,600
------------
COMPUTER/OFFICE AUTOMATION -- 2.4%
Advanced Digital Information Corp.*........ 52,600 670,650
Brooktrout Technology, Inc.*............... 14,700 218,663
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

5
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 -- CONTINUED
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
</TABLE>

COMMON STOCK (Continued)
- ---------------------------------------------------------
COMPUTER/OFFICE AUTOMATION (CONTINUED)
<TABLE>
<S> <C> <C>
BTG, Inc.*................................. 55,900 $ 978,056
Discreet Logic, Inc.*...................... 42,300 248,512
Encad, Inc.*............................... 42,500 1,269,688
GEAC Computer Corp. LTD*................... 40,500 962,544
In Focus Systems, Inc.*.................... 52,600 907,350
Larscom, Inc. Class A*..................... 62,500 523,438
Logitech International*.................... 16,000 260,000
Microtouch Systems, Inc.*.................. 52,200 1,030,950
Network Appliance, Inc.*................... 117,000 3,802,500
Safeguard Scientifics, Inc.*............... 19,700 389,075
Splash Technology Holdings, Inc.*.......... 36,300 907,500
Sunquest Information Systems, Inc.*........ 11,300 110,175
------------
12,279,101
------------
CONTAINERS -- 0.1%
U.S. Can Corp.*............................ 20,900 318,725
------------
CONTRACTING DRILLING -- 2.0%
Atwood Oceanics, Inc.*..................... 32,500 2,019,063
Cliffs Drilling Co.*....................... 37,800 2,244,375
Marine Drilling Co., Inc.*................. 307,400 5,456,350
Unit Corp.*................................ 16,000 144,000
------------
9,863,788
------------
DEPARTMENT/DISCOUNT STORES -- 0.1%
Tuesday Morning Corp.*..................... 14,500 466,222
------------
DRUGS/PHARMACEUTICALS -- 3.8%
Alkermes, Inc.*............................ 26,200 366,800
Amylin Pharmaceuticals Inc.*............... 122,400 1,484,100
Anesta Corp.*.............................. 65,500 1,129,875
Curative Health Services, Inc.*............ 96,500 2,219,500
Dura Pharmaceuticals, Inc.*................ 67,700 2,420,275
Incyte Pharmaceuticals, Inc.*.............. 57,200 2,974,400
Inhale Therapeutic Systems*................ 15,300 292,612
Medicis Pharmaceutical Corp. Class A*...... 28,350 843,412
NBTY, Inc.*................................ 39,500 597,438
NCS Healthcare, Inc. Class A*.............. 21,500 486,438
Parexel International Corp.*............... 78,800 1,812,400
Pathogenesis Corp.*........................ 22,100 552,500
Sangstat Medical Corp.*.................... 57,000 1,546,125
Sepracor, Inc.*............................ 77,500 1,787,344
Theragencis Corp.*......................... 45,100 732,875
------------
19,246,094
------------
ELECTRONIC DATA PROCESSING -- 0.3%
Banctec, Inc.*............................. 45,300 1,155,150
Factset Research Systems, Inc.*............ 10,100 195,688
Nova Corp.*................................ 19,300 306,388
------------
1,657,226
------------
ELECTRONIC INSTRUMENTS/DIVERSIFIED -- 1.7%
Checkpoint Systems, Inc.*.................. 153,900 2,635,538
Coherent, Inc.*............................ 53,000 2,534,062
Lecroy Corp.*.............................. 25,500 663,000
Molecular Dynamics, Inc.*.................. 10,800 159,300
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
</TABLE>

ELECTRONIC INSTRUMENTS/DIVERSIFIED (CONTINUED)
<TABLE>
<S> <C> <C>
Orbotech LTD*.............................. 16,500 $ 297,000
Plexus Corp.*.............................. 45,100 1,330,450
SBS Technologies, Inc.*.................... 9,300 141,825
Veeco Instruments, Inc..................... 18,500 543,438
------------
8,304,613
------------
ENTERTAINMENT -- 0.4%
Hollywood Entertainment Corp.*............. 92,300 2,249,812
------------
ENTERTAINMENT/MUSIC CHAINS -- 0.1%
Guitar Center, Inc.*....................... 39,600 635,362
------------
ENVIRONMENTAL SERVICES -- 1.8%
Newpark Resources, Inc.*................... 36,385 1,591,844
Superior Services, Inc.*................... 44,100 981,225
Tetra Technologies, Inc.*.................. 66,100 1,454,200
United Waste Systems, Inc.*................ 130,900 4,876,025
------------
8,903,294
------------
FINANCE COMPANIES -- 2.9%
AmeriCredit Corp.*......................... 185,700 3,226,538
Imperial Credit Industries, Inc.*.......... 263,400 5,300,925
Ocwen Financial Corp.*..................... 58,500 1,696,500
Resource Bancshares Mortgage Group, Inc.... 43,500 685,125
Sirrom Capital Corp........................ 61,000 2,211,250
Southern Pacific Funding Corp.*............ 88,150 1,531,606
------------
14,651,944
------------
FOOD CHAINS -- 0.6%
Quality Food Centers, Inc.*................ 75,400 3,166,800
------------
GROCERY PRODUCTS -- 0.4%
Hudson Foods, Inc. Class A................. 55,500 867,187
Morningstar Group, Inc.*................... 62,200 1,197,350
------------
2,064,537
------------
HOMEBUILDING -- 0.1%
Diamond Home Services, Inc.*............... 5,800 103,675
Pacific Greystone Corp.*................... 21,600 270,000
------------
373,675
------------
HOME FURNISHINGS -- 1.4%
Ethan Allen Interiors, Inc................. 85,500 3,726,457
Foamex International, Inc.*................ 103,100 1,610,938
Furniture Brands International, Inc.*...... 89,500 1,342,500
O'Sullivan Industries Holdings, Inc.*...... 42,400 535,300
------------
7,215,195
------------
HOSPITALS -- 0.4%
National Surgery Centers, Inc.*............ 66,500 1,928,500
------------
INVESTMENT COMPANIES -- 0.2%
Everen Capital Corp........................ 22,200 449,550
Hambrecht & Quist Group*................... 25,600 428,800
------------
878,350
------------
LIFE INSURERS -- 0.1%
Protective Life Corp.*..................... 9,000 378,000
------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

6
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
</TABLE>

COMMON STOCK (Continued)
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
LODGING -- 0.8%
Capstar Hotel Co.*......................... 30,850 $ 863,800
Doubletree Corp.*.......................... 26,300 933,650
Singature Resorts, Inc.*................... 50,100 1,198,926
Suburban Lodges of America, Inc.*.......... 11,800 212,400
Wyndham Hotel Corp.*....................... 34,000 1,003,000
------------
4,211,776
------------
MACHINERY/EQUIPMENT -- 2.1%
Ballantyne of Omaha, Inc.*................. 10,350 159,131
CFM Technologies, Inc.*.................... 23,100 684,338
DT Industries, Inc......................... 65,200 1,711,500
Kuhlman Corp............................... 53,800 1,250,850
Magnetek, Inc.*............................ 73,800 1,190,025
Miller Industries, Inc.*................... 145,050 1,740,600
Robbins & Myers, Inc....................... 20,400 540,600
Texex Corp.*............................... 21,900 287,868
Uniphase Corp.*............................ 50,900 1,883,300
Watsco, Inc. Class A....................... 34,450 878,475
------------
10,326,687
------------
MANAGED HEALTHCARE/HMO'S/PPO'S -- 1.4%
Coventry Corp.*............................ 180,600 2,054,324
CRA Managed Care, Inc.*.................... 35,700 1,338,750
FPA Medical Management, Inc.*.............. 110,043 2,118,328
Maxicare Health Plans, Inc.*............... 32,000 804,000
OccuSystems, Inc.*......................... 21,700 488,250
------------
6,803,652
------------
MEDICAL/NURSING/HEALTH SERVICES -- 1.2%
American Homepatient, Inc.*................ 24,300 540,674
Diagnostic Health Services, Inc.*.......... 19,900 156,712
EmCare Holdings, Inc.*..................... 42,800 1,150,250
Multicare Companies, Inc.*................. 64,800 1,223,100
Rotech Med Corp.*.......................... 41,200 756,061
Pediatrix Medical Group, Inc.*............. 26,800 881,050
PMR Corp.*................................. 9,700 212,188
Sunrise Assisted Liviing, Inc.*............ 29,900 837,400
------------
5,757,435
------------
MEDICAL SPECIALTIES -- 0.7%
Cardiothoracic Systems, Inc.*.............. 15,300 325,124
Impath, Inc.*.............................. 8,500 153,000
Medical Resources, Inc.*................... 70,600 767,774
Urologix, Inc.*............................ 9,000 153,000
Vivus, Inc.*............................... 51,500 2,060,000
------------
3,458,898
------------
MEDICAL SUPPLIES -- 2.2%
Adac Laboratories*......................... 40,800 851,700
Capstone Pharmacy Services*................ 55,400 609,400
ESC Medical Systems LTD*................... 27,600 696,900
Graham Field Health Products, Inc.*........ 45,300 492,638
Hologic, Inc.*............................. 52,600 1,282,124
Keravision, Inc.*.......................... 3,000 30,374
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
</TABLE>

MEDICAL SUPPLIES (CONTINUED)
<TABLE>
<S> <C> <C>
Lunar Corp.*............................... 17,300 $ 592,524
Meridian Diagnostics, Inc.................. 4,400 48,400
Minimed, Inc.*............................. 52,200 1,344,150
Molecular Devices Corp.*................... 32,200 446,774
Penederm, Inc.*............................ 19,400 213,400
Respironics, Inc.*......................... 1,000 21,250
Sabratek Corp.*............................ 17,800 356,000
Safeskin Corp.*............................ 175,000 3,171,874
Serologicals Corp.*........................ 22,950 344,250
Ventana Medical Systems, Inc.*............. 37,400 523,600
------------
11,025,358
------------
METALS -- 0.8%
Lone Star Technologies, Inc.*.............. 26,100 495,900
Mueller Industries, Inc.*.................. 85,900 3,360,838
------------
3,856,738
------------
MILITARY /DEFENSE TECHNOLOGY -- 0.3%
Avondale Industries, Inc.*................. 22,600 389,850
Tracor, Inc.*.............................. 52,600 1,222,950
------------
1,612,800
------------
MULTI-LINE INSURERS -- 0.0%
Delphi Financial Group, Inc. Class A*...... 5,200 172,900
------------
OCEAN FREIGHT/SHIPPING -- 0.1%
OMI Corp.*................................. 71,100 693,224
------------
OIL/GAS PRODUCTION -- 1.5%
Abacan Resource Corp.*..................... 51,400 404,774
Abraxas Petroleum Corp.*................... 21,900 240,558
Brown (Tom), Inc.*......................... 47,100 871,350
Harken Energy Corp.*....................... 235,100 1,160,806
Nuevo Energy Co.*.......................... 25,200 967,050
Petsec Energy LTD*......................... 49,400 975,650
Swift Energy Co.*.......................... 45,200 1,067,850
Vintage Petroleum, Inc..................... 20,000 600,000
Western Gas Resources, Inc................. 75,300 1,355,400
------------
7,643,438
------------
OIL REFINING/MARKETING -- 0.0%
Tesoro Petroleum Corp.*.................... 21,600 226,800
------------
OILFIELD SERVICES/EQUIPMENT -- 5.4%
3DX Technology*............................ 25,400 279,400
Camco International, Inc................... 57,700 2,538,800
Energy Ventures, Inc.*..................... 35,500 2,187,688
Global Industries LTD*..................... 120,100 2,567,138
Maverick Tube Corp.*....................... 800 14,200
Oceaneering International, Inc.*........... 76,300 1,192,188
Pool Energy Services Co.*.................. 84,600 1,247,850
Pride Petroleum Services, Inc.*............ 129,400 2,685,050
Seacor Holdings, Inc.*..................... 71,200 3,818,100
Stolt Comex Seaway SA*..................... 27,700 560,924
Trico Marine Services, Inc.*............... 66,300 3,149,250
Tuboscope Vetco International, Corp.*...... 190,600 2,596,924
Varco International, Inc.*................. 106,100 2,652,500
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

7
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 -- CONTINUED
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
</TABLE>

COMMON STOCK (Continued)
- ---------------------------------------------------------
OILFIELD SERVICES/EQUIPMENT (CONTINUED)
<TABLE>
<S> <C> <C>
Veritas DGC, Inc.*......................... 77,000 $ 1,520,750
------------
27,010,762
------------
OTHER COMMERCIAL/INDUSTRIAL SERVICES -- 6.3%
Administaff, Inc.*......................... 36,900 613,462
Affiliated Computer Services, Inc. Class
A*....................................... 69,400 1,587,525
ASE Test LTD*.............................. 8,000 255,000
Billing Information Concepts*.............. 58,200 1,396,800
CareMatrix Corp.*.......................... 22,800 418,950
Caribiner International, Inc.*............. 54,200 2,533,850
CCC Information Services Group*............ 54,000 675,000
Ciber, Inc.*............................... 111,600 2,817,900
Computer Task Group, Inc................... 68,600 2,435,300
Data Processing Resources Corp.*........... 50,300 943,124
Diamond Technology Partners Class A*....... 2,310 11,983
Fine Host Corp.*........................... 17,900 420,650
Forrester Research, Inc.*.................. 21,800 397,850
G&K Services, Inc., Class A................ 17,950 538,500
ICTS International NV*..................... 3,800 30,638
Information Management Resources, Inc.*.... 36,900 580,800
Learning Tree International*............... 29,600 828,800
Meta Group, Inc.*.......................... 23,500 452,374
Metzler Group, Inc.*....................... 46,600 1,077,624
National Techteam, Inc.*................... 40,800 632,400
Norrell Corp............................... 49,200 1,211,550
On Assignment, Inc.*....................... 11,200 282,800
Perseptive Biosystems, Inc.*............... 769 6,056
Personnel Group of America, Inc.*.......... 25,900 508,288
PMT Services, Inc.*........................ 90,350 993,850
Rental Service Corp.*...................... 17,100 324,900
Romac International, Inc.*................. 66,600 1,177,988
Staffmark, Inc.*........................... 25,900 339,938
Sykes Enterprises, Inc.*................... 57,450 1,874,306
Technology Solutions Co.*.................. 54,750 1,512,469
Vincam Group, Inc.*........................ 28,400 777,450
Warrantech Corp.*.......................... 75,900 683,100
Whittman-Hart, Inc.*....................... 144,900 3,079,124
------------
31,420,349
------------
OTHER CONSUMER DURABLES -- 0.5%
Action Performance Cos., Inc.*............. 59,900 1,168,050
Sola International, Inc.*.................. 67,800 1,567,874
------------
2,735,924
------------
OTHER CONSUMER NON-DURABLES -- 0.1%
Helen of Troy LTD*......................... 15,000 356,250
------------
OTHER CONSUMER SERVICES -- 0.3%
Equity Corp. International*................ 17,800 373,800
ITT Educational Services*.................. 19,800 428,174
Memberworks, Inc.*......................... 21,400 347,750
National Education Corp.*.................. 40,100 506,262
------------
1,655,986
------------
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
OTHER FINANCIAL SERVICES -- 0.0%
Metris Companies, Inc.*.................... 2,100 $ 52,500
------------
OTHER HEALTH TECHNOLOGY/SERVICES -- 0.8%
Enterprise Systems, Inc.*.................. 51,300 1,154,250
Envoy Corp.*............................... 91,100 2,129,462
Horizon Mental Health Management, Inc.*.... 13,050 200,644
Medquist, Inc.*............................ 9,600 211,200
Premier Research Worldwide, Ltd.*.......... 15,600 257,400
Sterile Recoveries, Inc.*.................. 400 7,000
------------
3,959,956
------------
OTHER PRODUCERS/MANUFACTURING -- 2.1%
BE Aerospace, Inc.*........................ 144,700 3,545,150
Belden, Inc................................ 43,600 1,553,250
BMC Industries, Inc........................ 53,300 1,505,724
Griffon Corp.*............................. 54,300 651,600
Interface, Inc............................. 39,100 979,944
Libbey, Inc................................ 52,300 1,634,374
Rexel, Inc.*............................... 31,400 569,124
Special Metals Corp.*...................... 14,000 245,000
------------
10,684,166
------------
OTHER RETAIL TRADE -- 0.2%
RDO Equipment Co. Class A*................. 19,900 348,250
Renters Choice, Inc.*...................... 61,600 885,500
------------
1,233,750
------------
OTHER TECHNOLOGY -- 0.5%
Computer Products, Inc.*................... 87,900 1,285,538
Henry (Jack) & Associates.................. 28,050 624,113
Renaissance Solutions, Inc.*............... 26,000 656,500
------------
2,566,151
------------
OTHER TRANSPORTATION -- 0.3%
Coach USA, Inc.*........................... 35,800 1,038,200
Hvide Marine, Inc. Class A*................ 23,500 534,624
------------
1,572,824
------------
PAPER -- 0.1%
American Pad & Paper Co.*.................. 40,500 607,336
------------
PIPELINES -- 0.2%
Offshore Logistics, Inc.*.................. 52,600 841,600
------------
PRINTING/FORMS -- 0.4%
Applied Graphics Technologies, Inc.*....... 41,100 1,453,912
Consolidated Graphics, Inc.*............... 16,000 458,000
------------
1,911,912
------------
PROPERTY-CASUALTY INSURERS -- 0.5%
Capmac Holdings, Inc....................... 43,300 1,152,862
HCC Insurance Holdings, Inc................ 54,000 1,323,000
------------
2,475,862
------------
PUBLISHING -- 0.3%
Golden Books Family Entertainment, Inc.*... 90,000 832,500
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

8
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
</TABLE>

COMMON STOCK (Continued)
- ---------------------------------------------------------
PUBLISHING (CONTINUED)
<TABLE>
<S> <C> <C>
Mecklermedia Corp.*........................ 30,800 $ 739,200
------------
1,571,700
------------
REAL ESTATE BROKERS/SERVICES -- 0.5%
CB Commercial Real Estate Services Group,
Inc.*.................................... 26,500 629,374
Redwood Trust, Inc......................... 45,200 2,090,500
------------
2,719,874
------------
RECREATIONALPRODUCTS -- 0.1%
Rockshox, Inc.*............................ 17,000 253,938
------------
REGIONAL BANKS -- 0.7%
Bay View Capital Corp...................... 17,400 887,400
Peoples Heritage Financial Group, Inc...... 52,900 1,626,674
Provident Bankshares Corp.................. 32,100 1,235,850
------------
3,749,924
------------
REAL ESTATE INVESTMENT TRUSTS -- 1.4%
American General Hospitality Corp.......... 26,400 719,400
Essex Property............................. 35,100 1,048,612
FelCor Suite Hotels, Inc................... 21,500 790,124
Golf Trust of America, Inc.*............... 43,600 1,062,750
Health Care Real Estate Investment Trust... 33,900 805,124
Kilroy Realty Corp.*....................... 37,025 985,791
Storage USA, Inc........................... 27,000 995,624
Walden Residential Properties, Inc......... 35,700 861,262
------------
7,268,687
------------
RENTAL/LEASING COMPANIES -- 0.7%
Leasing Solutions, Inc.*................... 59,200 1,110,000
Team Rental Group, Inc.*................... 25,100 527,100
Ugly Duckling Corp.*....................... 71,100 1,306,463
Winthrop Resources Corp.................... 15,700 467,075
------------
3,410,638
------------
RESTAURANTS -- 1.5%
CKE Restaurants, Inc....................... 162,950 3,605,269
Foodmaker, Inc.*........................... 168,200 1,703,025
Logan's Roadhouse, Inc.*................... 17,100 359,100
Rare Hospitality International, Inc.*...... 43,500 565,500
Showbiz Pizza Time, Inc.*.................. 62,400 1,092,000
------------
7,324,894
------------
RETAIL/FOOD DISTRIBUTION -- 0.6%
Richfood Holdings, Inc..................... 120,650 2,262,188
Suiza Foods Corp.*......................... 31,200 834,600
------------
3,096,788
------------
SAVINGS & LOAN ASSOCIATIONS -- 0.1%
MAF Bancorp, Inc........................... 15,800 616,200
------------
SEMICONDUCTORS/ELECTRONIC COMPONENTS -- 7.2%
Aavid Thermal Technologies*................ 29,400 345,450
Advanced Technology Materials, Inc.*....... 34,100 588,225
Anadigics, Inc.*........................... 39,500 1,066,500
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
</TABLE>

SEMICONDUCTORS/ELECTRONIC COMPONENTS (CONTINUED)
<TABLE>
<S> <C> <C>
Benchmarq Microelectronics, Inc.*.......... 17,800 $ 222,500
Credence Systems Corp.*.................... 71,600 1,396,200
Cymer, Inc.*............................... 44,100 1,582,088
Fusion Systems Corp.*...................... 61,300 1,455,875
Gasonics International Corp.*.............. 21,500 306,375
Hadco Corp................................. 61,100 2,367,625
Integrated Process Equipment Corp.*........ 96,700 1,619,725
Jabil Circuit, Inc.*....................... 133,700 6,024,856
JPM Co.*................................... 700 11,725
Kulicks & Soffa Industries, Inc.*.......... 77,300 1,632,962
Level One Communications, Inc.*............ 21,400 588,500
MRV Communications, Inc.*.................. 50,900 1,132,525
Photronics, Inc.*.......................... 34,600 1,016,375
Radisys Corp.*............................. 41,100 1,202,175
Sawtek, Inc.*.............................. 80,000 2,300,000
SDL, Inc.*................................. 9,900 169,538
Sipex Corp.*............................... 31,900 933,075
Smart Modular Technologies, Inc.*.......... 50,000 1,187,500
STB Systems, Inc.*......................... 17,500 511,875
Stormedia, Inc.*........................... 89,000 1,023,500
Trident Microsystems, Inc.*................ 102,000 1,377,000
Vitesse Semiconductor Corp.*............... 188,700 5,212,838
Zygo Corp.*................................ 30,200 687,050
------------
35,962,057
------------
SOAPS/COSMETICS -- 0.1%
American Safety Razor Co.*................. 22,500 347,990
------------
SOFTWARE -- 8.5%
Aspen Technology, Inc.*.................... 78,400 2,136,400
Avant Corp.*............................... 48,400 1,312,850
C Net, Inc.*............................... 27,200 666,400
CBT Group PLC Sponsored ADR*............... 80,900 4,034,888
Credit Management Solutions, Inc.*......... 5,000 51,250
Dataworks Corp.*........................... 37,500 543,750
Documentum, Inc.*.......................... 37,000 684,500
Excite, Inc.*.............................. 44,300 476,225
Geotel Communications Corp.*............... 5,100 56,100
Harbinger Corp.*........................... 101,150 2,225,300
HNC Software, Inc.*........................ 70,700 1,847,038
HPR, Inc.*................................. 12,000 135,000
Hyperion Software Corp.*................... 125,500 2,070,750
Infinity Financial Technology, Inc.*....... 17,700 305,325
Infoseek Corp.*............................ 40,500 288,562
Lycos, Inc.*............................... 45,000 632,812
Manugistics Group, Inc.*................... 36,400 1,328,600
Mercury Interactive Corp.*................. 80,200 781,950
National Instruments Corp.*................ 68,500 2,209,125
Pegasystems, Inc.*......................... 53,900 1,084,738
Perceptron, Inc.*.......................... 38,200 1,002,750
Quick Response Services, Inc.*............. 16,600 437,824
Rational Software Corp.*................... 67,200 1,386,000
Rogue Wave Software*....................... 17,800 162,424
Sapient Corp.*............................. 13,800 441,600
Saville Systems Ireland PLC*............... 72,200 2,075,750
Seibel Systems, Inc.*...................... 113,600 1,902,800
Select Software Tools Sponsored ADR*....... 70,050 700,500
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

9
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 -- CONTINUED
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
</TABLE>

COMMON STOCK (Continued)
- ---------------------------------------------------------
SOFTWARE (CONTINUED)
<TABLE>
<S> <C> <C>
SPSS, Inc.*................................ 20,100 $ 499,988
Tecnomatix Technologies Ltd.*.............. 3,300 68,475
Triteal Corp.*............................. 10,000 117,500
Trusted Information Systems, Inc.*......... 35,400 460,200
Verilink Corp.*............................ 13,600 81,600
Veritas Software Co.*...................... 57,200 1,694,550
Versant Object Technology Corp.*........... 5,000 44,375
Viasoft, Inc.*............................. 40,000 1,300,000
Videoserver, Inc.*......................... 92,300 2,180,588
Visio Corp.*............................... 75,600 2,948,400
Walker Interactive Systems, Inc.*.......... 40,800 512,550
Wind River Systems, Inc.*.................. 84,000 1,984,500
------------
42,873,937
------------
SPECIALTY CHAINS -- 2.3%
Cort Business Services Corp.*.............. 42,300 967,612
Duty Free International, Inc............... 63,300 925,762
Finish Line, Inc. Class A*................. 19,900 442,775
Linens'n Things, Inc.*..................... 107,100 2,503,462
Micro Warehouse, Inc.*..................... 107,000 1,404,375
Party City Corp.*.......................... 10,900 170,313
Pier 1 Imports, Inc........................ 130,500 2,300,062
West Coast Entertainment Corp.*............ 2,500 18,125
West Marine, Inc.*......................... 25,500 841,500
Williams-Sonoma, Inc.*..................... 72,900 2,095,875
------------
11,669,861
------------
SPECIALTY INSURERS -- 0.1%
International Alliance Services, Inc.*..... 56,800 568,000
------------
TELECOMMUNICATIONS EQUIPMENT -- 2.6%
Coherent Communications Systems Corp.*..... 41,900 722,775
Comverse Technology, Inc.*................. 48,500 1,915,750
Davox Corp.*............................... 31,400 973,400
Digital Microwave Corp.*................... 82,100 1,580,425
Gilat Satellite Networks LTD*.............. 56,800 1,718,200
Harmonic Lightwaves, Inc.*................. 88,800 1,221,000
Natural Microsystems Corp.*................ 82,400 1,637,700
Nice Systems LTD*.......................... 27,500 563,750
P Com, Inc.*............................... 52,900 1,375,400
Remec, Inc.*............................... 25,600 550,400
Spectran Corp.*............................ 13,600 176,800
Teledata Communications LTD*............... 33,500 603,000
------------
13,038,600
------------
TELECOMMUNICATION SERVICES -- 0.3%
Pacific Gateway Exchange, Inc.*............ 23,000 575,000
Pricellular Corp. Class A*................. 57,168 471,636
U. S. Long Distance Corp.*................. 35,600 413,850
------------
1,460,486
------------
TEXTILES -- 0.1%
Culp, Inc.................................. 17,400 300,150
------------
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
TOBACCO PRODUCTS -- 0.2%
General Cigar Holdings, Inc.*.............. 35,100 $ 780,975
------------
TRUCKING -- 0.7%
Knight Transportation, Inc.*............... 20,600 466,075
Swift Transportation Co.*.................. 36,400 928,200
U.S. Xpress Enterprises, Inc. Class A*..... 700 9,800
USFreightways Corp......................... 57,200 1,480,050
Yellow Corp.*.............................. 29,400 554,924
------------
3,439,049
------------
WHOLESALE DISTRIBUTION -- 1.2%
Anicom, Inc.*.............................. 49,900 422,591
Brightpoint, Inc.*......................... 191,250 3,131,719
Cellstar Corp.*............................ 75,100 1,595,875
Central Garden & Pet Co.*.................. 6,800 123,250
CHS Electronics, Inc.*..................... 28,700 584,762
------------
5,858,197
------------
TOTAL COMMON STOCKS
(Cost $409,848,367)...................................... 456,148,188
------------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
- --------------------------------------------------------------------------------
COMMERCIAL PAPER -- 7.0%
- --------------------------------------------------------------------------------
Associates Corp. -- 3.7%
6.75%, 04/01/97................................... $18,673,000 18,673,000
Merrill Lynch -- 3.3%
6.35%, 04/01/97................................... 16,214,000 16,214,000
-------------
TOTAL COMMERCIAL PAPER
(Cost $34,887,000)............................................. 34,887,000
-------------
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 4.5%
- --------------------------------------------------------------------------------
J. P. Morgan & Co., Inc. $22,666,000 at 6.25%,
(Agreement dated 03/31/97; to be repurchased at
$22,669,935 on 04/01/97; collateralized by
$23,265,000 FHMA Notes, 7.125% due 04/30/26)
(VALUE $23,811,037)
(Cost $22,666,000)................................ 22,666,000 22,666,000
-------------
- --------------------------------------------------------------------------------
RIGHTS/WARRANTS -- 0.0%
- --------------------------------------------------------------------------------
Perseptive Biosystems Class G, Warrants
(Cost $1,033)..................................... 435 1,033
-------------
TOTAL INVESTMENTS -- 102.4%
(Cost $467,402,401)............................................ 513,702,221
LIABILITIES IN EXCESS OF OTHER ASSETS (2.4%)..................... (12,139,688)
-------------
NET ASSETS 100.0%................................................ $ 501,562,533
-------------
</TABLE>

- ------------
* Non-Income Producing Security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

10
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997
- ------------------------------------------------------------------------
CORE GROWTH FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------------------
COMMON STOCKS -- 93.0%
- ---------------------------------------------------------------------------------
APPAREL -- 1.9%
Nike, Inc. -- Class B...................... 36,900 $ 2,287,800
Tommy Hilfiger Corp.*...................... 110,000 5,747,500
-------------
8,035,300
-------------
BEVERAGES/SOFT DRINKS -- 1.5%
Panamerican Beverages, Inc. -- Class A..... 120,000 6,435,000
-------------
BIOTECHNOLOGY -- 3.3%
Biogen, Inc.*.............................. 242,000 9,044,750
Centocor, Inc.*............................ 165,000 5,032,500
-------------
14,077,250
-------------
COMPUTERS/OFFICE AUTOMATION -- 2.3%
EMC Corp.*................................. 140,000 4,970,000
Read-Rite Corp.*........................... 200,000 5,050,000
-------------
10,020,000
-------------
CONTAINERS -- 0.9%
Crown Cork & Seal Co., Inc................. 77,500 4,000,938
-------------
DEPARTMENT/DISCOUNT STORES -- 2.5%
Consolidated Stores Corp.*................. 180,625 6,367,031
Costco Cos, Inc.*.......................... 167,200 4,618,900
-------------
10,985,931
-------------
DRUGS/PHARMACEUTICALS -- 5.0%
Cardinal Health, Inc....................... 162,950 8,860,406
Dura Pharmaceuticals, Inc.*................ 183,700 6,567,275
Elan Corp. PLC-Sponsored ADR*.............. 185,100 6,316,537
-------------
21,744,218
-------------
ELECTRIC UTILITIES -- 2.0%
AES Corp.*................................. 158,600 8,881,600
-------------
ENVIRONMENTAL SERVICES -- 6.7%
Republic Industries, Inc.*................. 256,900 8,911,219
United States Filter Corp.*................ 191,000 5,897,125
United Waste Systems, Inc.*................ 174,900 6,515,025
USA Waste Services, Inc.*.................. 213,700 7,586,350
-------------
28,909,719
-------------
FINANCE COMPANIES -- 1.7%
Associates First Capital Corp. -- Class
A........................................ 176,100 7,572,300
-------------
FOOD CHAINS -- 4.0%
Kroger Co.*................................ 130,000 6,597,500
Safeway, Inc.*............................. 232,600 10,786,825
-------------
17,384,325
-------------
HOSPITALS -- 3.7%
Healthsouth Corp.*......................... 504,600 9,650,475
Tenet Healthcare Corp.*.................... 257,200 6,333,550
-------------
15,984,025
-------------

<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------------------
LEASURE/GAMING -- 2.3%
Carnival Corp. -- Class A.................. 268,400 $ 9,930,800
-------------
LODGING -- 2.1%
Doubletree Corp.*.......................... 126,700 4,497,850
Host Marriott Corp.*....................... 277,000 4,709,000
-------------
9,206,850
-------------
MANAGED HEALTHCARE/HMO'S -- 1.9%
Oxford Health Plans, Inc.*................. 138,000 8,090,250
-------------
MEDICAL SUPPLIES -- 4.5%
Boston Scientific Corp.*................... 155,000 9,571,250
ESC Medical Systems LTD.*.................. 175,000 4,418,750
Safeskin Corp.*............................ 310,600 5,629,625
-------------
19,619,625
-------------
OIL/GAS PRODUCTION -- 2.4%
Burlington Resources, Inc.................. 105,900 4,527,225
Valero Energy Corp......................... 165,800 6,030,975
-------------
10,558,200
-------------
OILFIELD SERVICES/EQUIPMENT -- 6.6%
BJ Services Co.*........................... 72,500 3,470,937
Diamond Offshore Drilling, Inc.*........... 95,400 6,534,900
ENSCO International, Inc.*................. 160,800 7,919,400
Smith International, Inc.*................. 171,000 7,801,875
Tidewater, Inc............................. 41,500 1,909,000
Western Atlas, Inc.*....................... 16,000 970,000
-------------
28,606,112
-------------
OIL REFINING/MARKETING -- 1.4%
Tosco Corp................................. 216,600 6,173,100
-------------
OTHER COMMERCIAL/INDUSTRIAL SERVICES -- 1.5%
APAC Teleservices, Inc.*................... 26,300 683,800
Manpower, Inc.............................. 162,300 5,842,800
-------------
6,526,600
-------------
OTHER CONSUMER DURABLES -- 1.3%
U S Industries, Inc.*...................... 159,200 5,611,800
-------------
OTHER FINANCIAL SERVICES -- 2.7%
Equifax, Inc............................... 232,600 6,338,350
SunAmerica, Inc............................ 139,300 5,223,505
-------------
11,561,855
-------------
OTHER HEALTH TECHNOLOGY/SERVICES -- 0.9%
McKesson Corp.............................. 63,400 4,057,600
-------------
PIPELINES -- 1.2%
Williams Companies, Inc.................... 117,900 5,246,550
-------------
REGIONAL BANKS -- 1.2%
Washington Mutual, Inc..................... 110,500 5,338,531
-------------
SEMICONDUCTORS/ELECTRONIC COMPONENTS -- 1.6%
ASM Lithography Holding NV*................ 92,000 6,900,000
-------------
SOAPS/COSMETICS -- 2.1%
Revlon, Inc. -- Class A*................... 234,100 8,960,935
-------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

13
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 -- CONTINUED
- --------------------------------------------------------------------------------
CORE GROWTH FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>

COMMON STOCKS (Continued)
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
SOFTWARE -- 7.7%
BMC Software, Inc.*........................ 94,400 $ 4,354,200
Electronics for Imaging, Inc.*............. 180,400 7,193,450
McAfee Associates, Inc.*................... 128,700 5,694,975
Parametric Technology Corp.*............... 128,700 5,807,588
Peoplesoft, Inc.*.......................... 142,400 5,696,000
Rational Software Corp.*................... 220,000 4,537,500
-------------
33,283,713
-------------
SPECIALTY CHAINS -- 1.6%
Borders Group, Inc.*....................... 365,200 6,893,150
-------------
SPECIALTY INSURERS -- 1.0%
MGIC Investment Corp....................... 59,300 4,195,475
-------------
TELECOMMUNICATIONS EQUIPMENT -- 9.2%
ADC Telecommunications, Inc.*.............. 120,000 3,225,000
Andrew Corp.*.............................. 287,700 10,393,163
Ascend Communications, Inc.*............... 49,000 1,996,750
Boston Technology, Inc.*................... 256,300 4,837,662
L M Ericsson Telecommunications-Sponsored
ADR...................................... 258,400 8,737,150
Nokia Corp.-Sponsored ADR -- Class A....... 69,300 4,036,725
Tellabs, Inc.*............................. 176,600 6,379,675
-------------
39,606,125
-------------
TELEPHONE -- 3.2%
Nextel Communications, Inc. -- Class A*.... 563,600 7,538,150
Teleport Communications Group, Inc. --
Class A*................................. 268,500 6,175,500
-------------
13,713,650
-------------
TEXTILES -- 1.1%
Mohawk Industries, Inc.*................... 232,900 4,861,787
-------------
TOTAL COMMON STOCKS
(Cost $382,398,610)......................................... 402,973,314
-------------
- ---------------------------------------------------------------------------------
PREFERRED STOCKS -- 1.4%
- ---------------------------------------------------------------------------------
CONTAINERS -- 0.5%
Crown Cork & Seal, Inc., 4.5%.............. 40,000 1,970,000
-------------
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------------------

DRUGS/PHARMACEUTICALS -- 0.4%
McKesson Corp., $2.50...................... 36,300 $ 1,942,050
-------------
PIPELINES -- 0.5%
Williams Cos, Inc., $3.50.................. 20,300 2,144,188
-------------
TOTAL PREFERRED STOCKS
(Cost $6,012,500)........................................... 6,056,238
-------------
<CAPTION>

PRINCIPAL
AMOUNT
<S> <C> <C>
- ---------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS -- 2.0%
- ---------------------------------------------------------------------------------
COMPUTERS/OFFICE AUTOMATION -- 0.9%
EMC Corp.,
3.25%, 03/15/02.......................... $ 3,700,000 3,792,500
-------------
ENVIRONMENTAL SERVICES -- 0.5%
Sanifill, Inc.,
5.00%, 03/01/06.......................... 1,437,000 2,044,133
-------------
OILFIELD SERVICES/EQUIPMENT -- 0.6%
Diamond Offshore Drilling, Inc. 3.75%,
02/15/07................................. 2,500,000 2,662,500
-------------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost $8,190,198)........................................... 8,499,133
-------------
- ---------------------------------------------------------------------------------
COMMERCIAL PAPER -- 2.9%
- ---------------------------------------------------------------------------------
Associates Corp. of North America 6.75%,
04/01/97................................. 12,426,000 12,426,000
-------------
TOTAL COMMERCIAL PAPER
(Cost $12,426,000)..........................................
-------------
TOTAL INVESTMENTS -- 99.3%
(Cost $409,027,308)......................................... 429,954,685
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.7%................. 2,819,246
-------------
NET ASSETS -- 100.0%.......................................... $ 432,773,931
-------------
</TABLE>

- ---------------
* Non-Income Producing Security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

14
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997
- ------------------------------------------------------------------------
INCOME & GROWTH FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS -- 11.8%
- ----------------------------------------------------------------------------
COMPUTER/OFFICE AUTOMATION -- 0.0%
Seagate Technology, Inc.*.................. 1 $ 45
------------
GAS UTILITIES -- 0.9%
MCN Corp................................... 41,860 1,177,313
------------
INVESTMENT COMPANIES -- 1.0%
Merrill 6.50% "MTG" -- Strypes............. 19,000 1,244,500
------------
MACHINERY/EQUIPMENT -- 0.7%
Cooper Industries, Inc.,
6.00% WYMN (DECS)........................ 51,100 932,575
------------
OTHER FINANCIAL SERVICES -- 0.7%
SunAmerica, Inc. (PERCS)*.................. 22,300 879,392
------------
REAL ESTATE INVESTMENT TRUSTS -- 8.5%
Bay Apartment Communities, Inc............. 38,190 1,370,066
Cali Realty Corp........................... 44,130 1,412,160
CenterPoint Properties Corp................ 38,200 1,169,875
Equity Residential Properties Trust........ 12,100 536,938
Kilroy Realty Corp.*....................... 21,300 567,113
Meridian Industrial Trust, Inc............. 38,470 889,619
Patriot American Hospitality, Inc.......... 28,460 690,155
Reckson Associates Realty Corp............. 31,930 1,472,771
Spieker Properties, Inc.................... 40,900 1,595,100
Starwood Lodging Trust..................... 36,115 1,408,485
------------
11,112,282
------------
TOTAL COMMON STOCKS
(Cost $12,831,606)....................................... 15,346,107
------------

- ----------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS -- 31.8%
- ----------------------------------------------------------------------------
CONTAINERS -- 1.8%
Crown Cork & Seal, 4.50%................... 48,250 2,376,313
------------
DRUGS/PHARMACEUTICALS -- 0.8%
McKesson Corp., $2.50*..................... 19,600 1,048,600
------------
ELECTRIC UTILITIES -- 2.5%
AES Trust I, Series A, 5.375%*............. 26,520 1,289,535
California Energy Capital Trust, 6.25%..... 27,380 1,759,165
California Energy Capital Trust 2,
6.25%*................................... 5,900 300,163
------------
3,348,863
------------
FINANCE COMPANIES -- 2.6%
HF Ahmanson & Company, Series D, 6.00%..... 20,465 1,575,805
Finova Finance Trust, 5.50%................ 34,680 1,812,030
------------
3,387,835
------------
GAS UTILITIES -- 0.8%
Noram Financing I, 6.25%................... 17,000 1,058,250
------------
INTEGRATED OIL COMPANIES -- 1.5%
Unocal Capital Trust, 6.25%................ 35,455 1,923,434
------------

<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
LIFE INSURERS -- 1.3%
Penncorp Financial Group, Inc., $3.50...... 29,505 $ 1,644,904
------------
LODGING -- 2.1%
Host Marriott Financial Trust, 6.75%*...... 47,435 2,668,219
------------
MEDICAL SUPPLIES -- 0.5%
United States Surgical Corp., Series A,
$2.20.*.................................. 21,340 613,525
------------
METALS -- 0.1%
Coeur D'Alene Mines Corp., 7.00%........... 5,500 97,625
------------
MULTI-LINE INSURERS -- 0.7%
Allstate Corp., 6.7647%.................... 22,300 953,325
------------
OIL/GAS PRODUCTION -- 2.5%
Devon Financing Trust, $3.25*.............. 30,148 1,823,954
Nuevo Financing I, Series A, 5.75%......... 10,300 495,688
Valero Energy, $3.125*..................... 13,700 923,038
------------
3,242,680
------------
OIL REFINING/MARKETING -- 1.5%
Tosco Financing Trust, 5.75%*.............. 37,100 2,008,038
------------
OTHER CONSUMER SERVICES -- 1.0%
SCI Finance LLC, Series A, $3.125.......... 12,930 1,318,860
------------
OTHER PRODUCTION/MANUFACTURING -- 1.2%
Corning Delaware LP, 6.00%................. 22,130 1,568,464
------------
PIPELINES -- 1.9%
Williams Cos., $3.50....................... 23,095 2,465,391
------------
RESTAURANTS -- 1.7%
Apple South Inc., $3.50.................... 9,000 492,750
Wendy's Financing I, Series A, 5.00%....... 34,900 1,766,813
------------
2,259,563
------------
SAVINGS AND LOAN/THRIFTS -- 0.6%
Sovereign Bancorp, Inc., Series B, 6.25%... 9,610 720,750
------------
SPECIALTY INSURERS -- 1.7%
American Bankers Insurance, Series B,
$3.125................................... 36,290 2,200,081
------------
TELECOMMUNICATION EQUIPMENT -- 3.1%
LM Ericsson Telephone, 4.25%............... 619,270 2,941,533
Qualcomm Financial Trust, 5.75%............ 20,900 1,029,325
------------
3,970,858
------------
TELECOMMUNICATION SERVICES -- 0.4%
Worldcom, Inc., 8.00%...................... 6,860 538,510
------------
TELEPHONE -- 1.5%
Salomon, Inc. CSN (DECS), 6.25%............ 32,980 1,945,820
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $37,345,556)....................................... 41,359,908
------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

17
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 -- CONTINUED
- --------------------------------------------------------------------------------
INCOME & GROWTH FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
</TABLE>

CONVERTIBLE CORPORATE BONDS -- 54.3%
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
ADVERTISING -- 2.1%
Omnicom Group,
4.250%, 01/03/07......................... $2,534,000 $ 2,695,543
------------
AEROSPACE -- 1.1%
Morgan Stanley Group, Series MTNC*
0.000%, 09/30/00......................... 1,290,000 1,470,600
------------
AIRLINES -- 1.1%
Alaska Air Group,
6.500%, 06/15/05......................... 694,000 888,320
Continental Airlines,
6.750%, 04/15/06......................... 430,000 547,713
------------
1,436,033
------------
ALCOHOLIC BEVERAGES -- 1.0%
Grand Metropolitan PLC Euro,
6.500%, 01/31/00......................... 1,130,000 1,337,638
------------
AUTOMOBILES -- 0.2%
Volkswagen International Finance,
3.000%, 01/24/02......................... 240,000 266,700
------------
BROADCASTING -- 0.2%
Telemundo Group, Inc.,
7.000%, 02/15/06......................... 225,000 217,406
------------
BUILDING MATERIALS -- 1.4%
Cemex SA Euro,
4.250%, 11/01/97......................... 830,000 811,325
Hexcel Corp.,
7.000%, 08/01/03......................... 755,000 999,431
------------
1,810,756
------------
BUILDING MATERIAL CHAINS -- 0.8%
Home Depot, Inc.,
3.250%, 10/01/01......................... 985,000 992,388
------------
CLOTHING CHAINS -- 0.9%
Nine West Group, Inc.,
5.500%, 07/15/03......................... 1,220,000 1,186,450
------------
COMPUTERS/OFFICE AUTOMATION -- 3.3%
Comverse Technology, Inc.,
5.750 10/01/06........................... 1,263,000 1,351,410
EMC Corp.,
3.250%, 03/15/02......................... 1,190,000 1,219,750
HMT Technology Corp.,
0.000%, 01/15/04......................... 958,000 832,263
Safeguard Scientifics
6.000%, 02/01/06......................... 1,075,000 932,563
------------
4,335,986
------------
CONTRACT DRILLING -- 1.8%
Diamond Offshore Drilling
3.750%, 02/15/07......................... 1,927,000 2,052,255
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
</TABLE>

CONTRACT DRILLING (CONTINUED)
<TABLE>
<S> <C> <C>
Nabors Industries, Inc.
5.000%, 05/15/06......................... $ 251,000 $ 317,515
------------
2,369,770
------------
DRUG CHAINS -- 1.5%
Rite-Aid Corp.*
0.000%, 07/24/06......................... 2,729,000 1,883,010
------------
DRUGS/PHARMACEUTICALS -- 4.0%
Elan International Finance*
0.000%, 10/16/12......................... 1,711,000 1,272,556
Sandoz Capital BVI LTD.
2.000%, 10/06/02......................... 900,000 1,048,500
Sandoz Capital BVI LTD. Euro,
2.000%, 10/06/02......................... 1,470,000 1,721,738
Sepracor, Inc.
7.000%, 12/01/02......................... 295,000 396775
Sepracor, Inc., Euro,
7.000%, 12/01/02......................... 582,000 782,790
------------
5,222,359
------------
ELECTRIC UTILITIES -- 1.2%
AES Corp.
10.250%, 07/15/06........................ 1,385,000 1,513,113
------------
ELECTRONIC DATA PROCESSING -- 2.3%
Automatic Data Process*
0.000%, 02/20/12......................... 4,664,000 2,606,010
National Data Corp.
5.000%, 11/01/03......................... 392,000 375,830
------------
2,981,840
------------
ELECTRONIC INSTRUMENTS -- 3.1%
ADT Operations, Inc.*
0.000%, 07/06/10......................... 3,093,000 2,207,629
SCI Systems, Inc.
5.000%, 05/01/06......................... 1,499,000 1,858,760
------------
4,066,389
------------
ENVIRONMENTAL SERVICES -- 5.6%
Sanifill, Inc.
5.000%, 03/01/06......................... 1,088,000 1,547,680
United Waste Systems, Inc. Note
4.500%, 06/01/01......................... 1,060,000 1,362,100
United Waste Systems, Inc.
4.500%, 06/01/01......................... 540,000 693,900
U.S. Filter Corp.
0.000%, 12/15/01......................... 2,470,000 2,479,263
USA Waste Services, Inc.
4.000%, 02/01/02......................... 1,113,000 1,151,955
------------
7,234,898
------------
FINANCE COMPANIES -- 0.4%
Leasing Solutions, Inc.
6.875%, 10/01/03......................... 530,000 482,300
------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

18
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
</TABLE>

CONVERTIBLE CORPORATE BONDS (Continued)
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
FOOD CHAINS -- 1.0%
Starbucks Corp.
4.250%, 11/01/02......................... $ 939,000 $ 1,319,376
------------
INDUSTRIAL ENGINEERING/CONSTRUCTION -- 1.0%
Empresas ICA Sociedad
5.000%, 03/15/04......................... 1,726,000 1,311,760
------------
LIFE INSURERS -- 1.9%
American Travellers Corp.,
6.500%, 10/01/05......................... 521,000 1,454,893
Penn Treaty American Corp.,
6.250%, 12/01/03......................... 920,000 1,036,150
------------
2,491,043
------------
LODGING -- 1.9%
Hilton Hotels Corp.
5.000%, 05/15/06......................... 1,740,000 1,774,800
Prime Hospitality Corp.
7.000%, 04/15/02......................... 341,000 488,056
Signature Resorts, Inc.
5.750.%, 01/15/07........................ 277,000 235,450
------------
2,498,306
------------
MACHINERY/EQUIPMENT -- 1.7%
Intevac, Inc.
6.500%, 03/01/04......................... 445,000 403,838
Thermo Electron Corp.
4.250%, 01/03/03......................... 565,000 590,425
Thermo Electron Corp. Euro
4.250%, 01/03/03......................... 1,110,000 1,187,700
------------
2,181,963
------------
MANAGED HEALTHCARE/HMOS -- 1.0%
Tenet Healthcare
6.000%, 12/01/05......................... 1,172,000 1,353,660
------------
MEDICAL/HEALTH SERVICES -- 2.7%
FPA Medical Management
6.500%, 12/15/01......................... 500,000 490,625
Phycor, Inc.
4.500%, 02/15/03......................... 1,965,000 1,891,313
Renal Treatment Centers, Inc.
5.625%, 07/15/06......................... 1,202,000 1,117,860
------------
3,499,798
------------
MEDICAL SUPPLIES -- 0.4%
Morgan Stanley Group, Series MTN
2.000%, 03/29/02......................... 557,000 569,533
------------
OIL FIELD SERVICES/EQUIPMENT -- 2.7%
Baker Hughes, Inc.*
0.000%, 05/05/08......................... 2,520,000 1,962,450
Pride Petroleum Services, Inc.
6.250%, 02/15/06......................... 372,000 675,180
Seacor Holdings, Inc.
5.375%, 11/15/06......................... 883,000 927,150
------------
3,564,780
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
OTHER COMMERCIAL/INDUSTRIAL SERVICES -- 1.3%
CUC International, Inc.
3.000%, 02/15/02......................... $ 735,000 $ 729,488
National Education Corp.
6.500%, 05/15/11......................... 1,129,000 987,875
------------
1,717,363
------------
OTHER PRODUCTION/MANUFACTURING -- 2.1%
ALFA S.A. DE C.V.
8.000%, 09/15/00......................... 1,000,000 1,258,750
ALFA S.A. DE C.V. Euro
8.000%, 09/15/00......................... 1,180,000 1,485,325
------------
2,744,075
------------
OTHER TRANSPORTATION -- 0.8%
Offshore Logistic
6.000%, 12/15/03......................... 1,000,000 981,250
------------
SEMICONDUCTORS/ELECTRONIC COMPONENTS -- 1.8%
Analog Devices
3.500%, 12/01/00......................... 813,000 1,022,258
Xilinx, Inc.
5.250%, 11/01/02......................... 1,178,000 1,341,448
------------
2,363,706
------------
SPECIALTY CHAINS -- 1.9%
Pep Boys*
0.000%, 09/20/11......................... 2,490,000 1,329,038
Staples, Inc.
4.500%, 10/01/00......................... 1,009,000 1,114,945
------------
2,443,983
------------
TELEPHONE -- 0.1%
Pricellular Wire Series B
14.000%, 11/15/01........................ 130,000 132,600
------------
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost $66,761,391)....................................... 70,676,375
------------
- ----------------------------------------------------------------------------
COMMERCIAL PAPER -- 4.4%
- ----------------------------------------------------------------------------
Associates Corp.
6.750%, 04/01/97
(Cost $5,742,000)........................ 5,742,000 5,742,000
------------
TOTAL INVESTMENTS -- 101.9%
(Cost $122,680,553)...................................... 133,124,390
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.9%)............
(2,472,988)
------------
NET ASSETS -- 100.0%....................................... $130,651,402
------------
</TABLE>

- ---------------
* Non-Income Producing Security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

19
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997
- ------------------------------------------------------------------------
BALANCED GROWTH FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS -- 57.3%
- ----------------------------------------------------------------------------
AIRLINES -- 0.6%
Delta Airlines, Inc........................ 1,800 $ 151,425
------------
APPAREL -- 0.6%
Fruit of the Loom, Inc.*................... 3,500 145,250
------------
AUTOMOBILES -- 0.4%
Chrysler Corp.............................. 3,200 96,000
------------
AUTOMOTIVE EQUIPMENT -- 0.7%
SPX Corp.*................................. 4,000 181,500
------------
BIOTECHNOLOGY -- 0.3%
Quintiles Transnational Corp.*............. 1,400 75,425
------------
BUILDING MATERIALS -- 0.7%
Apogee Enterprises, Inc.................... 7,200 142,200
Eagle Hardware and Garden, Inc.*........... 1,200 22,854
------------
165,054
------------
CATALOG/OUTLET STORES -- 1.2%
CDW Computer Centers, Inc.*................ 2,500 112,656
Lands' End, Inc.*.......................... 7,300 193,450
------------
306,106
------------
CHEMICALS -- 0.7%
Cytec Industries, Inc.*.................... 4,400 166,650
------------
CLOTHING CHAINS -- 2.9%
Burlington Coat Factory*................... 8,900 160,200
Ross Stores, Inc........................... 14,400 365,400
TJX Companies.............................. 4,600 196,650
------------
722,250
------------
COAL MINING -- 0.8%
Zeigler Coal Holding Co.................... 7,900 187,625
------------
COMPUTERS/OFFICE AUTOMATION -- 6.5%
Cisco Systems, Inc.*....................... 2,200 105,875
Compaq Computer Corp.*..................... 2,300 176,237
Dell Computer Corp.*....................... 3,800 256,975
EMC Corp.*................................. 4,400 156,200
Gateway 2000, Inc.*........................ 3,200 164,000
Quantum Corp.*............................. 3,500 135,188
Seagate Technology, Inc.*.................. 3,500 157,063
Storage Technology Corp.*.................. 3,900 153,075
Western Digital Corp.*..................... 5,500 311,438
------------
1,616,051
------------
CONTRACT DRILLING -- 2.2%
Cliff's Drilling Co.*...................... 2,200 130,625
Global Marine, Inc.*....................... 11,100 238,650
Marine Drilling, Cos., Inc.*............... 10,700 189,925
------------
559,200
------------
DEPARTMENT/DISCOUNT STORES -- 1.4%
Mac Frugals Bargains Close-Outs, Inc.*..... 6,800 180,200

<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
</TABLE>

DEPARTMENT/DISCOUNT STORES (CONTINUED)
<TABLE>
<S> <C> <C>
Woolworth Corp.*........................... 7,400 $ 172,975
------------
353,175
------------
DRUGS/PHARMACEUTICALS -- 1.1%
Dura Phamaceuticals, Inc.*................. 5,600 200,200
Jones Medical Industries, Inc.............. 2,650 63,600
------------
263,800
------------
ELECTRONIC INSTRUMENTS/DIVERSIFIED -- 1.2%
American Power Conversion Corp.*........... 6,800 147,050
Dynatech Corp.*............................ 4,800 144,000
------------
291,050
------------
FINANCE COMPANIES -- 2.7%
Aames Financial Corp....................... 2,100 42,525
Green Tree Financial Corp.................. 4,700 158,625
Imperial Credit Industries, Inc.*.......... 7,900 158,988
MBNA Corp.................................. 4,800 133,800
Student Loan Marketing Association......... 1,800 171,450
------------
665,388
------------
GROCERY PRODUCTS -- 0.7%
Interstate Bakeries Corp................... 3,800 179,550
------------
HOME FURNISHINGS -- 1.6%
Bed Bath & Beyond, Inc.*................... 1,500 36,281
Ethan Allen Interiors, Inc................. 4,400 191,400
Furniture Brands International, Inc.*...... 11,200 168,000
------------
395,681
------------
HOSPITALS -- 0.7%
Health Management Associates, Inc. -- Class
A*....................................... 1,700 40,375
Healthsouth Corp.*......................... 7,000 133,875
------------
174,250
------------
INVESTMENT COMPANIES -- 0.5%
Bear Stearns Co............................ 4,520 118,650
------------
LIFE INSURERS -- 1.1%
Conseco, Inc............................... 7,500 267,187
------------
LODGING -- 0.6%
HFS, Inc.*................................. 2,700 158,963
------------
MANAGED HEALTHCARE -- 1.1%
Oxford Health Plans, Inc.*................. 4,600 269,675
------------
MEDICAL SUPPLIES -- 0.2%
Guidant Corp............................... 900 55,350
------------
MONEY CENTER BANKS -- 0.6%
North Fork Bancorporation, Inc............. 4,200 151,725
------------
OILFIELD SERVICES/EQUIPMENT -- 3.1%
Camco International, Inc................... 4,700 206,800
Cooper Cameron Corp.*...................... 2,200 150,700
Rowan Cos., Inc.*.......................... 7,800 176,475
Tidewater, Inc............................. 2,200 101,200
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

22
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
</TABLE>

COMMON STOCKS (Continued)
- ---------------------------------------------------------
OILFIELD SERVICES/EQUIPMENT (CONTINUED)
<TABLE>
<S> <C> <C>
Varco International, Inc.*................. 5,900 $ 147,500
------------
782,675
------------
OIL/GAS PRODUCTION -- 0.5%
Swift Energy Co.*.......................... 5,500 129,938
------------
OTHER COMMERCIAL/INDUSTRIAL SERVICES -- 0.6%
Corrections Corp. of America*.............. 3,500 84,875
Robert Half International, Inc.*........... 1,600 55,800
------------
140,675
------------
OTHER FINANCIAL SERVICES -- 0.9%
Sunamerica, Inc............................ 5,800 218,225
------------
OTHER HEALTH SERVICES -- 0.7%
HBO & Company.............................. 3,600 171,000
------------
OTHER PRODUCERS/MANUFACTURING -- 1.2%
BMC Industries, Inc........................ 3,400 96,050
Miller Herman, Inc......................... 2,900 197,925
------------
293,975
------------
PAPER -- 0.8%
Fort Howard Corp.*......................... 6,400 199,200
------------
PROPERTY-CASUALTY INSURANCE -- 1.3%
Lowes Corp................................. 1,900 168,863
Orion Capital Corp......................... 2,700 166,725
------------
335,588
------------
PUBLISHING -- 0.8%
Central Newspapers, Inc.................... 3,000 150,375
Gartner Group, Inc.*....................... 1,700 36,762
------------
187,137
------------
REGIONAL/COMMERCIAL BANKS -- 0.5%
Star Banc Corp............................. 3,400 135,575
------------
SAVINGS & LOAN ASSOCIATIONS -- 1.6%
Charter One Financial, Inc................. 3,730 163,654
Greenpoint Financial Corp.................. 4,600 236,900
------------
400,554
------------
SEMICONDUCTORS/ELECTRONIC COMPONENTS -- 2.3%
Intel Corp................................. 1,500 208,688
Jabil Circuit, Inc.*....................... 3,700 166,731
Vitesse Semiconductor Corp.*............... 7,650 211,331
------------
586,750
------------
SOAPS/COSMETICS -- 1.2%
Amway Asia Pacific, LTD.................... 4,400 165,550
Herbalife International, Inc............... 7,900 143,188
------------
308,738
------------
SOFTWARE -- 6.9%
Aspen Technology, Inc.*.................... 3,000 81,750
BMC Software, Inc.*........................ 5,400 249,075
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
</TABLE>

SOFTWARE (CONTINUED)
<TABLE>
<S> <C> <C>
Cadence Design System, Inc.*............... 5,100 $ 175,312
Compuware Corp.*........................... 4,300 269,825
Keane, Inc.*............................... 4,400 144,650
McAfee Associations, Inc.*................. 6,300 278,775
Microsoft Corp.*........................... 1,600 146,700
Parametric Technology Co.*................. 3,600 162,450
Peoplesoft, Inc.*.......................... 5,400 216,000
------------
1,724,537
------------
SPECIALTY CHAINS -- 0.3%
Gap, Inc................................... 2,000 67,000
------------
TELECOMMUNICATIONS EQUIPMENT -- 2.6%
ADC Telecommunications, Inc.*.............. 4,900 131,687
Ascend Communications, Inc.*............... 5,200 211,900
Pairgain Technologies, Inc.*............... 6,000 177,750
Tellabs, Inc.*............................. 3,800 137,275
------------
658,612
------------
TEXTILES -- 0.5%
Carlisle Cos, Inc.......................... 4,500 131,625
------------
WHOLESALE DISTRIBUTION -- 0.3%
Tech Data Corp.*........................... 3,000 72,375
------------
TOTAL COMMON STOCKS
(Cost $12,268,906)....................................... 14,261,159
------------
<CAPTION>

PRINCIPAL
AMOUNT
<S> <C> <C>
- ----------------------------------------------------------------------------
CORPORATE BONDS -- 26.0%
- ----------------------------------------------------------------------------
AIRLINES -- 0.8%
US Air, Inc.
10.00%, 07/01/03......................... $ 200,000 201,750
------------
BEVERAGES/SOFT DRINKS -- 4.0%
Pepsi-Gemex SA
9.75%, 03/30/04.......................... 1,000,000 995,000
------------
BROADCASTING -- 0.3%
Telemundo Group, Inc.
7.000%, 02/15/06......................... 75,000 74,250
------------
CONTRACT DRILLING -- 0.3%
Cliffs Drilling Co. Series B
10.250%, 05/15/03........................ 80,000 83,600
------------
ELECTRONIC INSTRUMENTS -- 0.8%
Electronic Retailing Systems*
13.25%, 02/01/04......................... 300,000 205,125
------------
ENTERTAINMENT -- 4.8%
AMC Entertainment
9.5%, 03/15/09........................... 450,000 445,500
United Artists
11.5%, 05/01/02.......................... 725,000 756,719
------------
1,202,219
------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

23
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 -- CONTINUED
- --------------------------------------------------------------------------------
BALANCED GROWTH FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
</TABLE>

CORPORATE BONDS (Continued)
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
FINANCE COMPANIES -- 1.3%
Americredit Corp., Series A
9.25%, 02/01/04.......................... $ 200,000 $ 195,000
Ocwen Financial Corp.
11.875%, 10/01/03........................ 125,000 138,750
------------
333,750
------------
GROCERY PRODUCTS -- 1.1%
Curtice-Burns Foods, Inc.
Senior Subordinated Note
12.25%, 02/01/05......................... 50,000 53,250
Fage Dairy Industries, Series A
9.0%, 02/01/07........................... 225,000 218,250
------------
271,500
------------
LEISURE/GAMING -- 2.4%
Casino Magic
13.00%, 08/15/03......................... 335,000 324,950
Majestic Star Casino
12.750%, 05/15/03........................ 250,000 271,875
------------
596,825
------------
OTHER FINANCIAL SERVICES -- 0.5%
ESAT Holdings, LTD*
12.5%, 02/01/07.......................... 225,000 124,875
------------
RESTAURANTS -- 1.4%
Foodmaker, Inc.
9.25%, 03/01/99.......................... 100,000 101,000
Rally's Hamburgers, Inc.
9.875%, 06/15/00......................... 250,000 236,563
------------
337,563
------------
SEMICONDUCTORS/ELEC. COMP. -- 4.0%
Advanced Micro Devices
11.00%, 08/01/03......................... 900,000 987,750
------------
SOAPS/COSMETICS -- 0.7%
Revlon Worldwide, Series B*
Zero Coupon, 3/15/98..................... 175,000 164,500
------------
SPECIALTY CHAINS -- 0.3%
CompUSA, Inc.
9.500%, 06/15/00......................... 75,000 75,937
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 1.3%
Echostar Communications*
Step-up, 06/01/04........................ $ 125,000 $ 105,000
Optel, Inc.
13.00%, 02/15/05......................... 225,000 215,438
------------
320,438
------------
TELEPHONE -- 2.0%
Nextel Communications*
11.5%, 09/01/03.......................... 75,000 58,688
Paging Network, Inc.
10.00%, 10/15/08......................... 250,000 225,000
PriceCellular Wire Series B*
14.000%, 11/15/01........................ 200,000 204,000
------------
487,688
------------
TOTAL CORPORATE BONDS
(Cost $6,324,643)........................................ 6,462,770
------------
- ----------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 15.0%
- ----------------------------------------------------------------------------
U.S.Treasury Notes
6.250%, 08/31/00......................... 1,000,000 988,178
7.500%, 11/15/01......................... 700,000 720,467
7.500%, 05/15/02......................... 1,000,000 1,031,910
7.000%, 07/15/06......................... 1,000,000 1,003,230
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $3,898,393)........................................ 3,743,785
------------

- ----------------------------------------------------------------------------
COMMERCIAL PAPER -- 3.5%
- ----------------------------------------------------------------------------
Associates Corp.
6.75%, 04/01/97
(Cost $860,000).......................... 860,000 860,000
------------
TOTAL INVESTMENTS -- 101.3%
(Cost $23,351,942)....................................... 25,327,714
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.3%)............ (315,744)
------------
NET ASSETS -- 100.0%....................................... $ 25,011,970
------------
</TABLE>

- ---------------
* Non-Income Producing Security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

24
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997
- ------------------------------------------------------------------------
GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
AGENCY OBLIGATIONS -- 54.3%
- ----------------------------------------------------------------------------
FEDERAL HOME LOAN BANK DISCOUNT NOTES -- 12.0%
5.460%, 04/03/97........................... $ 745,000 $ 744,774
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION -- 14.4%
6.000%, 02/15/01........................... 150,000 149,016
9.000%, 06/01/06........................... 127,759 132,230
6.150%, 02/15/22........................... 150,000 139,734
6.500%, 12/01/22........................... 145,000 133,491
7.500%, 02/15/27........................... 365,000 348,803
------------
903,274
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 6.2%
6.500%, 06/25/23........................... 255,000 234,879
6.500%, 08/25/22........................... 170,000 157,091
------------
391,970
------------
GENERAL NATIONAL MORTGAGE ASSOCIATION -- 17.9%
7.500%, 08/15/23........................... 470,000 463,538
7.500%, 08/15/25........................... 666,366 655,950
------------
1,119,488
------------
TENNESSEE VALLEY AUTHORITY -- 3.8%
6.375%, 06/15/05........................... 250,000 238,825
------------
TOTAL AGENCY OBLIGATIONS
(Cost $3,455,331)........................................ 3,398,331
------------
- ----------------------------------------------------------------------------
CORPORATE BONDS -- 21.2%
- ----------------------------------------------------------------------------
AUTO -- 2.0%
Ford Motor Co.
7.400%, 11/01/46......................... 135,000 125,223
------------
BANK & INSURANCE -- 2.2%
General Global Insurance Holding Corp.
7.000%, 02/15/26......................... 150,000 136,286
------------
FINANCE -- 7.3%
AON Capital Trust A
8.205%, 01/01/27......................... 140,000 138,600
Lehman Brothers Holdings
6.250%, 06/29/98......................... 140,000 139,392
Contrywide Home Loan
7.450%, 09/16/03......................... 125,000 125,244

<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
</TABLE>

FINANCE (CONTINUED)
<TABLE>
<S> <C> <C>
Conesco Finance
8.796%, 04/01/27......................... $ 50,000 $ 49,473
------------
452,709
------------
FOREIGN UTILITY (YANKEE) -- 1.0%
Hydro-Quebec
8.400%, 01/15/22......................... 60,000 62,558
------------
MEDIA -- 7.8%
British Sky Broadcasting
7.300, 10/15/06.......................... 500,000 487,960
------------
REAL ESTATE -- 0.9%
Marquette Real Estate
0.000%, 12/30/06......................... 60,000 58,309
------------
TOTAL CORPORATE BONDS
(Cost $1,357,458)........................................ 1,323,045
------------
- ----------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 30.8%
- ----------------------------------------------------------------------------
U.S. TREASURY BONDS -- 4.2%
10.625%, 08/15/15.......................... 15,000 20,198
8.125%, 08/15/21........................... 170,000 187,079
6.500%, 11/15/26........................... 60,000 55,237
------------
262,514
------------
U.S. TREASURY NOTES -- 26.6%
7.875%, 04/15/98........................... 360,000 365,513
5.125%, 11/30/98........................... 385,000 377,902
6.250%, 08/31/00........................... 305,000 301,140
7.500%, 11/15/01........................... 600,000 617,063
------------
1,661,618
------------
TOTAL U. S. TREASURY OBLIGATIONS
(Cost $1,955,628)........................................ 1,924,132
------------
TOTAL INVESTMENTS -- 106.3%
(Cost $6,768,417)........................................ 6,645,508
LIABILITIES IN EXCESS OF OTHER ASSETS -- (6.3%)............ (391,903)
------------
NET ASSETS -- 100.0%....................................... $ 6,253,605
------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

27
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997
- ------------------------------------------------------------------------
MONEY MARKET FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
AGENCY OBLIGATIONS -- 12.3%
- --------------------------------------------------------------------------
FEDERAL FARM CREDIT BANK DISCOUNT NOTES -- 2.3%
5.11%, 09/17/97............................ $ 850,000 $ 829,610
-------------
FEDERAL HOME LOAN BANK DISCOUNT NOTES -- 8.8%
5.56%, 04/30/97............................ 100,000 99,552
5.45%, 09/12/97............................ 205,000 199,910
5.40%, 09/26/97............................ 1,000,000 973,300
5.12%, 10/24/97............................ 1,000,000 970,702
5.30%, 12/05/97............................ 1,000,000 963,489
-------------
3,206,953
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 1.2%
5.34%, 05/23/97............................ 150,000 148,843
5.59%, 06/13/97............................ 300,000 296,600
-------------
445,443
-------------
TOTAL AGENCY OBLIGATIONS
(Cost $4,282,006)....................................... 4,482,006
-------------
- --------------------------------------------------------------------------
COMMERCIAL PAPER -- 54.3%
- --------------------------------------------------------------------------
AMERICAN BRANDS, INC. -- 2.7%
5.37%, 04/14/97............................ 1,000,000 998,061
ASSOCIATES CORP. -- 2.8%
5.29%, 04/03/97............................ 1,000,000 999,706
BELL ATLANTIC FINANCIAL SERVICES, INC. -- 3.3%
5.32%, 04/02/97............................ 1,198,000 1,197,823
CENTRAL ILLINOIS PUBLIC SERVICE -- 2.7%
5.33%, 04/28/97............................ 1,000,000 996,003
CARGILL, INC. -- 3.0%
5.30%, 04/11/97............................ 1,092,000 1,090,392
DUPONT DE NEMOURS AND CO., INC. -- 2.8%
5.30%, 04/04/97............................ 1,000,000 999,558
GENERAL ELECTRIC CAPITAL CORP. -- 2.8%
5.32%, 04/03/97............................ 1,000,000 999,704
GENERAL REINSURANACE CORP. -- 1.4%
5.27%, 04/07/97............................ 500,000 499,561
KAISER FOUNDATION HOSPITALS -- 2.7%
5.35%, 07/02/97............................ 1,000,000 986,328
HEINZ, H.J., CO. -- 5.5%
5.30%, 04/17/97............................ 1,000,000 997,644
5.31%, 04/17/97............................ 1,000,000 997,640
-------------
1,995,284
-------------

<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
METLIFE FUNDING, INC. -- 1.4%
5.30%, 04/16/97............................ $ 500,000 $ 498,896
MORGAN, J.P. AND CO., INC. -- 2.7%
5.30%, 04/10/97............................ 1,000,000 998,675
NORTHERN ILLINOIS GAS CO. -- 2.7%
5.50%, 04/08/97............................ 1,000,000 998,931
NORWEST FINANCIAL, INC. -- 2.7%
5.29%, 04/10/97............................ 1,000,000 998,678
PHH CORP. -- 2.8%
5.52%, 04/07/97............................ 1,000,000 999,080
PITNEY BOWES CREDIT CORP. -- 2.7%
5.35%, 04/15/97............................ 1,000,000 997,919
POTOMAC ELECTRIC POWER CO. -- 2.7%
5.50%, 04/10/97............................ 1,000,000 998,625
SOUTHWESTERN PUBLIC SERVICE CO. -- 2.8%
5.30%, 04/04/97............................ 1,000,000 999,558
UNITED PARCEL SERVICE AMERICA, INC. -- 1.4%
5.30%, 04/07/97............................ 500,000 499,558
USAA CAPITAL CORP. -- 2.7%
5.34%, 05/20/97............................ 750,000 744,549
5.42%, 08/29/97............................ 250,000 244,355
-------------
988,904
-------------
TOTAL COMMERCIAL PAPER
(Cost $19,741,244)...................................... 19,741,244
-------------

- ---------------------------------------------------------
<CAPTION>
REPURCHASE AGREEMENT -- 33.5%
<S> <C> <C>
- ----------------------------------------------
Morgan J. P. & Co. $12,158,000.00 at 6.25%
(Agreement dated 03/31/97, to be
repurchased at $12,160,111 on 04/01/97;
collateralized by $12,175,000 Federal
National Mortgage Association, 6.85%, due
05/26/00) (Value $12,692,860)
(Cost $12,158,000)....................... 12,158,000 12,158,000
-------------
TOTAL INVESTMENTS -- 100.1%
(Cost $36,381,250)...................................... 36,381,250
LIABILITIES IN EXCESS OF OTHER ASSETS (0.1%).............. (32,659)
-------------
NET ASSETS 100.0%......................................... $ 36,348,591
-------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

29
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997
- ------------------------------------------------------------------------
EMERGING COUNTRIES FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
COMMON STOCKS -- 91.8%
- --------------------------------------------------------------------------
ARGENTINA -- 5.1%
Bansud S.A................................. 61,000 $ 841,800
Banco Frances Rio Pla -- SP ADR............ 61,600 1,848,000
Compania Naviera Perez Companc S.A. -- B... 220,473 1,708,666
Disco S.A. -- ADR*......................... 19,400 632,925
Importadora y Exportadora de la
Patagonia S.A............................ 29,000 391,500
Siderca S.A................................ 719,900 1,529,788
Siderar S.A.I.C............................ 157,436 543,154
Telefonica De Argentina -- ADR............. 21,500 631,562
-------------
8,127,395
-------------
BRAZIL -- 12.7%
Banco Bradesco S.A......................... 207,408,000 1,697,206
Brazil Realty SA -- GDR.................... 55,100 1,460,150
Centrais Eletricas de Santa Catarina
S.A.*.................................... 307,300 351,349
Centrais Eletricas Brasileiras S.A. --
ADR...................................... 130,700 2,804,299
Companhia Brasileira de Distribuicao Grupo
Pao de Acucar -- ADR..................... 12,400 269,129
Companhia Brasileira de Distribuicao Grupo
Pao de Acucar -- GDR..................... 44,040 955,316
Companhia Energetica de Minas Gerais....... 26,530,000 1,139,364
Companhia Energetica de Minas Gerais PN.... 11,750,000 486,854
Companhia Paulista de Forca e Luz.......... 9,500,000 1,319,569
Itausa Investimentos S.A................... 654,000 556,175
Lojas Arapua S.A........................... 56,300,000 1,298,044
Lojas Renner S.A........................... 27,150,600 1,423,848
Telec de Rio Janeiro S.A.*................. 4,736,000 648,890
Telec de Rio Janeiro S.A. PN............... 5,689,496 779,530
Telecomunicacoes Brasileiras -- ADR........ 40,529 4,149,156
Telecomunicacoes do Parana S.A. --
Preferred................................ 1,200,000 765,378
-------------
20,104,257
-------------
CHILE -- 4.6%
Chilgener S.A. -- ADR...................... 43,800 1,127,850
CIA Telecom de Chile -- ADR................ 30,600 879,750
Laboratorio Chile S.A. -- ADR.............. 51,000 1,115,625
Madeco S.A. -- ADR......................... 45,200 1,199,976
Santa Isabel S.A. -- ADR................... 23,200 600,300
Sociedad Quimica Minera -- A............... 22,100 1,273,512
Vina Concha Y Toro S.A. -- SP ADR.......... 37,800 1,077,300
-------------
7,274,313
-------------
CHINA -- 0.5%
Shenzhen Expressway Co. -- H*.............. 2,428,000 759,847
-------------
COLOMBIA -- 0.4%
Banco Ganadero S.A. -- ADR................. 28,200 715,575
-------------
CROATIA -- 0.2%
Pliva d. d.*............................... 19,900 288,550
-------------

<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
CZECHOSLOVAKIA REPUBLIC -- 0.9%
CKD Praha Holding A.S.*.................... 13,221 $ 397,539
SPT Telecom A.S.*.......................... 8,900 1,055,155
-------------
1,452,694
-------------
EGYPT -- 0.5%
Helwan Cement.............................. 18,175 427,283
Commercial International Bank of Egypt --
GDR*..................................... 15,905 359,453
-------------
786,736
-------------
GREECE -- 0.9%
Hellenic Bottling Co. S.A.................. 8,520 276,950
Intracom S.A. -- Pref...................... 13,220 311,940
Sarantis S.A............................... 58,400 834,522
-------------
1,423,412
-------------
HONG KONG -- 2.3%
Anhui Gujing Distillery Co.*............... 13,200 20,340
Beijing Datang Power Generation Co.*....... 2,940,000 1,176,182
China Overseas Land & Investment........... 1,257,000 681,318
Guangnan Holdings Ltd...................... 154,000 199,734
Guangnan Holdings Ltd. -- Warrants......... 84,857 47,089
Guangdong Investments Holdings Ltd......... 550,000 472,009
GZI Transportation Ltd.*................... 650,000 381,672
Qingling Motors Co.*....................... 634,000 337,504
Shenzhen Fangda Co. Ltd.................... 230,500 269,206
-------------
3,585,054
-------------
HUNGARY -- 1.0%
Borsodchem Rt.............................. 15,403 569,931
Graboplast Rt.............................. 12,260 549,303
Pick Szeged Rt............................. 6,560 430,359
-------------
1,549,593
-------------
INDIA -- 9.3%
Bharat Heavy Electricals Ltd............... 45,000 366,848
BSES LTD -- GDR*........................... 42,000 850,500
BSES LTD -- GDR 144A*...................... 10,000 202,500
Hindalco Industries Ltd. -- ADR............ 53,200 1,742,300
Hindalco Industries Ltd. -- GDR............ 24,900 815,475
ITC Ltd. -- GDR............................ 66,200 868,875
ITC Ltd. -- 144A........................... 20,500 269,063
Larsen & Toubro Limited -- GDR............. 21,500 306,375
Larsen & Toubro Limited -- GDR............. 29,000 413,250
Mahindra & Mahindra -- GDR*................ 12,500 146,875
Mahindra & Mahindra -- GDR, 144A........... 55,000 646,250
NIIT Ltd................................... 128,000 1,277,146
Oriental Bank of Commerce.................. 418,000 783,459
Punjab Tractors Ltd........................ 25,000 309,365
State Bank of India........................ 125,000 950,216
State Bank of India -- GDR*................ 38,000 872,100
State Bank of India -- GDR, 144A*.......... 25,900 594,405
Tata Engineering & Locomotive Co. Ltd.*.... 114,000 1,390,800
Videsh Sanchar Nigam Ltd. -- GDR, 144A*.... 99,000 1,737,450
Wockhardt Ltd. -- GDR...................... 22,000 167,750
-------------
14,711,002
-------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

32
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
</TABLE>

COMMON STOCKS (Continued)
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
INDONESIA -- 3.9%
PT Astra International -- Foreign.......... 196,000 $ 639,792
PT Bank Bire -- Foreign.................... 300,000 415,981
PT Bank International Indonesia --
Foreign.................................. 1,723,329 1,309,971
PT Bank International Indonesia -- Foreign
Warrants*................................ 74,962 26,539
PT Bimantara Citra -- Foreign.............. 884,000 1,141,417
PT Hanjaya Mandala Sampoerma -- Foreign.... 67,000 313,948
PT Indofood Sukses Makmur -- Foreign....... 126,000 278,149
PT Sierad Produca -- Foreign*.............. 800,000 274,900
PT Steady Safe Transportation -- Foreign... 340,000 403,603
PT Telekomunikasi Indonesia -- Foreign..... 610,000 933,722
PT Tempo Scan Pacific -- Foreign........... 134,000 276,274
PT Tempo Scan Pacific -- Local............. 48,000 98,964
PT Wicaksana Overseas -- Foreign........... 79,000 102,827
-------------
6,216,087
-------------
IRELAND -- 0.2%
Saville Systems Ireland PLC -- ADR*........ 10,800 310,500
-------------
ISRAEL -- 2.3%
Bank Leumi Le' Israel*..................... 321,143 512,717
Gilat Satellite Networks Ltd.*............. 29,800 901,450
Koor Industries Ltd. -- ADR................ 50,000 900,000
NICE-System, Ltd.*......................... 25,200 516,600
Orbotech Ltd.*............................. 20,600 370,800
Tecnomatix Technologies Ltd.*.............. 19,900 412,925
Teledata Communications Ltd.*.............. 500 9,000
-------------
3,623,492
-------------
KOREA -- 1.1%
Korea Housing Bank......................... 310 5,520
Korea Mobile Telecommunications Corp....... 9,270 821,603
LG Info & Communications Ltd............... 9,179 929,405
Samsung Electronics (New).................. 3 237
-------------
1,756,765
-------------
LUXEMBURG -- 0.5%
First NIS Regional Fund*................... 15,000 236,250
Gujarat Ambuja Cements -- GDR.............. 67,600 523,900
-------------
760,150
-------------
MALAYSIA -- 8.1%
AMMB Holdings BHD.......................... 17,000 146,340
Commerce Asset Holding BHD................. 76,000 533,764
Ekran BHD.................................. 79,000 250,313
Fraser & Neave Holdings BHD................ 148,000 734,773
Hume Industries BHD........................ 188,000 1,062,361
Malayan Banking BHD........................ 137,000 1,562,159
Metroplex BHD.............................. 922,000 1,079,233
Rashid Hussain BHD......................... 73,000 574,571
Road Builder (M) Holdings BHD.............. 94,000 546,357
Sime Darby BHD............................. 423,000 1,545,166
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
</TABLE>

MALAYSIA (CONTINUED)
<TABLE>
<S> <C> <C>
UMW Holdings BHD........................... 410,000 $ 2,267,205
United Engineers Ltd....................... 182,000 1,586,761
YTL Power BHD*............................. 600,000 967,185
-------------
12,856,188
-------------
MEXICO -- 9.7%
Cifra S.A. de C.V. -- A.................... 130,502 177,916
Cifra S.A. de C.V. -- C.................... 1,067,000 1,500,627
Coca-Cola Femsa S.A. -- ADR................ 47,400 1,706,400
Consorcio ARA S.A.*........................ 458,000 1,566,804
Corporacion GEO, S.A. de C.V. -- B*........ 102,000 488,514
Corporacion Interamericana de Entertainment
S.A.*.................................... 415,900 1,460,985
ECE S.A.*.................................. 180,000 248,134
Empresas ICA S.A. -- SP ADR................ 102,500 1,627,188
Fomento Economico Mexicano, S.A. -- B...... 408,000 1,814,482
Gruma S.A.*................................ 192,254 950,004
Grupo Radio Centro S.A. -- ADR............. 115,000 991,935
Panamerican Beverages, Inc. -- Class A..... 28,500 1,528,313
Tablex S.A. de C.V......................... 186,000 659,867
Tubos de Acero de Mexico S.A. -- ADR*...... 36,500 625,062
-------------
15,346,231
-------------
MOROCCO -- 0.6%
Banque Marocaine Commerce -- GDR, 144A*.... 47,000 893,000
-------------
PAKISTAN -- 0.8%
Fauji Fertilizer Company Ltd............... 10,000 19,586
Hub Power Company*......................... 635,000 592,540
Pakistan State Oil Company Ltd............. 35,970 251,287
SUI Northern Gas Pipelines*................ 465,750 348,615
-------------
1,212,028
-------------
PERU -- 2.4%
Cementos Norte Pacasmayo S.A............... 1 2
Compania de Minas Buenaventura S.A......... 60,700 1,305,050
Consorcio Alimentos Fabril Pacifico*....... 247,350 364,989
Consorcio Alimentos Fabril Pacifico --
Rights................................... 22,499 596
Credicorp Ltd.............................. 55,900 1,306,663
Telefonica Del Peru S.A. -- ADR............ 35,000 778,750
-------------
3,756,050
-------------
PHILIPPINES -- 3.7%
Belle Corp.*............................... 1,824,000 581,465
Empire East Land Holdings, Inc.*........... 1,200,000 466,793
Equitable Banking Corp.*................... 30,000 128,994
Far East Bank.............................. 60,800 269,966
Filinvest Land, Inc.*...................... 1,031,000 328,668
Metro Pacific Corp......................... 5,000,000 1,518,027
Metropolitan Bank & Trust Co............... 45,837 1,191,588
Music Semiconductors Corp.*................ 1,149,000 632,277
Selecta Dairy Products, Inc................ 50,000 5,598
Solid Group, Inc.*......................... 2,801,000 744,099
-------------
5,867,475
-------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

33
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 -- CONTINUED
- --------------------------------------------------------------------------------
EMERGING COUNTRIES FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
</TABLE>

COMMON STOCKS (Continued)
- ---------------------------------------------------------
<TABLE>
<S> <C> <C>
POLAND -- 1.0%
Computerland Poland S.A.*.................. 3,600 $ 113,598
Elektrim Spolda Akcyjna S.A................ 44,600 391,737
National Investment Fund of Poland*........ 20,800 1,082,628
-------------
1,587,963
-------------
PORTUGAL -- 0.9%
Portugal Telecom S.A....................... 9,075 337,905
Sonae Investimentos S.A.................... 10,400 351,276
Telecel Comunicacaoes Pessoais S.A.*....... 8,100 664,053
-------------
1,353,234
-------------
RUSSIA -- 1.3%
Lukoil Holding -- ADR...................... 1,900 107,559
Megionneftegazgeologia -- ADR 144A*........ 70 396,900
Moscow City Tele Network -- RDC 144A*...... 167 233,800
Rostelecom -- ADR 144A*.................... 10 390,000
Rostelecom -- 144A*........................ 50 975,000
-------------
2,103,259
-------------
SINGAPORE -- 0.6%
ASA Ltd.................................... 383,000 477,093
Datacraft Asia Ltd......................... 101,000 214,120
Elec & Eltek International Co. Ltd......... 65,000 301,600
-------------
992,813
-------------
SLOVENIA -- 0.2%
SKB Bank -- 144A*.......................... 9,000 321,750
-------------
SOUTH AFRICA -- 7.0%
Amalg Banks of South Africa................ 99,300 629,149
Barlow Ltd................................. 165,700 1,839,111
De Beers Centenary AG*..................... 54,000 1,967,280
Driefontein Consolidated Ltd............... 125,700 1,140,581
King Food Holdings*........................ 181,500 64,444
Liberty Life Association of Africa Ltd..... 21,655 607,612
South African Breweries Ltd................ 108,500 3,437,196
Vaal Reefs Exploration & Mining Co.,
Ltd...................................... 22,700 1,366,325
-------------
11,051,698
-------------
TAIWAN -- 1.3%
ASE Test Limited*.......................... 15,200 487,254
China Steel Co. -- GDR*.................... 33,825 655,359
ROC Taiwan Fund*........................... 45,000 534,375
Taiwan Fund, Inc........................... 14,450 355,831
-------------
2,032,819
-------------
THAILAND -- 2.6%
Grammy Entertainment PLC -- Foreign........ 67,000 902,617
K.R. Precision Public Co., Ltd. --
Foreign.................................. 95,240 645,198
Nation Multimedia Group PLC -- Foreign..... 250,600 718,618
Pizza Co. Ltd. -- Foreign.................. 21,000 145,092
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- --------------------------------------------------------------------------
</TABLE>

THAILAND (CONTINUED)
<TABLE>
<S> <C> <C>
PTT Exploration and Production --
Foreign.................................. 76,500 $ 1,136,605
Serm Suk Co., Ltd. -- Local................ 2,000 28,637
Serm Suk Co., Ltd. -- Foreign.............. 9,400 191,763
Thai Engine -- Foreign..................... 52,000 376,289
Thai Farmers Bank -- Warrants*............. 10,250 7,398
-------------
4,152,217
-------------
TURKEY -- 1.0%
Akbank T.A.S............................... 3,513,255 283,128
Arcelik A.S................................ 2,604,000 346,358
Eczacibasi Ilac Sanayi VE TI*.............. 8,166,000 466,410
Global Menkul Degerler A.S.*............... 21,018,000 526,231
Migros Turk T. A. S........................ 25,000 25,917
-------------
1,648,044
-------------
UNITED STATES OF AMERICA -- 2.8%..........................................
Euronet Services, Inc.*.................... 56,300 717,825
Harken Energy Corp......................... 258,900 1,278,319
Pride Petroleum Services, Inc.............. 11,500 238,625
TV Filme, Inc.*............................ 126,800 1,569,150
Vitech America, Inc........................ 52,800 640,200
-------------
4,444,119
-------------
VENEZUELA -- 1.4%
Mavesa SA -- ADR........................... 157,675 1,044,879
Siderurgica Venezolana Sivensa, Saica
S.A.C.A. -- ADR.......................... 395,200 1,136,200
-------------
2,181,079
-------------
TOTAL COMMON STOCKS
(Cost $139,967,199)..................................... 145,245,389
-------------
<CAPTION>

PRINCIPAL
AMOUNT
<S> <C> <C>
- --------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS -- 0.2%
- --------------------------------------------------------------------------
Quingling Motors Ltd.
(Cost $335,000)
3.50%, 01/22/02.......................... $ 335,000 333,744
-------------
- --------------------------------------------------------------------------
COMMERCIAL PAPER -- 1.9%
- --------------------------------------------------------------------------
Associate Corporation of North America
(Cost $3,036,000)
6.75%, 4/1/97............................ 3,036,000 3,036,000
-------------
TOTAL INVESTMENTS -- 93.9%
(Cost $143,338,199)..................................... 148,615,133
OTHER ASSETS IN EXCESS OF LIABILITIES -- 6.1%............. 9,721,751
-------------
NET ASSETS -- 100.0%...................................... $ 158,336,884
-------------
</TABLE>

- ---------------
* Non-Income Producing Security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

34
<PAGE>
SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF MARCH 31, 1997
- ------------------------------------------------------------------------

EMERGING COUNTRIES FUND
<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
<S> <C>
Agriculture................................. 0.6%
Alcoholic Beverages......................... 4.0
Automotive.................................. 1.8
Beverages/Soft Drinks....................... 2.4
Broadcasting................................ 1.6
Building Materials.......................... 2.4
Chemicals................................... 1.6
Closed End/Country Funds.................... 1.4
Computers/Office Automation................. 0.1
Consumer Electrical......................... 0.7
Consumer Services........................... 0.6
Department/Discount Stores.................. 2.0
Drugs/Pharmaceuticals....................... 1.3
Electric Utilities.......................... 6.3
Electronic Instruments...................... 0.4
Entertainment............................... 1.5
Food Chains................................. 1.8
Grocery Products............................ 2.9
Homebuilding................................ 1.5
Industrial Engineering/Construction......... 2.1
Integrated Oil Companies.................... 1.1
Investment Companies........................ 1.3
Life Insurers............................... 0.4
Machinery/Equipment......................... 1.6
Medical Supplies............................ 0.2

<CAPTION>
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
<S> <C>
Metals...................................... 5.7%
Money Center Banks.......................... 3.6
Oil/Gas Production.......................... 2.4
Oilfield Services/Equipment................. 0.2
Other Commercial/Industrial Services........ 2.0
Other Consumer Services..................... 0.4
Other Financial Services.................... 3.0
Other Transportation........................ 0.2
Other Producers/Manufacturing............... 8.3
Publishing.................................. 0.5
Real Estate Development/Investment.......... 1.8
Regional/Commercial Banks................... 6.7
Restaurants................................. 0.2
Semiconductors/Electric Companies........... 0.7
Soaps/Cosmetics............................. 0.5
Software.................................... 1.3
Telecommunication Equipment................. 1.3
Telecommunication Services.................. 2.9
Telephone................................... 7.1
Tobacco Products............................ 0.4
Water Supply................................ 0.6
Wholesale Distribution...................... 0.6
Short Term Obligations...................... 1.9
Other Assets in Excess of Liabilities....... 6.1
-----
NET ASSETS.................................. 100.0%
-----
-----
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

35
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997
- ------------------------------------------------------------------------
INTERNATIONAL SMALL CAP GROWTH FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------------
COMMON STOCKS -- 95.6%
- ---------------------------------------------------------------------------
ARGENTINA -- 1.4%
Banco Frances Del Rio De La Plata S.A.-
ADR...................................... 7,015 $ 210,450
Compania Naviera Perez SA.................. 40,870 316,743
Siderar SA................................. 3,232 11,150
Siderca SA................................. 155,800 331,075
-----------
869,418
-----------
AUSTRALIA -- 0.0%
Australian Gas Light Co., Ltd.............. 1,083 6,155
-----------
BELGIUM -- 0.7%
Barco N.V.................................. 2,465 426,297
-----------
BRAZIL -- 1.5%
Centrais Electricas Brasileiras
S/A-Electrobas........................... 14,500 311,112
Lojas Arapua S.A........................... 2,616,000 60,314
Telecomunicacoes Brasileiras
Sponsored ADR............................ 3,000 307,125
TV Filme, Inc.*............................ 23,900 295,762
-----------
974,313
-----------
CANADA -- 3.1%
Abitibi-Price, Inc......................... 16,100 234,959
Jannock Ltd................................ 32,300 488,538
Prime Resource Group, Inc.................. 54,500 432,629
Royal Bank of Canada....................... 20,600 803,400
-----------
1,959,526
-----------
CHILE -- 0.6%
Quimica Minera SA-ADR...................... 3,300 190,163
Vina Concha Y Toro SA-ADR.................. 6,600 188,100
-----------
378,263
-----------
CZECHOSLOVAKIA -- 0.4%
SPT Telecom AS*............................ 2,300 272,680
-----------
DENMARK -- 0.7%
Novo Nordisk A/S-B......................... 4,200 439,566
-----------
EGYPT -- 0.4%
Commercial International Bank*............. 10,650 240,690
-----------
FINLAND -- 2.8%
Huhtamaki Oy............................... 6,700 326,044
Oy Nokia AB-ADR............................ 7,700 448,525
Raision Tehtaat Oy......................... 10,700 985,681
-----------
1,760,250
-----------
FRANCE -- 6.1%
Bertrand Faure S.A......................... 14,000 714,400
Bouygues Offshore S.A...................... 16,000 426,040
Cap Gemini Sogeti S.A...................... 12,200 741,843
Clarins S.A................................ 3,700 507,436
Lagardere Groupe S.A. (Non-voting)......... 238 7,715
Lagardere Groupe S.A....................... 20,700 671,013
Sidel S.A.................................. 5,320 416,920

<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------------
</TABLE>

FRANCE (CONTINUED)
<TABLE>
<S> <C> <C>
Zodiac S.A................................. 1,300 $ 341,526
-----------
3,826,893
-----------
GERMANY -- 6.9%
Fresenius AG............................... 1,050 230,396
Fresenius Medical AG-ADR*.................. 14,000 364,000
Fresenius Medical Care AG-ADR*............. 6,500 198,250
Gehe AG.................................... 4,500 312,410
Moebel Walthern AG......................... 7,700 408,543
Porsche AG................................. 900 1,033,273
Schmalbach Lubeca AG....................... 2,000 419,664
Sixt AG.................................... 850 509,592
Volkswagen AG.............................. 1,600 882,494
-----------
4,358,622
-----------
HONG KONG -- 1.5%
Dao Heng Bank Group Ltd.................... 96,100 439,028
Guangdong Investments Ltd.................. 275,000 236,004
Qingling Motors Company*................... 449,000 239,021
-----------
914,053
-----------
INDIA -- 1.4%
Hindalco Industries Ltd.................... 10,000 327,500
State Bank of India-GDR*................... 23,800 546,210
-----------
873,710
-----------
INDONESIA -- 0.4%
Bank Negara Indonesia*..................... 442,000 253,137
-----------
IRELAND -- 0.7%
Saville Systems PLC-ADR*................... 16,000 460,000
-----------
ISRAEL -- 0.9%
Gilat Satellite Network-ADR*............... 9,700 293,425
Koor Industries Ltd........................ 7,500 135,000
Tecnomatix Technologies Ltd.*.............. 6,400 132,800
-----------
561,225
-----------
ITALY -- 4.8%
Banca Fideuram SpA......................... 226,000 585,675
Brembo SpA................................. 47,000 614,637
Credito Italiano SpA....................... 456,000 648,302
Pininfarina SpA............................ 46,100 624,991
Telecom Italia Mobile SpA.................. 193,000 555,729
-----------
3,029,334
-----------
JAPAN -- 11.9%
Circle K Japan Co., Ltd.................... 4,680 196,861
Fujikura Co., Ltd.......................... 24,000 171,817
Hokuto Corp................................ 14,300 446,514
Ibiden Co., Ltd............................ 30,000 322,763
Matsumotokiyoshi Co........................ 1,000 29,526
Matsushita Kotobuki Electronics
Industries Ltd........................... 11,000 326,565
Meitec Corp................................ 30,000 601,844
Nichiei Co., Ltd........................... 6,500 504,773
Nidec Corp................................. 14,000 518,686
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

38
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
</TABLE>

COMMON STOCKS (Continued)
- ---------------------------------------------------------
JAPAN (CONTINUED)
<TABLE>
<S> <C> <C>
Nintendo Corp. Ltd......................... 9,800 $ 703,964
Promise Co., Ltd........................... 11,000 460,929
Rohm Co.................................... 7,000 516,421
Sumitomo Realty & Development.............. 94,000 632,648
Takeda Chemical Industries................. 24,000 502,831
TDK Corp................................... 11,000 756,350
Terumo Corp................................ 55,000 778,596
-----------
7,471,088
-----------
KOREA -- 0.4%
LG Information & Communication Ltd......... 2,500 253,133
-----------
MALAYSIA -- 2.5%
AMMB Holdings BHD.......................... 30,500 262,436
Metroplex BHD.............................. 285,000 333,602
Oriental Holdings BHD...................... 58,000 524,400
United Engineers BHD....................... 50,000 435,923
-----------
1,556,361
-----------
MEXICO -- 2.2%
Cifra SA de CV-A........................... 6,115 8,337
Cifra SA de CV-C........................... 50,000 70,320
Coca-Cola Femsa SA......................... 10,200 367,200
Fomento Economico Mexicano SA de CV........ 100,000 444,726
Gruma SA*.................................. 41,000 202,597
Tubos De Acero De Mexico-ADR*.............. 18,100 309,963
-----------
1,403,143
-----------
NETHERLANDS -- 5.6%
ASM Lithography Holdings N.V.*............. 8,900 692,101
Baan Co., N.V.*............................ 9,700 447,517
ICTS International N.V.*................... 36,800 296,700
IHC Caland N.V............................. 6,500 347,379
International-Muller N.V................... 22,000 672,356
Koninklijke Volker Stevin N.V.............. 1,500 162,409
Oce-Van Der Grinten N.V.................... 3,423 443,279
Qiagen N.V.*............................... 14,500 482,125
-----------
3,543,866
-----------
NORWAY -- 3.7%
Petroleum Geo-Services ASA-ADR*............ 14,400 619,200
Schibsted A/S.............................. 31,400 634,621
Sensonor A/S*.............................. 57,500 550,708
Tomra Systems A/S.......................... 25,800 517,549
-----------
2,322,078
-----------
PAKISTAN -- 0.4%
Fauji Fertilizer Co., Ltd.................. 7,900 15,473
Hub Power Co., Ltd.*....................... 254,000 237,016
-----------
252,489
-----------
PHILIPPINES -- 0.4%
Metropolitan Bank & Trust Co............... 10,000 259,962
-----------
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------------
POLAND -- 0.3%
Elektrim Spolka Akcyjna S.A................ 23,000 $ 202,017
-----------
PORTUGAL -- 0.2%
Portugal Telecom S.A....................... 3,800 141,492
-----------
RUSSIA -- 0.7%
Oil Co. Lukoil-ADR......................... 6,450 365,135
Vimpel-Communications-SP ADR*.............. 1,500 48,000
-----------
413,135
-----------
SINGAPORE -- 4.8%
Datacraft Asia, Ltd........................ 274,000 580,880
Elec & Eltek International Co. Ltd......... 63,400 294,176
Electronic Resources Ltd................... 189,000 274,671
Lindeteves Jacoberg Ltd.................... 425,000 591,176
Singapore Technologies Aerospace Ltd....... 285,000 453,633
Super Coffeemix Manufacturing Ltd.......... 330,000 255,779
Thakral Corp. Ltd.......................... 600,000 561,000
-----------
3,011,315
-----------
SOUTH AFRICA -- 0.8%
King Food Holdings Ltd.*................... 11,200 3,976
Liberty Life Association of Africa Ltd..... 5,558 155,950
South African Breweries Ltd................ 10,300 326,296
-----------
486,222
-----------
SPAIN -- 2.2%
Acerinox SA................................ 4,200 593,078
Tele Pizza SA*............................. 18,000 783,550
-----------
1,376,628
-----------
SWEDEN -- 1.5%
Autoliv AB................................. 8,800 380,520
Lindex AB.................................. 17,000 343,270
Medical Invest Svenska AB*................. 7,000 246,426
-----------
970,216
-----------
SWITZERLAND -- 4.2%
Adecco S.A................................. 2,010 655,328
Ares Serono Group.......................... 630 829,489
Logitech International S.A................. 6,000 1,142,857
-----------
2,627,674
-----------
TAIWAN -- 0.4%
ASE Test, Ltd.*............................ 7,500 239,063
-----------
THAILAND -- 0.7%
K.R. Precision Public Co. -- Foreign....... 19,660 133,186
PTT Exploration & Production Ltd........... 20,000 297,152
Thai Farmers Bank Public Co., Ltd.......... 3,250 21,141
-----------
451,479
-----------
UNITED KINGDOM -- 16.9%
Airtours PLC............................... 36,200 587,451
Avis Europe PLC*........................... 250,000 544,906
Berkeley Group (The) PLC................... 30,700 364,873
Biocompatibles International PLC*.......... 28,000 558,478
British Aerospace PLC...................... 24,855 557,896
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

39
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 -- CONTINUED
- --------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP GROWTH FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
</TABLE>

COMMON STOCKS (Continued)
- ---------------------------------------------------------
UNITED KINGDOM (CONTINUED)
<TABLE>
<S> <C> <C>
Capita Group PLC........................... 59,000 $ 684,238
Caradon PLC................................ 134,100 552,589
D.F.S. Furniture Co., PLC.................. 64,000 600,622
Doncasters PLC*............................ 10,000 193,750
Dr. Solomon's Group PLC*................... 17,400 382,800
Freepages Group PLC*....................... 881,000 666,653
Games Workshop Group PLC................... 50,000 534,625
GKN PLC.................................... 215 3,539
Goldsmiths Group PLC....................... 75,000 479,312
Granada Group PLC.......................... 28,000 422,601
Iona Technologies PLC-ADR*................. 25,000 450,000
Logica PLC................................. 36,000 569,400
PizzaExpress PLC........................... 54,900 658,815
Professional Staff PLC-ADR*................ 28,000 241,500
Sema Group PLC............................. 32,000 723,800
Siebe PLC.................................. 1 17
WPP Group PLC.............................. 106,200 442,862
Zagrebacka Banka-GDR*...................... 12,400 392,150
-----------
10,612,877
-----------
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------------
UNITED STATES OF AMERICA -- 1.1%
Rofin-Sinar Technologies, Inc.*............ 46,000 $ 672,750
-----------
VENEZUELA -- 0.4%
Mavesa SA-ADR.............................. 38,460 254,798
-----------
TOTAL COMMON STOCKS
(Cost $53,668,875).......................................
60,125,918
-----------
- ---------------------------------------------------------------------------
RIGHTS/WARRANTS -- 0.0%
- ---------------------------------------------------------------------------
MALAYSIA
AMMB Holdings BHD-Rights
(Cost $0)................................ 63,000 --
-----------
TOTAL INVESTMENTS -- 95.6%
(Cost $53,668,875).......................................
60,125,918
OTHER ASSETS IN EXCESS OF LIABILITIES -- 4.4%..............
2,760,626
-----------
NET ASSETS -- 100.0%.......................................
$62,886,544
-----------
</TABLE>

- ------------
* Non-Income Producing Security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

40
<PAGE>
SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF MARCH 31, 1997
- ------------------------------------------------------------------------

INTERNATIONAL SMALL CAP GROWTH FUND
<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
<S> <C>
Advertising................................. 0.7%
Aerospace................................... 1.9
Agriculture................................. 1.1
Alcoholic Beverages......................... 1.5
Automotive.................................. 5.3
Automotive Equipment........................ 3.0
Beverages/Soft Drinks....................... 0.6
Biotechnology............................... 2.8
Broadcasting................................ 0.5
Building Materials.......................... 2.1
Chemicals................................... 0.3
Clothing Chains............................. 0.5
Computers/Office Automation................. 3.4
Consumer Electrical......................... 1.4
Containers.................................. 0.7
Department/Discount Stores.................. 0.1
Drugs/Pharmaceuticals....................... 1.3
Electric Utilities.......................... 0.9
Electronic Instruments...................... 0.8
Finance Companies........................... 1.5
Food Chains................................. 0.4
Gas Utilities............................... 0.1
Grocery Products............................ 2.9
Home Furnishings............................ 1.5
Homebuilding................................ 0.6
Industrial Engineering/Construction......... 1.9
Integrated Oil companies.................... 0.5
Investment Companies........................ 0.4
Life Insurers............................... 0.2

<CAPTION>
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
<S> <C>
Machinery/Equipment......................... 3.8%
Medical Supplies............................ 3.5
Metals...................................... 2.7
Money Center Banks.......................... 2.1
Oil/Gas Production.......................... 1.1
Oilfield Services/Equipment................. 2.2
Other Commercial/Industrial Services........ 3.5
Other Consumer Services..................... 2.4
Other Financial Services.................... 1.3
Other Health Services....................... 0.3
Other Production/Manufacturing.............. 1.4
Other Technology............................ 1.1
Paper....................................... 0.4
Publishing.................................. 2.1
Real Estate Development/Investment.......... 1.5
Recreational Products....................... 2.6
Regional/Commercial Banks................... 3.9
Rental/Leasing Companies.................... 1.7
Restaurants................................. 2.3
Semiconductors/Electric Companies........... 5.5
Soaps/Cosmetics............................. 0.8
Software.................................... 5.3
Specialty Chains............................ 0.8
Telecommunication Equipment................. 1.2
Telecommunication Services.................. 0.1
Telephone................................... 2.0
Wholesale Distribution...................... 1.1
Other Assets in Excess of Liabilities....... 4.4
-----
NET ASSETS.................................. 100.0%
-----
-----
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

41
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997
- ------------------------------------------------------------------------
INTERNATIONAL CORE GROWTH FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS -- 97.6%
- ----------------------------------------------------------------------------
ARGENTINA -- 1.4%
Perez Companc S.A.......................... 2,400 $ 18,600
Siderca S.A................................ 12,200 25,925
Telefonica de Argentina S.A. -- ADR........ 700 20,563
------------
65,088
------------
BRAZIL -- 2.0%
Telecomunicacoes Brasileiras S/A -- ADR.... 900 92,138
------------
BELGIUM -- 1.0%
Banque Bruxelles Lambert SA................ 200 45,110
------------
CANADA -- 3.5%
Canadian Imperial Bank of Commerce......... 1,800 40,699
Northern Telecom Ltd....................... 700 45,762
Royal Bank of Canada....................... 1,400 54,600
Stone Consolidated Corp.*.................. 1,600 23,182
------------
164,243
------------
CHILE -- 0.4%
Laboratorio Chile -- ADR................... 1,000 21,875
------------
CHINA -- 1.2%
Shenzhen Expressway Co.*................... 180,000 56,331
------------
DENMARK -- 1.8%
Novo Nordisk A/S -- B...................... 800 83,727
------------
FINLAND -- 2.4%
Oy Nokia Corp AB -- ADR.................... 650 37,860
Raision Tehtaat OY......................... 800 73,696
------------
111,556
------------
FRANCE -- 6.6%
Cap Gemini Sogeti S.A...................... 1,400 85,130
Clarins.................................... 300 41,143
Lagardere Groupe S.A....................... 1,925 62,401
Promodes................................... 130 44,109
SGS-Thomson Microelectronics NV*........... 300 21,106
Schneider S.A.............................. 1,000 56,591
------------
310,480
------------
GERMANY -- 7.4%
BASF AG.................................... 1,750 67,041
Bayerische Motoren Werke AG................ 50 40,887
Daimler Benz AG............................ 1,150 92,800
Fresenius Medical Care AG*................. 1,150 35,075
Volkswagen AG.............................. 200 110,312
------------
346,115
------------
HONG KONG -- 4.3%
Beijing Datang Power Generation Co. Ltd.*.. 260,000 104,016
Hong Kong Telecommunications Ltd........... 11,600 19,835
HSBC Holdings Ltd.......................... 1,000 23,230
Hutchison Whampoa Ltd...................... 3,000 22,552
Qingling Motors*........................... 56,000 29,811
------------
199,444
------------

<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
INDIA -- 1.5%
Videsh Sanchar Nigam Ltd.*................. 4,000 $ 70,200
------------
IRELAND -- 1.8%
Bank of Ireland............................ 1,000 9,996
Elan Corp. PLC............................. 500 17,062
Saville Systems PLC*....................... 2,000 57,500
------------
84,558
------------
ISRAEL -- 0.6%
Tecnomatix Technologies Ltd.*.............. 1,500 31,125
------------
ITALY -- 4.6%
Banca Fideuram SpA......................... 25,000 64,787
Credito Italiano SpA....................... 31,000 44,073
Pininfarina SpA............................ 5,000 67,787
Seat SpA................................... 4,000 1,392
Telecom Italia Mobile SpA.................. 13,300 38,296
------------
216,335
------------
JAPAN -- 10.5%
Familymart................................. 1,000 37,777
Ibiden Co., Ltd............................ 2,000 21,518
Kawasaki Heavy Industrial, Ltd............. 5,000 19,455
Mitsui Fudosan Co., Ltd.................... 3,000 31,063
Nichiei Co. Ltd............................ 400 31,063
Nintendo Co., Ltd.......................... 700 50,283
Orix Corp.................................. 1,000 44,087
Promise Co., Ltd........................... 1,200 50,283
Sony Corp.................................. 600 41,983
TDK Corp................................... 1,000 68,759
Terumo Corp................................ 3,000 42,469
Toyota Motor Corp.......................... 2,000 50,639
------------
489,379
------------
MALAYSIA -- 4.6%
AMMB Holdings BHD.......................... 4,400 36,585
Malayan Banking BHD........................ 2,000 22,805
Metroplex BHD.............................. 18,800 22,006
Oriental Holdings BHD...................... 4,000 36,166
Sime Darby BHD............................. 4,000 14,612
YTL Power International BHD*............... 52,400 84,601
------------
216,775
------------
MEXICO -- 3.1%
Coca-Cola Femsa S.A. -- ADR................ 800 28,800
ECE S.A.*.................................. 30,000 41,356
Empresas ICA Sociedad...................... 2,400 38,100
Tubos de Acero De Mexico -- ADR*........... 2,200 37,675
------------
145,931
------------
NETHERLANDS -- 4.9%
Aegon NV................................... 450 31,706
ASM Lithography Holding NV*................ 600 46,659
Baan Corp. NV*............................. 1,180 54,440
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

43
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 -- CONTINUED
- --------------------------------------------------------------------------------
INTERNATIONAL CORE GROWTH FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
</TABLE>

COMMON STOCKS (Continued)
- ---------------------------------------------------------
NETHERLANDS (CONTINUED)
<TABLE>
<S> <C> <C>
IHC Caland NV.............................. 750 $ 40,082
Oce-Van Der Grinten NV..................... 420 54,390
------------
227,277
------------
NORWAY -- 2.8%
Petroleum Geo-Services ASA -- ADR*......... 1,450 62,350
Schibsted A/S.............................. 3,300 66,696
------------
129,046
------------
PHILIPPINES -- 1.8%
Equitable Banking Corp.*................... 20,000 85,996
------------
PORTUGAL -- 0.9%
Portugal Telecom S.A....................... 1,150 42,820
------------
RUSSIA -- 0.7%
Lukoil Oil Co. -- ADR...................... 550 31,136
------------
SINGAPORE -- 1.2%
DBS Land Ltd............................... 6,000 20,512
Parkway Holdings Ltd....................... 5,000 19,031
United Overseas Bank Ltd................... 1,800 18,436
------------
57,979
------------
SOUTH AFRICA -- 1.0%
South African Breweries.................... 1,500 47,519
------------
SPAIN -- 0.9%
Banco Central Hispanoamericano S.A......... 1,500 39,815
------------
SWEDEN -- 1.9%
NetCom Systems AB*......................... 3,000 44,237
Telefonaktiebolaget LM Ericsson -- B....... 1,200 42,404
------------
86,641
------------
SWITZERLAND -- 5.1%
Adecco SA Cheserex......................... 110 35,864
Ares-Seron Group........................... 60 78,999
Novartis AG................................ 20 24,831
Roche Holding AG........................... 10 86,514
Swiss Reinsurance Corp..................... 10 10,636
------------
236,844
------------
TAIWAN -- 0.5%
ASE Test Ltd.*............................. 700 22,312
------------
UNITED KINGDOM -- 14.9%
Airtours PLC............................... 4,400 71,403
Avis Europe PLC*........................... 35,000 76,287
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
</TABLE>

UNITED KINGDOM (CONTINUED)
<TABLE>
<S> <C> <C>
Bank of Ireland............................ 2,000 $ 19,987
Berkeley Group PLC......................... 6,000 71,311
British Aerospace PLC...................... 3,100 69,583
British Airways PLC........................ 4,900 52,836
Caradon PLC................................ 11,900 49,037
Compass Group PLC.......................... 4,000 43,263
Ladbroke Group PLC......................... 21,700 80,317
Pearson PLC................................ 2,000 23,984
Sema Group PLC............................. 3,000 67,856
WPP Group PLC.............................. 16,500 68,806
------------
694,670
------------
UNITED STATES OF AMERICA -- 2.3%
ITC Limited................................ 3,400 44,625
TDK Corp................................... 900 60,525
------------
105,150
------------
TOTAL COMMON STOCKS
(Cost $4,498,875)........................................ 4,557,615
------------
<CAPTION>

PRINCIPAL
AMOUNT
<S> <C> <C>
- ----------------------------------------------------------------------------
CONVERTIBLE BONDS -- 1.7%
- ----------------------------------------------------------------------------
UTILITIES (ELECTRIC)
First Pacific Capital 144A
2.00%, 03/27/02
(Cost $78,000)........................... $ 78,000 77,805
------------
- ----------------------------------------------------------------------------
COMMERCIAL PAPER -- 6.9%
- ----------------------------------------------------------------------------
Associates Corp. -- 2.8%
6.75%, 04/01/97.......................... 130,000 130,000
Merrill Lynch -- 4.1%
6.35%, 04/01/97.......................... 194,000 194,000
------------
TOTAL COMMERCIAL PAPER
(Cost $324,000).......................................... 324,000
------------
TOTAL INVESTMENTS -- 106.2%
(Cost $4,900,875)........................................ 4,959,420
LIABILITIES IN EXCESS OF OTHER ASSETS -- (6.2%)............ (290,544)
------------
NET ASSETS -- 100.0%....................................... $ 4,668,876
------------
</TABLE>

- ------------
* Non-Income Producing Security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

44
<PAGE>
SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF MARCH 31, 1997
- ------------------------------------------------------------------------

INTERNATIONAL CORE GROWTH FUND
<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
<S> <C>
Advertising................................. 1.5%
Aerospace................................... 1.5
Airlines.................................... 1.1
Alcoholic Beverages......................... 1.0
Automotive.................................. 9.3
Beverages/Soft Drinks....................... 0.6
Biotechnology............................... 3.6
Building Materials.......................... 0.8
Chemicals................................... 1.4
Computers/Office Automation................. 1.2
Consumer Electrical......................... 0.9
Drugs/Pharmaceuticals....................... 3.3
Electric Utilities.......................... 2.2
Finance Companies........................... 2.0
Food Chains................................. 1.5
Grocery Products............................ 1.6
Homebuilding................................ 1.5
Industrial Engineering/Construction......... 0.8
Integrated Oil Companies.................... 0.4
Leisure/Gaming.............................. 1.7
Machinery/Equipment......................... 2.7
Medical Supplies............................ 0.9
Metals...................................... 0.6
Money Center Banks.......................... 3.5
Multi-Line Insurers......................... 0.9

<CAPTION>
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
<S> <C>
Oil/Gas Production.......................... 0.7%
Oilfield Services/Equipment................. 2.2
Other Commercial/Industrial Services........ 5.6
Other Consumer Services..................... 1.5
Other Financial Services.................... 2.2
Other Health Services....................... 0.8
Other Production/Manufacturing.............. 0.9
Paper....................................... 0.5
Publishing.................................. 3.3
Real Estate Development/Investment.......... 1.6
Recreational Products....................... 1.1
Regional/Commercial Banks................... 5.2
Rental/Leasing Companies.................... 2.6
Restaurants................................. 0.9
Semiconductors/Electric Companies........... 3.8
Soaps/Cosmetics............................. 0.9
Software.................................... 6.3
Telecommunication Equipment................. 2.7
Telecommunication Services.................. 1.6
Telephone................................... 5.5
Tobacco Products............................ 1.1
Water Supply................................ 1.8
Short Term Obligations...................... 6.9
Liabilities in Excess of Other Assets....... (6.2)
-----
NET ASSETS.................................. 100.0%
-----
-----
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

45
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997
- ------------------------------------------------------------------------
WORLDWIDE GROWTH FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS -- 98.9%
- ----------------------------------------------------------------------------
ARGENTINA -- 1.2%
Banco Frances del Rio de la Plata SA --
ADR...................................... 9,800 $ 294,000
Perez Companc SA........................... 42,715 331,041
Siderar SA................................. 7,728 26,662
Siderca SA................................. 193,200 410,550
Telefonica de Argentina SA -- ADR.......... 8,000 235,000
------------
1,297,253
------------
AUSTRALIA -- 0.0%
Australian Gas & Light Co., Ltd............ 3,170 18,016
------------
BRAZIL -- 1.4%
Centrais Electricas Brasileiras SA -- ADR.. 25,000 536,400
Lojas Arapua S.A........................... 4,383,000 101,054
Telecomunicacoes Brasileiras S/A-Telebras
-- ADR................................... 4,800 491,400
TV Filme, Inc. ADR*........................ 27,100 335,362
------------
1,464,216
------------
CANADA -- 2.7%
Canadian Imperial Bank of Commerce......... 44,000 994,871
Northern Telecom Ltd....................... 10,000 653,750
Royal Bank of Canada....................... 28,600 1,115,400
------------
2,764,021
------------
CHILE -- 0.6%
Quimica Minera Chile SA -- ADR............. 5,600 322,700
Vina Concha Y Toro -- ADR.................. 10,400 296,400
------------
619,100
------------
CZECH REPUBLIC -- 0.5%
SPT Telecom AS*............................ 4,000 474,227
------------
DENMARK -- 0.6%
Novo Nordisk A/S -- B...................... 5,740 600,740
------------
EGYPT -- 0.5%
Commercial International Bank*............. 21,355 482,623
------------
FINLAND -- 2.6%
Metsa-Serla Oy -- B........................ 60,600 436,888
Oy Nokia Corp. AB -- ADR................... 16,200 943,650
Raision Tehtaat Oy......................... 14,300 1,317,312
------------
2,697,850
------------
FRANCE -- 4.7%
AXA-UAP.................................... 8,000 530,484
Bouygues Offshore SA....................... 24,000 639,060
Cap Gemini Sogeti SA....................... 18,000 1,094,523
Lagardere Groupe SA (Non Trading).......... 377 12,221
Lagardere Groupe SA........................ 36,200 1,173,462
Promodes SA................................ 2,000 677,883
SGS-Thomson Microelectronics N.V.*......... 10,000 703,535
------------
4,831,168
------------
GERMANY -- 6.1%
BASF AG.................................... 40,000 1,532,374

<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
</TABLE>

GERMANY (CONTINUED)
<TABLE>
<S> <C> <C>
Bayerische Motoren Werke AG................ 1,000 $ 817,746
Daimler Benz AG............................ 20,000 1,613,909
Fresenius AG............................... 2,935 644,010
Volkswagen AG.............................. 3,200 1,764,988
------------
6,373,027
------------
HONG KONG -- 2.4%
Guangdong Investments Ltd.................. 600,000 514,918
HSBC Holdings Ltd.*........................ 22,400 520,339
Hutchison Whampoa Ltd...................... 74,000 556,280
Qingling Motors Company*................... 695,000 369,977
Sun Hung Kai Properties Ltd................ 49,000 518,532
------------
2,480,046
------------
INDIA -- 1.2%
Bombay Suburban Electric Supply Co. Ltd.... 60,000 332,776
HDFC Bank Ltd.*............................ 250,000 323,997
State Bank of India*....................... 24,400 559,980
------------
1,216,753
------------
INDONESIA -- 0.4%
PT Bank Negara Indonesia*.................. 650,000 372,260
------------
IRELAND -- 1.5%
Elan Corp. PLC -- ADR*..................... 22,000 750,750
Saville Systems PLC*....................... 27,400 787,750
------------
1,538,500
------------
ISRAEL -- 0.8%
Gilat Satellite Networks*.................. 12,400 375,100
Koor Industries Ltd........................ 12,500 225,000
Tecnomatix Technologies Ltd.*.............. 12,000 249,000
------------
849,100
------------
ITALY -- 2.9%
Banca Fideuram SpA......................... 360,000 932,933
Credito Italiano SpA....................... 803,000 1,141,638
Telecom Italia Mobile SpA.................. 322,300 928,038
------------
3,002,609
------------
JAPAN -- 11.9%
Advantest Corp............................. 16,390 827,322
Bank of Tokyo-Mitsubishi................... 2,000 31,225
Bridgestone Corp........................... 40,000 750,688
Canon, Inc................................. 30,000 643,100
Fujitsu, Ltd............................... 58,000 591,166
Hirose Electric............................ 11,000 604,190
Honda Motor Co., Ltd....................... 20,000 596,991
Ibiden Co., Ltd............................ 50,000 537,939
Mitsui Fudosan Co., Ltd.................... 47,000 486,653
Nichiei Co., Ltd........................... 10,000 776,573
Nintendo Co., Ltd.......................... 10,800 775,797
Orix Corp.................................. 16,000 705,387
Promise Co., Ltd........................... 22,000 921,857
Sony Corp.................................. 16,000 1,119,560
TDK Corp................................... 19,000 1,306,423
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

48
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
</TABLE>

COMMON STOCKS (Continued)
- ---------------------------------------------------------
JAPAN (CONTINUED)
<TABLE>
<S> <C> <C>
Terumo Corp................................ 80,000 $ 1,132,503
Toyota Motor Corp.......................... 20,000 506,390
------------
12,313,764
------------
MALAYSIA -- 2.2%
AMMB Holdings BHD.......................... 42,500 366,584
Malayan Banking BHD........................ 33,000 376,287
Metroplex BHD.............................. 500,000 585,267
Sime Darby BHD............................. 57,000 208,214
UMW Holdings BHD........................... 61,000 337,316
United Engineers BHD....................... 50,000 435,923
------------
2,309,591
------------
MEXICO -- 2.0%
Cifra SA de CV -- Series A................. 14,676 20,008
Cifra SA de CV -- Series C................. 120,000 168,768
Coca-Cola Femsa S.A. -- ADR................ 17,200 619,200
Fomento Economico Mexicano SA de CV........ 140,000 622,616
Gruma SA -- B*............................. 69,000 340,957
Tubos de Acero De Mexico -- ADR*........... 22,000 376,750
------------
2,148,299
------------
NETHERLANDS -- 2.8%
Baan Co., N.V.*............................ 19,300 861,263
IHC Caland NV.............................. 12,900 689,413
Koninklijke Volker Stevin NV-CVA........... 5,400 584,671
Oce-Van Der Grinten NV..................... 5,955 771,174
------------
2,906,521
------------
NORWAY -- 2.7%
Petroleum Goe-Services ASA -- ADR*......... 26,300 1,130,900
Schibsted A/S.............................. 37,000 747,802
Tomra Systems A/S.......................... 44,500 892,671
------------
2,771,373
------------
PAKISTAN -- 0.2%
Fauji Fertilizer Co. Ltd................... 7,900 15,473
Hub Power Co.*............................. 254,000 237,016
------------
252,489
------------
PHILLIPPINES -- 0.4%
Metropolitan Bank & Trust Co............... 15,000 389,943
------------
POLAND -- 0.2%
Elektrim Spolka Akcyjna SA................. 26,800 235,393
------------
PORTUGAL -- 0.3%
Portugal Telecom SA........................ 9,600 357,453
------------
RUSSIA -- 0.5%
Lukoil Oil Co. -- ADR...................... 8,400 475,524
Vimpel-Communications -- ADR*.............. 2,700 86,400
------------
561,924
------------
SINGAPORE -- 1.6%
Lindeteves-Jacoberg Ltd.................... 500,000 695,502
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
</TABLE>

SINGAPORE (CONTINUED)
<TABLE>
<S> <C> <C>
Parkway Holdings Ltd....................... 124,000 $ 471,972
United Overseas Bank Ltd................... 46,495 476,212
------------
1,643,686
------------
SOUTH AFRICA -- 0.8%
Liberty Life Association of Africa Ltd..... 18,192 510,445
South African Breweries Ltd................ 10,300 326,296
------------
836,741
------------
SPAIN -- 0.8%
Banco Central Hispanoamericano SA.......... 30,000 796,291
------------
SWEDEN -- 0.9%
Telefonaktiebolaget LM Ericsson -- B....... 27,000 954,089
------------
SWITZERLAND -- 4.6%
Adecco SA.................................. 3,500 1,141,119
Ares-Serono Group.......................... 1,380 1,816,976
Novartis AG................................ 525 651,825
Roche Holding AG........................... 80 692,110
Swiss Reinsurance Co....................... 450 478,623
------------
4,780,653
------------
TAIWAN -- 1.2%
ASE Test Ltd.*............................. 36,900 1,176,188
Tuntex Distinct Corp....................... 5,725 42,823
------------
1,219,011
------------
THAILAND -- 0.5%
PTT Exploration and Production Public Co.
Ltd...................................... 35,000 520,015
Thai Farmers Bank Public Co. Ltd. --
Foreign*................................. 5,375 34,964
------------
554,979
------------
UNITED KINGDOM -- 9.4%
Airtours PLC............................... 65,000 1,054,815
Avis Europe PLC*........................... 315,000 686,582
Bank of Ireland............................ 65,000 649,569
British Aerospace PLC...................... 48,287 1,083,851
British Airways PLC........................ 74,526 803,612
Caradon PLC................................ 163,000 671,678
Compass Group PLC.......................... 71,000 767,927
GKN PLC.................................... 1,807 29,740
Granada Group PLC.......................... 23,700 357,701
Ladbroke Group PLC......................... 158,000 584,798
Pearson PLC................................ 55,000 659,563
Professional Staff PLC -- ADR*............. 47,000 405,375
WPP Group PLC.............................. 325,000 1,355,274
Zagrebacka Banka -- GDR*................... 21,250 672,031
------------
9,782,516
------------
UNITED STATES OF AMERICA -- 25.4%
Ascend Communications, Inc.*............... 1,800 73,350
BMC Industries, Inc........................ 8,000 226,000
BMC Software, Inc.*........................ 12,400 571,950
Boston Chicken, Inc.*...................... 5,400 164,700
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

49
<PAGE>
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 -- CONTINUED
- --------------------------------------------------------------------------------
WORLDWIDE GROWTH FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
</TABLE>

COMMON STOCKS (Continued)
- ---------------------------------------------------------
UNITED STATES OF AMERICA (CONTINUED)
<TABLE>
<S> <C> <C>
Cadence Design Systems, Inc.*.............. 9,250 $ 317,969
Callaway Golf Co........................... 11,500 329,187
Camco International, Inc................... 9,600 422,400
Central Garden and Pet Co.*................ 8,900 161,312
Chase Manhattan Corp....................... 2,500 234,063
Children's Comprehensive Services, Inc.*... 8,800 101,200
Chrysler Corp.............................. 27,300 819,000
Cisco Systems, Inc.*....................... 6,000 288,750
Comerica, Inc.............................. 8,400 473,550
Compuware Inc.*............................ 4,300 269,825
Dell Computer Corp.*....................... 11,200 757,400
Electronics For Imaging, Inc.*............. 10,200 406,725
Encad, Inc.*............................... 7,400 221,075
Executive Risk, Inc........................ 8,300 384,913
Fannie Mae................................. 23,600 852,550
Finish Line, Inc., The*.................... 16,200 360,450
Gateway 2000, Inc.*........................ 10,500 538,125
General Electric Co........................ 1,100 109,175
Guidant Corp............................... 3,700 227,550
HBO & Co................................... 5,300 251,750
HFS, Inc.*................................. 6,500 382,688
Intel Corp................................. 9,400 1,307,775
International Specialty Products, Inc.*.... 15,500 193,750
Interstate Bakeries Corp................... 12,500 590,625
Jones Medical Industries, Inc.............. 13,625 327,000
Liz Claiborne, Inc......................... 7,500 327,188
Loews Corp................................. 9,100 808,763
MBNA Corp.................................. 25,300 705,238
McAfee Associates, Inc.*................... 6,000 265,500
Medicis Pharmaceutical Corp.*.............. 7,800 232,050
Merck & Co., Inc........................... 14,200 1,196,350
Microsoft Corp.*........................... 1,700 155,869
Molecular Devices Corp.*................... 43,000 596,625
Nautica Enterprises, Inc.*................. 7,900 198,487
NBTY, Inc.*................................ 18,900 285,862
New York Bancorp, Inc...................... 1,350 39,150
Oxford Health Plans, Inc.*................. 1,500 87,937
Pacific Sunwear of California*............. 13,650 447,037
Pairgain Technology, Inc.*................. 11,600 343,650
Peoplesoft, Inc.*.......................... 3,800 152,000
Premark International, Inc................. 10,800 214,650
Providian Corp............................. 15,600 834,600
QLogic Corp.*.............................. 26,000 513,500
Riser Foods, Inc........................... 7,600 251,750
<CAPTION>
NUMBER
OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------
</TABLE>

UNITED STATES OF AMERICA (CONTINUED)
<TABLE>
<S> <C> <C>
Robert Half International, Inc.*........... 9,400 $ 327,825
Ross Stores Inc............................ 27,200 690,200
Safeskin Corp.*............................ 10,200 184,875
Safeway, Inc.*............................. 18,100 839,387
Showbiz Pizza Time, Inc.*.................. 11,900 208,250
SPX Corp.*................................. 8,200 372,075
Student Loan Marketing Association......... 3,800 361,950
TCF Financial Corp......................... 1,000 39,625
Tellabs, Inc.*............................. 14,500 523,812
Travelers Group, Inc....................... 18,800 900,050
United Technologies Corp................... 12,200 918,050
Unocal Corp................................ 7,200 274,500
USX-Marathon Group......................... 30,900 861,337
Veritas DGC, Inc.*......................... 30,000 592,500
Zions Bancorporation....................... 2,100 249,375
------------
26,364,824
------------
VENEZUELA -- 0.4%
Mavesa SA -- ADR........................... 61,540 407,703
------------
TOTAL COMMON STOCKS
(Cost $89,964,628).......................................
102,668,752
------------
- ----------------------------------------------------------------------------
WARRANTS/RIGHTS -- 0.0%
- ----------------------------------------------------------------------------
SINGAPORE
United Overseas Bank Ltd. -- Warrants*
(Cost $1,333)............................ 208 885
------------
<CAPTION>

PRINCIPAL
AMOUNT
<S> <C> <C>
- ----------------------------------------------------------------------------
CONVERTIBLE BONDS -- 1.8%
- ----------------------------------------------------------------------------
UTILITIES (ELECTRIC)
First Pacific Capital 144A
2.00%, 3/27/02
(Cost $1,891,000)........................ $1,891,000 $ 1,886,273
------------
TOTAL INVESTMENTS -- 100.7%
(Cost $91,856,961).......................................
$104,555,910
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.7%)............ (740,534)
------------
NET ASSETS -- 100.0%....................................... $103,815,376
------------
</TABLE>

- ------------
* Non-Income Producing Security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

50
<PAGE>
SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF MARCH 31, 1997
- ------------------------------------------------------------------------

WORLDWIDE GROWTH FUND
<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
<S> <C>
Advertising................................. 1.3%
Aerospace................................... 1.9
Agriculture................................. 0.3
Airlines.................................... 0.8
Alcoholic Beverages......................... 1.2
Apparel..................................... 0.5
Automotive.................................. 6.3
Automotive Equipment........................ 1.1
Beverages/Soft Drinks....................... 0.6
Biotechnology............................... 2.3
Broadcasting................................ 0.3
Building Materials.......................... 1.0
Chemicals................................... 1.5
Clothing Chains............................. 1.1
Computers/Office Automation................. 4.2
Consumer Electrical......................... 1.1
Department/Discount Stores.................. 0.2
Drugs/Pharmaceuticals....................... 4.0
Electric Utilities.......................... 1.1
Electronic Instruments...................... 0.6
Finance Companies........................... 3.5
Food Chains................................. 1.7
Grocery Products............................ 2.2
Industrial Engineering/Construction......... 1.0
Investment Companies........................ 0.5
Leisure/Gaming.............................. 0.6
Life Insurers............................... 0.5
Lodging..................................... 0.4
Machinery/Equipment......................... 2.6
Managed Health care/HMO's................... 0.1
Medical Supplies............................ 2.7

<CAPTION>
PERCENTAGE OF
INDUSTRY NET ASSETS
- -------------------------------------------- -------------
<S> <C>
Metals...................................... 0.4%
Money Center Banks.......................... 3.7
Multi-Line Insurers......................... 3.1
Oil/Gas Production.......................... 2.1
Oilfield Services/Equipment................. 3.3
Other Commercial/Industrial Services........ 4.2
Other Consumer Services..................... 1.1
Other Financial Services.................... 1.3
Other Health Services....................... 0.2
Other Health Services....................... 0.2
Other Production/Manufacturing.............. 1.8
Paper....................................... 0.4
Property -- Casualty Insurance.............. 1.1
Publishing.................................. 2.5
Real Estate Development/Investment.......... 1.5
Recreational Products....................... 1.4
Regional/Commercial Banks................... 6.2
Rental/Leasing Companies.................... 1.3
Restaurants................................. 0.4
Savings & Loan/Thrifts...................... 0.1
Semiconductors/Electric Companies........... 3.7
Software.................................... 5.0
Specialty Chains............................ 0.3
Telecommunication Equipment................. 3.7
Telecommunication Services.................. 0.1
Telephone................................... 2.4
Utilities................................... 1.8
Wholesale Distribution...................... 0.2
Liabilities in Excess of Other Assets....... (0.7)
-----
NET ASSETS.................................. 100.0%
-----
-----
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

51
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------
SERIES A PORTFOLIOS+

<TABLE>
<CAPTION>
NET ASSET NET NET REALIZED DISTRIBUTIONS
VALUES AT INVESTMENT AND UNREALIZED FROM NET DISTRIBUTIONS
BEGINNING INCOME GAINS (LOSSES) INVESTMENT FROM
OF PERIOD (DEFICIT) ON INVESTMENTS INCOME CAPITAL GAINS
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
EMERGING GROWTH
Portfolio A (For the year
ended 03/31/97)........... $ 17.93 $ (0.22) $ (0.66) -- $ (1.90)
Portfolio A (For the year
ended 03/31/96)........... 13.06 (0.20) 5.09 -- (0.02)
Portfolio A (For the year
ended 03/31/95)........... 12.10 (0.16) 1.12 -- --
Portfolio A (For the period
ended 03/31/94)........... 12.50 (0.04) (0.36) -- --
CORE GROWTH
Portfolio A (For the year
ended 03/31/97)........... 18.37 (0.17) 0.57 -- (1.97)
Portfolio A (For the year
ended 03/31/96)........... 13.61 (0.18) 4.94 -- --
Portfolio A (For the year
ended 03/31/95)........... 13.25 (0.10) 0.46 -- --
Portfolio A (For the period
ended 03/31/94)........... 12.50 (0.07) 0.86 -- (0.04)
INCOME & GROWTH
Portfolio A (For the year
ended 03/31/97)........... 15.68 0.47 1.64 $ (0.48) (0.72)
Portfolio A (For the year
ended 03/31/96)........... 12.86 0.48 2.82 (0.48) --
Portfolio A (For the year
ended 03/31/95)........... 14.16 0.49 (0.89) (0.49) (0.41)
Portfolio A (For the period
ended 03/31/94)........... 12.50 0.32 2.15 (0.32) (0.49)
BALANCED GROWTH
Portfolio A (For the year
ended 03/31/97)........... 16.16 0.32 0.84 (0.32) (1.46)
Portfolio A (For the year
ended 03/31/96)........... 13.74 0.34 2.42 (0.34) --
Portfolio A (For the year
ended 03/31/95)........... 13.52 0.21 0.22 (0.21) --
Portfolio A (For the period
ended 03/31/94)........... 12.50 0.15 1.02 (0.15) --
GOVERNMENT INCOME
Portfolio A (For the year
ended 03/31/97)........... 12.74 0.71 (0.37) (0.71) (0.21)
Portfolio A (For the year
ended 03/31/96)........... 12.29 0.75 0.45 (0.75) --
Portfolio A (For the year
ended 03/31/95)........... 12.51 0.63 (0.19) (0.63) (0.03)
Portfolio A (For the period
ended 03/31/94)........... 12.50 0.29 0.34 (0.29) (0.33)
MONEY MARKET
Portfolio A (For the year
ended 03/31/97)........... 1.00 0.05 -- (0.05) --
Portfolio A (For the year
ended 03/31/96)........... 1.00 0.05 -- (0.05) --
Portfolio A (For the year
ended 03/31/95)........... 1.00 0.05 -- (0.05) --
Portfolio A (For the period
ended 03/31/94)........... 1.00 0.01 -- (0.01) --
EMERGING COUNTRIES
Portfolio A (For the year
ended 03/31/97)........... 14.03 (0.06) 3.51 -- (0.28)
Portfolio A (For the year
ended 03/31/96)........... 11.00 (0.04) 3.15 (0.02) (0.06)
Portfolio A (For the period
ended 03/31/95)........... 12.50 0.04 (1.54) -- --
INTERNATIONAL SMALL CAP GROWTH
Portfolio A (For the year
ended 03/31/97)........... 13.15 0.04 1.88 (0.01) (0.14)
Portfolio A (For the year
ended 03/31/96)........... 11.51 (0.02) 1.79 (0.13) --
Portfolio A (For the period
ended 03/31/95)........... 12.50 -- (0.98) (0.01) --
INTERNATIONAL CORE GROWTH
Portfolio A (For the period
ended 03/31/97)........... 12.50 -- 0.23 -- --
WORLDWIDE GROWTH
Portfolio A (For the year
ended 03/31/97)........... 16.57 (0.16) 2.20 -- (1.73)
Portfolio A (For the year
ended 03/31/96)........... 14.29 (0.07) 2.86 (0.12) (0.39)
Portfolio A (For the year
ended 03/31/95)........... 14.94 (0.05) (0.09) (0.02) (0.49)
Portfolio A (For the period
ended 03/31/94)........... 12.50 (0.07) 2.51 -- --
</TABLE>

- --------------------
+ All Series A Portfolios commenced operations on April 19, 1993, except
Emerging Growth Portfolio A, Emerging Countries Portfolio A, International Small
Cap Growth Portfolio A and International Core Growth Portfolio A which commenced
operations on December 27, 1993, November 28, 1994, August 31, 1994, and
February 28, 1997, respectively.
++ The Portfolio's maximum sales charge is not included in the total return
computation.
* Annualized.
** Includes expenses allocated from the Master Trust Funds. See Notes to Funds'
Financial Statements for amounts.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

52
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
RATIO OF EXPENSES TO INCOME (DEFICIT)
EXPENSES TO AVERAGE NET TO
AVERAGE NET ASSETS, BEFORE AVERAGE NET
ASSETS, AFTER EXPENSE ASSETS, AFTER
EXPENSE REIMBURSEMENT EXPENSE
NET ASSET REIMBURSEMENT (RECOUPMENT) REIMBURSEMENT
VALUES AT TOTAL NET ASSETS AT (RECOUPMENT) AND FEE (RECOUPMENT)
END OF PERIOD RETURN++ END OF PERIOD AND FEE WAIVER** WAIVER** AND FEE WAIVER**
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
EMERGING GROWTH
Portfolio A (For the year
ended 03/31/97)........... $ 15.15 (6.26%) $ 121,741,647 1.72% 1.72% (1.26%)
Portfolio A (For the year
ended 03/31/96)........... 17.93 37.48% 138,155,390 1.74% 1.74% (1.20%)
Portfolio A (For the year
ended 03/31/95)........... 13.06 7.93% 106,725,077 1.86% 1.84% (1.27%)
Portfolio A (For the period
ended 03/31/94)........... 12.10 (3.20%) 104,838,285 1.73%* 1.80%* (1.44%)*
CORE GROWTH
Portfolio A (For the year
ended 03/31/97)........... 16.80 1.09% 76,107,976 1.60% 1.56% (1.05%)
Portfolio A (For the year
ended 03/31/96)........... 18.37 35.07% 77,275,060 1.58% 1.56% (0.91%)
Portfolio A (For the year
ended 03/31/95)........... 13.61 2.72% 65,291,541 1.59% 1.63% (0.66%)
Portfolio A (For the period
ended 03/31/94)........... 13.25 6.27% 70,512,167 1.57%* 1.71%* (0.68%)*
INCOME & GROWTH
Portfolio A (For the year
ended 03/31/97)........... 16.59 13.73% 32,081,563 1.60% 1.75% 2.83%
Portfolio A (For the year
ended 03/31/96)........... 15.68 26.00% 31,712,051 1.60% 1.76% 3.29%
Portfolio A (For the year
ended 03/31/95)........... 12.86 (2.64%) 31,150,481 1.60% 1.76% 3.71%
Portfolio A (For the period
ended 03/31/94)........... 14.16 19.65% 30,447,446 1.59%* 1.83%* 2.83%*
BALANCED GROWTH
Portfolio A (For the year
ended 03/31/97)........... 15.54 6.74% 4,897,987 1.60% 3.00% 1.87%
Portfolio A (For the year
ended 03/31/96)........... 16.16 20.16% 5,902,210 1.60% 3.30% 2.16%
Portfolio A (For the year
ended 03/31/95)........... 13.74 3.22% 4,979,593 1.60% 2.78% 1.44%
Portfolio A (For the period
ended 03/31/94)........... 13.52 9.35% 6,445,901 1.59%* 3.28%* 1.30%*
GOVERNMENT INCOME
Portfolio A (For the year
ended 03/31/97)........... 12.16 2.73% 1,113,290 0.90% 7.67% 5.52%
Portfolio A (For the year
ended 03/31/96)........... 12.74 9.71% 1,297,458 0.93% 9.58% 5.78%
Portfolio A (For the year
ended 03/31/95)........... 12.29 3.68% 925,074 1.10% 8.40% 5.18%
Portfolio A (For the period
ended 03/31/94)........... 12.51 4.97% 819,919 1.10%* 20.28%* 3.07%*
MONEY MARKET
Portfolio A (For the year
ended 03/31/97)........... 1.00 5.09% 36,258,680 0.45% 1.73% 4.97%
Portfolio A (For the year
ended 03/31/96)........... 1.00 5.47% 3,129,223 0.45% 5.78% 5.35%
Portfolio A (For the year
ended 03/31/95)........... 1.00 4.58% 2,995,847 0.31% 2.49% 4.60%
Portfolio A (For the period
ended 03/31/94)........... 1.00 1.72% 47,975 0.54%* 323.24%* 1.85%*
EMERGING COUNTRIES
Portfolio A (For the year
ended 03/31/97)........... 17.20 24.79% 38,687,897 2.25% 3.08% (1.14%)
Portfolio A (For the year
ended 03/31/96)........... 14.03 28.43% 4,717,767 2.25% 6.72% (0.35%)
Portfolio A (For the period
ended 03/31/95)........... 11.00 (11.98%) 1,197,361 2.25%* 6.15%* 1.09%*
INTERNATIONAL SMALL CAP GROWTH
Portfolio A (For the year
ended 03/31/97)........... 14.92 14.67% 5,569,084 1.95% 3.76% (1.05%)
Portfolio A (For the year
ended 03/31/96)........... 13.15 15.46% 1,055,809 1.95% 10.06% (0.27%)
Portfolio A (For the period
ended 03/31/95)........... 11.51 (7.85%) 610,176 1.95%* 9.77%* (0.07%)*
INTERNATIONAL CORE GROWTH
Portfolio A (For the period
ended 03/31/97)........... 12.73 1.76% 1,642 1.95%* 4,579.78%* --
WORLDWIDE GROWTH
Portfolio A (For the year
ended 03/31/97)........... 16.88 12.51% 24,022,177 1.85% 2.17% (0.93%)
Portfolio A (For the year
ended 03/31/96)........... 16.57 19.79% 23,480,586 1.85% 2.17% (0.35%)
Portfolio A (For the year
ended 03/31/95)........... 14.29 (0.90%) 22,207,775 1.85% 2.18% (0.42%)
Portfolio A (For the period
ended 03/31/94)........... 14.94 19.52% 20,194,105 1.85%* 2.23%* (0.69%)*

<CAPTION>
RATIO OF NET
INCOME
(DEFICIT) TO
AVERAGE NET
ASSETS, BEFORE
EXPENSE
REIMBURSEMENT
(RECOUPMENT)
AND FEE
WAIVER**
<S> <C>
- ------------------------------
EMERGING GROWTH
Portfolio A (For the year
ended 03/31/97)........... (1.26%)
Portfolio A (For the year
ended 03/31/96)........... (1.20%)
Portfolio A (For the year
ended 03/31/95)........... (1.25%)
Portfolio A (For the period
ended 03/31/94)........... (1.51%)*
CORE GROWTH
Portfolio A (For the year
ended 03/31/97)........... (1.01%)
Portfolio A (For the year
ended 03/31/96)........... (0.89%)
Portfolio A (For the year
ended 03/31/95)........... (0.70%)
Portfolio A (For the period
ended 03/31/94)........... (0.82%)*
INCOME & GROWTH
Portfolio A (For the year
ended 03/31/97)........... 2.66%
Portfolio A (For the year
ended 03/31/96)........... 3.12%
Portfolio A (For the year
ended 03/31/95)........... 3.55%
Portfolio A (For the period
ended 03/31/94)........... 2.59%*
BALANCED GROWTH
Portfolio A (For the year
ended 03/31/97)........... 0.73%
Portfolio A (For the year
ended 03/31/96)........... 0.88%
Portfolio A (For the year
ended 03/31/95)........... 0.26%
Portfolio A (For the period
ended 03/31/94)........... (0.39%)*
GOVERNMENT INCOME
Portfolio A (For the year
ended 03/31/97)........... 0.22%
Portfolio A (For the year
ended 03/31/96)........... (0.75%)
Portfolio A (For the year
ended 03/31/95)........... (2.12%)
Portfolio A (For the period
ended 03/31/94)........... (16.11%)*
MONEY MARKET
Portfolio A (For the year
ended 03/31/97)........... 4.12%
Portfolio A (For the year
ended 03/31/96)........... 2.77%
Portfolio A (For the year
ended 03/31/95)........... 2.42%
Portfolio A (For the period
ended 03/31/94)........... (320.85%)*
EMERGING COUNTRIES
Portfolio A (For the year
ended 03/31/97)........... (2.00%)
Portfolio A (For the year
ended 03/31/96)........... (3.61%)
Portfolio A (For the period
ended 03/31/95)........... (4.99%)*
INTERNATIONAL SMALL CAP GROWTH
Portfolio A (For the year
ended 03/31/97)........... (2.82%)
Portfolio A (For the year
ended 03/31/96)........... (7.75%)
Portfolio A (For the period
ended 03/31/95)........... (7.89%)*
INTERNATIONAL CORE GROWTH
Portfolio A (For the period
ended 03/31/97)........... (4,576.87%)*
WORLDWIDE GROWTH
Portfolio A (For the year
ended 03/31/97)........... (1.18%)
Portfolio A (For the year
ended 03/31/96)........... (0.61%)
Portfolio A (For the year
ended 03/31/95)........... (0.75%)
Portfolio A (For the period
ended 03/31/94)........... (1.07%)*
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

53
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------
SERIES B PORTFOLIOS+

- --------------------
+ All Series B Portfolios commenced operations on May 31, 1995 except the
International Core Growth B Portfolio which commenced operations on February
28, 1997.
++ The Portfolio's maximum sales charge is not included in the total return
computation.
* Annualized.
** Includes expenses allocated from the Master Trust Funds. See Notes to Funds'
Financial Statements for amounts.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

54
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF NET
INVESTMENT
RATIO OF RATIO OF INCOME (DEFICIT)
EXPENSES TO EXPENSES TO TO
AVERAGE NET AVERAGE NET AVERAGE NET
NET ASSETS ASSETS, AFTER ASSETS, BEFORE ASSETS, AFTER
NET ASSET AT EXPENSE EXPENSE EXPENSE
VALUES AT TOTAL END OF REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT
END OF PERIOD RETURN++ PERIOD AND FEE WAIVER** AND FEE WAIVER** AND FEE WAIVER**
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
EMERGING GROWTH
Portfolio B (For the year
ended 03/31/97)........... $ 15.51 (7.07%) $28,029,591 2.61% 2.73% (2.13%)
Portfolio B (For the period
ended 03/31/96)........... 16.69 33.52% 13,625,738 2.58%* 3.26%* (2.09%)*
CORE GROWTH
Portfolio B (For the year
ended 03/31/97)........... 16.33 (0.49%) 29,002,393 2.25% 2.66% (1.69%)
Portfolio B (For the period
ended 03/31/96)........... 16.25 30.00% 11,185,978 2.22%* 3.39%* (1.61%)*
INCOME & GROWTH
Portfolio B (For the year
ended 03/31/97)........... 16.60 13.01% 12,739,703 2.25% 3.19% 2.29%
Portfolio B (For the period
ended 03/31/96)........... 14.96 21.72% 2,125,077 2.25%* 7.08%* 2.59%*
BALANCED GROWTH
Portfolio B (For the year
ended 03/31/97)........... 14.88 6.10% 2,132,890 2.25% 6.44% 1.25%
Portfolio B (For the period
ended 03/31/96)........... 14.18 14.45% 672,934 2.25%* 13.05%* 1.38%*
GOVERNMENT INCOME
Portfolio B (For the year
ended 03/31/97)........... 12.13 2.30% 1,344,705 1.29% 8.33% 5.20%
Portfolio B (For the period
ended 03/31/96)........... 12.53 4.16% 127,528 1.33%* 86.12%* 5.14%*
EMERGING COUNTRIES
Portfolio B (For the year
ended 03/31/97)........... 17.29 24.00% 24,557,521 2.90% 3.66% (1.77%)
Portfolio B (For the period
ended 03/31/96)........... 14.02 12.16% 3,557,080 2.90%* 7.58%* (1.05%)*
INTERNATIONAL SMALL CAP GROWTH
Portfolio B (For the year
ended 03/31/97)........... 15.89 13.96% 5,079,996 2.60% 4.89% (1.66%)
Portfolio B (For the period
ended 03/31/96)........... 13.96 11.68% 1,486,794 2.60%* 16.15%* (0.64%)*
INTERNATIONAL CORE GROWTH
Portfolio B (For the period
ended 03/31/97)........... 12.68 1.44% 1,027 2.59%* 16,000.25%* 0.00%*
WORLDWIDE GROWTH
Portfolio B (For the year
ended 03/31/97)........... 16.02 11.72% 5,941,869 2.50% 4.81% (1.62%)
Portfolio B (For the period
ended 03/31/96)........... 14.34 14.72% 1,972,242 2.50%* 9.50%* (1.28%)*

<CAPTION>
RATIO OF NET
INVESTMENT
INCOME (DEFICIT)
TO
AVERAGE NET
ASSETS, BEFORE
EXPENSE
REIMBURSEMENT
AND FEE WAIVER**
<S> <C>
- ------------------------------
EMERGING GROWTH
Portfolio B (For the year
ended 03/31/97)........... (2.25%)
Portfolio B (For the period
ended 03/31/96)........... (2.76%)*
CORE GROWTH
Portfolio B (For the year
ended 03/31/97)........... (2.10%)
Portfolio B (For the period
ended 03/31/96)........... (2.77%)*
INCOME & GROWTH
Portfolio B (For the year
ended 03/31/97)........... 1.32%
Portfolio B (For the period
ended 03/31/96)........... (2.22%)*
BALANCED GROWTH
Portfolio B (For the year
ended 03/31/97)........... (2.67%)
Portfolio B (For the period
ended 03/31/96)........... (8.86%)*
GOVERNMENT INCOME
Portfolio B (For the year
ended 03/31/97)........... (0.36%)
Portfolio B (For the period
ended 03/31/96)........... (67.73%)*
EMERGING COUNTRIES
Portfolio B (For the year
ended 03/31/97)........... (2.55%)
Portfolio B (For the period
ended 03/31/96)........... (5.44%)*
INTERNATIONAL SMALL CAP GROWTH
Portfolio B (For the year
ended 03/31/97)........... (3.91%)
Portfolio B (For the period
ended 03/31/96)........... (13.26%)*
INTERNATIONAL CORE GROWTH
Portfolio B (For the period
ended 03/31/97)........... (15,998.21%)*
WORLDWIDE GROWTH
Portfolio B (For the year
ended 03/31/97)........... (3.87%)
Portfolio B (For the period
ended 03/31/96)........... (8.12%)*
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

55
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------
SERIES C PORTFOLIOS+

<TABLE>
<CAPTION>
NET ASSET NET NET REALIZED DISTRIBUTIONS
VALUES AT INVESTMENT AND UNREALIZED FROM NET DISTRIBUTIONS
BEGINNING INCOME GAINS (LOSSES) INVESTMENT FROM
OF PERIOD (DEFICIT) ON INVESTMENTS INCOME CAPITAL GAINS
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
EMERGING GROWTH
Portfolio C (For the year
ended 03/31/97)........... $ 17.62 $ (0.31) $ (0.63) -- $ (1.99)
Portfolio C (For the year
ended 03/31/96)........... 12.96 (0.29) 5.03 -- (0.08)
Portfolio C (For the year
ended 03/31/95)........... 12.07 (0.22) 1.11 -- --
Portfolio C (For the period
ended 03/31/94)........... 12.50 (0.06) (0.37) -- --
CORE GROWTH
Portfolio C (For the year
ended 03/31/97)........... 18.06 (0.32) 0.62 -- (1.88)
Portfolio C (For the year
ended 03/31/96)........... 13.45 (0.27) 4.88 -- --
Portfolio C (For the year
ended 03/31/95)........... 13.18 (0.17) 0.44 -- --
Portfolio C (For the period
ended 03/31/94)........... 12.50 (0.11) 0.80 -- (0.01)
INCOME & GROWTH
Portfolio C (For the year
ended 03/31/97)........... 15.89 0.37 1.66 $ (0.37) (0.50)
Portfolio C (For the year
ended 03/31/96)........... 13.03 0.40 2.86 (0.40) --
Portfolio C (For the year
ended 03/31/95)........... 14.28 0.41 (0.89) (0.41) (0.36)
Portfolio C (For the period
ended 03/31/94)........... 12.50 0.24 2.11 (0.24) (0.33)
BALANCED GROWTH
Portfolio C (For the year
ended 03/31/97)........... 16.20 0.21 0.85 (0.21) (1.46)
Portfolio C (For the year
ended 03/31/96)........... 13.76 0.24 2.44 (0.24) --
Portfolio C (For the year
ended 03/31/95)........... 13.54 0.11 0.22 (0.11) --
Portfolio C (For the period
ended 03/31/94)........... 12.50 0.08 1.04 (0.08) --
GOVERNMENT INCOME
Portfolio C (For the year
ended 03/31/97)........... 12.63 0.62 (0.34) (0.62) --
Portfolio C (For the year
ended 03/31/96)........... 12.27 0.77 0.36 (0.77) --
Portfolio C (For the year
ended 03/31/95)........... 12.56 0.63 (0.28) (0.63) (0.01)
Portfolio C (For the period
ended 03/31/94)........... 12.50 0.25 0.29 (0.25) (0.23)
EMERGING COUNTRIES
Portfolio C (For the year
ended 03/31/97)........... 13.71 (0.10) 3.37 -- (0.17)
Portfolio C (For the year
ended 03/31/96)........... 10.79 (0.05) 2.97 -- --
Portfolio C (For the period
ended 03/31/95)........... 12.50 -- (1.70) (0.01) --
INTERNATIONAL SMALL CAP GROWTH
Portfolio C (For the year
ended 03/31/97)........... 13.05 (0.16) 1.98 -- --
Portfolio C (For the year
ended 03/31/96)........... 11.32 0.01 1.72 -- --
Portfolio C (For the period
ended 03/31/95)........... 12.50 (0.04) (1.12) (0.02) --
INTERNATIONAL CORE GROWTH
Portfolio B (For the period
ended 03/31/97)........... 12.50 -- 0.18 -- --
WORLDWIDE GROWTH
Portfolio C (For the year
ended 03/31/97)........... 16.76 (0.28) 2.23 -- (1.79)
Portfolio C (For the year
ended 03/31/96)........... 14.44 (0.21) 2.92 (0.01) (0.38)
Portfolio C (For the year
ended 03/31/95)........... 14.86 (0.15) (0.08) -- (0.19)
Portfolio C (For the period
ended 03/31/94)........... 12.50 (0.09) 2.45 -- --
</TABLE>

- --------------------
+ All Series C Portfolios commenced operations on April 19, 1993, except
Emerging Growth Portfolio C, Emerging Countries Portfolio C, International
Small Cap Growth Portfolio C and International Core Growth Portfolio C which
commenced operations on December 27, 1993, November 28, 1994, August 31, 1994
and February 28, 1997.
++ The Portfolio's maximum sales charge is not included in the total return
computation.
* Annualized.
** Includes expenses allocated from the Master Trust Funds. See Notes to Funds'
Financial Statements for amounts.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

56
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF NET
INVESTMENT
RATIO OF RATIO OF INCOME (DEFICIT)
EXPENSES TO EXPENSES TO TO
AVERAGE NET AVERAGE NET AVERAGE NET
ASSETS, AFTER ASSETS, BEFORE ASSETS, AFTER
EXPENSE EXPENSE EXPENSE
NET ASSET REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT
VALUES AT TOTAL NET ASSETS AT (RECOUPMENT) (RECOUPMENT) (RECOUPMENT)
END OF PERIOD RETURN++ END OF PERIOD AND FEE WAIVER** AND FEE WAIVER** AND FEE WAIVER**
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
EMERGING GROWTH
Portfolio C (For the year
ended 03/31/97)........... $ 14.69 (6.81%) $ 182,906,982 2.35% 2.35% (1.89%)
Portfolio C (For the year
ended 03/31/96)........... 17.62 37.18% 207,332,005 2.35% 2.35% (1.81%)
Portfolio C (For the year
ended 03/31/95)........... 12.96 7.37% 157,292,246 2.44% 2.44% (1.85%)
Portfolio C (For the period
ended 03/31/94)........... 12.07 (3.44%) 142,874,310 2.34%* 2.34%* (2.04%)*
CORE GROWTH
Portfolio C (For the year
ended 03/31/97)........... 16.48 0.56% 157,501,096 2.14% 2.17% (1.59%)
Portfolio C (For the year
ended 03/31/96)........... 18.06 34.28% 177,461,331 2.14% 2.14% (1.47%)
Portfolio C (For the year
ended 03/31/95)........... 13.45 2.05% 143,389,656 2.24% 2.24% (1.30%)
Portfolio C (For the period
ended 03/31/94)........... 13.18 5.54% 141,488,561 2.17%* 2.17%* (1.30%)*
INCOME & GROWTH
Portfolio C (For the year
ended 03/31/97)........... 17.05 12.91% 62,143,307 2.25% 2.29% 2.18%
Portfolio C (For the year
ended 03/31/96)........... 15.89 25.24% 58,997,309 2.25% 2.28% 2.64%
Portfolio C (For the year
ended 03/31/95)........... 13.03 (3.26%) 61,791,573 2.25% 2.29% 3.05%
Portfolio C (For the period
ended 03/31/94)........... 14.28 18.76% 69,264,807 2.22%* 2.23%* 2.28%*
BALANCED GROWTH
Portfolio C (For the year
ended 03/31/97)........... 15.59 6.05% 16,990,094 2.25% 2.83% 1.23%
Portfolio C (For the year
ended 03/31/96)........... 16.20 19.58% 16,586,339 2.25% 3.01% 1.53%
Portfolio C (For the year
ended 03/31/95)........... 13.76 2.47% 16,469,510 2.25% 2.60% 0.83%
Portfolio C (For the period
ended 03/31/94)........... 13.54 8.91% 16,248,130 2.24%* 2.73%* 0.61%*
GOVERNMENT INCOME
Portfolio C (For the year
ended 03/31/97)........... 12.29 2.29% 3,694,341 1.30% 4.98% 5.10%
Portfolio C (For the year
ended 03/31/96)........... 12.63 9.20% 2,968,287 1.33% 5.77% 5.46%
Portfolio C (For the year
ended 03/31/95)........... 12.27 2.96% 4,278,140 1.50% 2.67% 4.58%
Portfolio C (For the period
ended 03/31/94)........... 12.56 4.28% 7,345,300 1.50%* 3.86%* 2.70%*
EMERGING COUNTRIES
Portfolio C (For the year
ended 03/31/97)........... 16.81 23.94% 29,375,971 2.90% 3.12% (1.75%)
Portfolio C (For the year
ended 03/31/96)........... 13.71 27.30% 4,344,744 2.90% 6.23% (1.06%)
Portfolio C (For the period
ended 03/31/95)........... 10.79 (13.64%) 59,366 2.90%* 242.59%* (0.04%)*
INTERNATIONAL SMALL CAP GROWTH
Portfolio C (For the year
ended 03/31/97)........... 14.87 13.98% 3,592,314 2.60% 3.95% (1.67%)
Portfolio C (For the year
ended 03/31/96)........... 13.05 15.30% 933,422 2.60% 16.15% (1.02%)
Portfolio C (For the period
ended 03/31/95)........... 11.32 (9.25%) 24,066 2.61%* 75.37%* (0.76%)*
INTERNATIONAL CORE GROWTH
Portfolio B (For the period
ended 03/31/97)........... 12.68 1.44% 43,075 2.41%* 25.55%* (0.07%)*
WORLDWIDE GROWTH
Portfolio C (For the year
ended 03/31/97)........... 16.92 11.81% 70,344,561 2.50% 2.61% (1.57%)
Portfolio C (For the year
ended 03/31/96)........... 16.76 18.95% 71,155,027 2.50% 2.57% (0.99%)
Portfolio C (For the year
ended 03/31/95)........... 14.44 (1.49%) 71,200,715 2.50% 2.57% (1.06%)
Portfolio C (For the period
ended 03/31/94)........... 14.86 18.88% 66,576,743 2.44%* 2.44%* (1.24%)*

<CAPTION>
RATIO OF NET
INVESTMENT
INCOME (DEFICIT)
TO
AVERAGE NET
ASSETS, BEFORE
EXPENSE
REIMBURSEMENT
(RECOUPMENT)
AND FEE WAIVER**
<S> <C>
- ------------------------------
EMERGING GROWTH
Portfolio C (For the year
ended 03/31/97)........... (1.89%)
Portfolio C (For the year
ended 03/31/96)........... (1.81%)
Portfolio C (For the year
ended 03/31/95)........... (1.85%)
Portfolio C (For the period
ended 03/31/94)........... (2.04%)*
CORE GROWTH
Portfolio C (For the year
ended 03/31/97)........... (1.62%)
Portfolio C (For the year
ended 03/31/96)........... (1.47%)
Portfolio C (For the year
ended 03/31/95)........... (1.30%)
Portfolio C (For the period
ended 03/31/94)........... (1.30%)*
INCOME & GROWTH
Portfolio C (For the year
ended 03/31/97)........... 2.11%
Portfolio C (For the year
ended 03/31/96)........... 2.61%
Portfolio C (For the year
ended 03/31/95)........... 3.01%
Portfolio C (For the period
ended 03/31/94)........... 2.27%*
BALANCED GROWTH
Portfolio C (For the year
ended 03/31/97)........... 0.91%
Portfolio C (For the year
ended 03/31/96)........... 1.19%
Portfolio C (For the year
ended 03/31/95)........... 0.48%
Portfolio C (For the period
ended 03/31/94)........... 0.12%*
GOVERNMENT INCOME
Portfolio C (For the year
ended 03/31/97)........... 2.89%
Portfolio C (For the year
ended 03/31/96)........... 3.13%
Portfolio C (For the year
ended 03/31/95)........... 3.41%
Portfolio C (For the period
ended 03/31/94)........... 0.34%*
EMERGING COUNTRIES
Portfolio C (For the year
ended 03/31/97)........... (1.99%)
Portfolio C (For the year
ended 03/31/96)........... (4.15%)
Portfolio C (For the period
ended 03/31/95)........... (239.73%)*
INTERNATIONAL SMALL CAP GROWTH
Portfolio C (For the year
ended 03/31/97)........... (2.99%)
Portfolio C (For the year
ended 03/31/96)........... (13.95%)
Portfolio C (For the period
ended 03/31/95)........... (73.52%)*
INTERNATIONAL CORE GROWTH
Portfolio B (For the period
ended 03/31/97)........... (291.20%)*
WORLDWIDE GROWTH
Portfolio C (For the year
ended 03/31/97)........... (1.62%)
Portfolio C (For the year
ended 03/31/96)........... (1.00%)
Portfolio C (For the year
ended 03/31/95)........... (1.13%)
Portfolio C (For the period
ended 03/31/94)........... (1.24%)*
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

57
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES AS OF MARCH 31, 1997
- ------------------------------------------------------------------------
SERIES A PORTFOLIOS

<TABLE>
<CAPTION>
EMERGING CORE INCOME &
GROWTH GROWTH GROWTH
<S> <C> <C> <C>
---------------------------------------------------
ASSETS
Investments in Master Trust
Fund, at value*........... $ 121,913,319 $ 76,261,029 $ 32,228,292
Receivable for shares of
beneficial interest
sold...................... 208,197 205,691 68,902
Receivable for investments
sold in Master Trust
Fund...................... 12,524,806 252,974 3,716
Due from advisor............ -- -- 5,488
Deferred organization
costs..................... 3,863 9,117 7,517
Prepaid expenses and other
assets.................... -- 3 --
---------------------------------------------------
Total assets.............. 134,650,185 76,728,814 32,313,915
---------------------------------------------------
LIABILITIES
Payable for investments
purchased in Master Trust
Fund...................... 208,197 205,691 68,902
Payable for shares of
beneficial interest
repurchased............... 12,524,806 252,974 3,716
Due to advisor.............. -- 33,938 --
Dividend payable............ -- -- 123,330
Accrued expenses............ 175,535 128,235 36,404
---------------------------------------------------
Total liabilities......... 12,908,538 620,838 232,352
---------------------------------------------------
NET ASSETS.................... $ 121,741,647 $ 76,107,976 $ 32,081,563
---------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital............. $ 105,600,700 $ 63,464,639 $ 27,002,472
Accumulated undistributed
net investment income
(deficit)................. (5,037,611) (2,306,895) (5,927)
Accumulated undistributed
net realized gain (loss)
on security
transactions.............. 10,797,806 10,442,672 2,295,209
Accumulated undistributed
foreign exchange gain
(loss).................... -- -- --
Net unrealized foreign
exchange gain (loss)...... -- -- --
Net unrealized appreciation
(depreciation) on
investments............... 10,380,752 4,507,560 2,789,809
---------------------------------------------------
Net assets................ $ 121,741,647 $ 76,107,976 $ 32,081,563
---------------------------------------------------
Shares of beneficial
interest, no par value,
issued and outstanding
(unlimited shares
authorized)............... 8,038,199 4,529,358 1,933,759
---------------------------------------------------
COMPUTATION OF
Net asset value per share of
beneficial interest (Net
assets/ Outstanding shares
of beneficial interest)... $ 15.15 $ 16.80 $ 16.59
---------------------------------------------------
MAXIMUM OFFERING PRICE PER
SHARE OF
($15.15/94.75%,
$16.80/94.75%,
$16.59/94.75%,
$15.54/94.75%,
$12.16/95.25%, $1.00,
$17.20/94.75%,
$14.92/94.75%,
$12.73/94.75%,
$16.88/94.75%,
respectively)............. $ 15.99 $ 17.73 $ 17.51
---------------------------------------------------
* Cost of investments in the
Master Trust Fund:.......... $ 86,973,981 $ 53,171,736 $ 19,544,963
---------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

58
<PAGE>
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
INTERNATIONAL
BALANCED GOVERNMENT MONEY EMERGING SMALL CAP INTERNATIONAL WORLDWIDE
GROWTH INCOME MARKET COUNTRIES GROWTH CORE GROWTH GROWTH
<S> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------
ASSETS
Investments in Master Trust
Fund, at value*........... $ 4,948,089 $ 1,149,915 $ 36,269,808 $ 38,693,186 $ 5,587,854 $ 1,643 $ 24,049,057
Receivable for shares of
beneficial interest
sold...................... 3,820 12 -- 261,535 74,166 -- 36,703
Receivable for investments
sold in Master Trust
Fund...................... 22,811 24 -- 58,893 -- -- 56,995
Due from advisor............ 10,775 13,534 44,601 36,646 8,866 6,169 8,699
Deferred organization
costs..................... 6,767 6,506 5,422 4,325 -- -- 7,078
Prepaid expenses and other
assets.................... -- -- 2,472 -- -- -- --
---------------------------------------------------------------------------------------------------
Total assets.............. 4,992,262 1,169,991 36,322,303 39,054,585 5,670,886 7,812 24,158,532
---------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments
purchased in Master Trust
Fund...................... 3,820 12 -- 261,535 74,166 -- 36,703
Payable for shares of
beneficial interest
repurchased............... 22,811 24 -- 58,893 -- -- 56,995
Due to advisor.............. -- 30,779 26,503 -- -- -- --
Dividend payable............ 40,646 4,481 1,417 -- -- -- --
Accrued expenses............ 26,998 21,405 35,703 46,260 27,636 6,170 42,657
---------------------------------------------------------------------------------------------------
Total liabilities......... 94,275 56,701 63,623 366,688 101,802 6,170 136,355
---------------------------------------------------------------------------------------------------
NET ASSETS.................... $ 4,897,987 $ 1,113,290 $ 36,258,680 $ 38,687,897 $ 5,569,084 $ 1,642 $ 24,022,177
---------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital............. $ 4,189,821 $ 1,169,852 $ 36,259,004 $ 35,477,052 $ 5,096,086 $ 1,612 $ 19,347,956
Accumulated undistributed
net investment income
(deficit)................. 217 (594) -- (196,700) (43,486) -- (677,960)
Accumulated undistributed
net realized gain (loss)
on security
transactions.............. 179,782 (32,843) (324) 2,340,091 121,999 13 2,398,574
Accumulated undistributed
foreign exchange gain
(loss).................... -- -- -- (32,331) (11,178) (2) (42,249)
Net unrealized foreign
exchange gain (loss)...... -- -- -- (2,552) (591) (1) (5,629)
Net unrealized appreciation
(depreciation) on
investments............... 528,167 (23,125) -- 1,102,337 406,254 20 3,001,485
---------------------------------------------------------------------------------------------------
Net assets................ $ 4,897,987 $ 1,113,290 $ 36,258,680 $ 38,687,897 $ 5,569,084 $ 1,642 $ 24,022,177
---------------------------------------------------------------------------------------------------
Shares of beneficial
interest, no par value,
issued and outstanding
(unlimited shares
authorized)............... 315,190 91,535 36,259,004 2,249,748 373,205 129 1,423,429
---------------------------------------------------------------------------------------------------
COMPUTATION OF
Net asset value per share of
beneficial interest (Net
assets/ Outstanding shares
of beneficial interest)... $ 15.54 $ 12.16 $ 1.00 $ 17.20 $ 14.92 $ 12.73 $ 16.88
---------------------------------------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER
SHARE OF
($15.15/94.75%,
$16.80/94.75%,
$16.59/94.75%,
$15.54/94.75%,
$12.16/95.25%, $1.00,
$17.20/94.75%,
$14.92/94.75%,
$12.73/94.75%,
$16.88/94.75%,
respectively)............. $ 16.40 $ 12.77 $ 1.00 $ 18.15 $ 15.75 $ 13.44 $ 17.82
---------------------------------------------------------------------------------------------------
* Cost of investments in the
Master Trust Fund:.......... $ 3,233,889 $ 953,635 $ 36,273,795 $ 35,042,012 $ 5,051,487 $ 1,612 $ 15,005,693
---------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

59
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES AS OF MARCH 31, 1997
- ------------------------------------------------------------------------
SERIES B PORTFOLIOS

<TABLE>
<CAPTION>
EMERGING CORE INCOME &
GROWTH GROWTH GROWTH
<S> <C> <C> <C>
--------------------------------------------------
ASSETS
Investments in Master Trust
Fund, at value*........... $ 28,090,750 $ 29,086,669 $ 12,863,717
Receivable for shares of
beneficial interest
sold...................... 348,129 163,944 73,719
Receivable for investments
sold in Master Trust
Fund...................... 30,318 14,770 2,324
Due from advisor............ -- 10,226 19,359
Deferred organization
costs..................... 625 625 625
Prepaid expenses and other
assets.................... 1,476 562 187
--------------------------------------------------
Total assets.............. 28,471,298 29,276,796 12,959,931
--------------------------------------------------
LIABILITIES
Payable for investments
purchased in Master Trust
Fund...................... 348,129 163,944 73,719
Payable for shares of
beneficial interest
repurchased............... 30,318 14,770 2,324
Due to advisor.............. 1,013 -- 1,013
Dividend payable............ -- -- 24,537
Accrued expenses............ 62,247 95,689 118,635
--------------------------------------------------
Total liabilities......... 441,707 274,403 220,228
--------------------------------------------------
NET ASSETS.................... $ 28,029,591 $ 29,002,393 $ 12,739,703
--------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital............. $ 29,891,118 $ 29,488,828 $ 12,030,243
Accumulated undistributed
net investment income
(deficit)................. (623,227) (444,725) (494)
Accumulated undistributed
net realized gain (loss)
on security
transactions.............. (517,449) 763,766 293,264
Accumulated undistributed
foreign exchange gain
(loss).................... -- -- --
Net unrealized foreign
exchange gain (loss)...... -- -- --
Net unrealized appreciation
(depreciation) on
investments............... (720,851) (805,476) 416,690
--------------------------------------------------
Net assets................ $ 28,029,591 $ 29,002,393 $ 12,739,703
--------------------------------------------------
Shares of beneficial
interest, no par value,
issued and outstanding
(unlimited shares
authorized)............... 1,807,110 1,775,837 767,845
--------------------------------------------------
COMPUTATION OF
Net asset value per share of
beneficial interest (Net
assets/Outstanding shares
of beneficial interest)... $ 15.51 $ 16.33 $ 16.60
--------------------------------------------------
* Cost of investments in the
Master Trust Fund:.......... $ 29,511,738 $ 29,211,582 $ 11,876,737
--------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

60
<PAGE>
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
INTERNATIONAL
BALANCED GOVERNMENT EMERGING SMALL CAP INTERNATIONAL WORLDWIDE
GROWTH INCOME COUNTRIES GROWTH CORE GROWTH GROWTH
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------
ASSETS
Investments in Master Trust
Fund, at value*........... $ 2,165,096 $ 1,357,800 $ 24,604,374 $ 5,121,693 $ 1,028 $ 5,997,862
Receivable for shares of
beneficial interest
sold...................... 1,284 11,412 435,890 78,918 -- 211,675
Receivable for investments
sold in Master Trust
Fund...................... -- -- 17,689 -- -- --
Due from advisor............ 22,322 4,409 22,419 16,324 13,784 21,383
Deferred organization
costs..................... 625 625 636 624 -- 625
Prepaid expenses and other
assets.................... -- 6,064 -- -- -- --
------------------------------------------------------------------------------------
Total assets.............. 2,189,327 1,380,310 25,081,008 5,217,559 14,812 6,231,545
------------------------------------------------------------------------------------
LIABILITIES
Payable for investments
purchased in Master Trust
Fund...................... 1,284 11,412 435,890 78,918 -- 211,675
Payable for shares of
beneficial interest
repurchased............... -- -- 17,689 -- -- --
Due to advisor.............. 1,013 1,013 1,024 -- -- 1,013
Dividend payable............ 2,080 4,571 -- 415 -- --
Accrued expenses............ 52,060 18,609 68,884 58,230 13,785 76,988
------------------------------------------------------------------------------------
Total liabilities......... 56,437 35,605 523,487 137,563 13,785 289,676
------------------------------------------------------------------------------------
NET ASSETS.................... $ 2,132,890 $ 1,344,705 $ 24,557,521 $ 5,079,996 $ 1,027 $ 5,941,869
------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital............. $ 2,105,345 $ 1,366,339 $ 22,320,139 $ 4,606,017 $ 1,008 $ 5,508,936
Accumulated undistributed
net investment income
(deficit)................. 261 (245) (213,940) (56,858) -- (68,035)
Accumulated undistributed
net realized gain (loss)
on security
transactions.............. (27,294) 5,157 1,693,237 130,577 9 193,912
Accumulated undistributed
foreign exchange gain
(loss).................... -- -- (20,233) (11,211) (3) (15,044)
Net unrealized foreign
exchange gain (loss)...... -- -- (1,807) (542) -- (1,363)
Net unrealized appreciation
(depreciation) on
investments............... 54,578 (26,546) 780,125 412,013 13 323,463
------------------------------------------------------------------------------------
Net assets................ $ 2,132,890 $ 1,344,705 $ 24,557,521 $ 5,079,996 $ 1,027 $ 5,941,869
------------------------------------------------------------------------------------
Shares of beneficial
interest, no par value,
issued and outstanding
(unlimited shares
authorized)............... 143,328 110,839 1,420,199 319,641 81 370,791
------------------------------------------------------------------------------------
COMPUTATION OF
Net asset value per share of
beneficial interest (Net
assets/Outstanding shares
of beneficial interest)... $ 14.88 $ 12.13 $ 17.29 $ 15.89 $ 12.68 $ 16.02
------------------------------------------------------------------------------------
* Cost of investments in the
Master Trust Fund:.......... $ 2,084,771 $ 1,314,047 $ 22,136,886 $ 4,601,246 $ 1,008 $ 5,508,936
------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

61
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES AS OF MARCH 31, 1997
- ------------------------------------------------------------------------
SERIES C PORTFOLIOS

<TABLE>
<CAPTION>
EMERGING GROWTH CORE GROWTH INCOME & GROWTH
<S> <C> <C> <C>
---------------------------------------------------
ASSETS
Investments in Master Trust
Fund, at value*........... $ 183,263,181 $ 157,813,767 $ 62,603,075
Receivable for shares of
beneficial interest
sold...................... 556,882 116,534 36,282
Receivable for investments
sold in Master Trust
Fund...................... 949,862 655,742 692,478
Due from advisor............ -- -- 1,372
Deferred organization
costs..................... 3,862 9,484 7,585
Prepaid expenses and other
assets.................... 3 8 --
---------------------------------------------------
Total assets.............. 184,773,790 158,595,535 63,340,792
---------------------------------------------------
LIABILITIES
Payable for investments
purchased in Master Trust
Fund...................... 556,882 116,534 36,282
Payable for shares of
beneficial interest
repurchased............... 949,862 655,742 692,478
Due to advisor.............. -- 274 --
Dividend payable............ -- -- 351,978
Accrued expenses............ 360,064 321,889 116,747
---------------------------------------------------
Total liabilities......... 1,866,808 1,094,439 1,197,485
---------------------------------------------------
NET ASSETS.................... $ 182,906,982 $ 157,501,096 $ 62,143,307
---------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital............. $ 163,666,067 $ 130,204,183 $ 52,196,317
Accumulated undistributed
net investment income
(deficit)................. (10,834,513) (8,264,179) (9,138)
Accumulated undistributed
net realized gain (loss)
on security
transactions.............. 15,249,305 24,043,018 4,419,738
Accumulated undistributed
foreign exchange gain
(loss).................... -- -- --
Net unrealized foreign
exchange gain (loss)...... -- -- --
Net unrealized appreciation
(depreciation) on
investments............... 14,826,123 11,518,074 5,536,390
---------------------------------------------------
Net assets................ $ 182,906,982 $ 157,501,096 $ 62,143,307
---------------------------------------------------
Shares of beneficial
interest, no par value,
issued and outstanding
(unlimited shares
authorized)............... 12,451,381 9,555,544 3,644,102
---------------------------------------------------
COMPUTATION OF
Net asset value per share of
beneficial interest (Net
assets/Outstanding shares
of beneficial interest)... $ 14.69 $ 16.48 $ 17.05
---------------------------------------------------
* Cost of investments in the
Master Trust Fund:.......... $ 131,929,217 $ 105,661,384 $ 39,010,365
---------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

62
<PAGE>
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
INTERNATIONAL
BALANCED GOVERNMENT EMERGING SMALL CAP INTERNATIONAL WORLDWIDE
GROWTH INCOME COUNTRIES GROWTH CORE GROWTH GROWTH
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------
ASSETS
Investments in Master Trust
Fund, at value*........... $ 17,108,508 $ 3,744,643 $ 29,455,854 $ 3,631,890 $ 43,092 $ 70,465,668
Receivable for shares of
beneficial interest
sold...................... 10,694 17,827 257,944 42,518 8,988 94,926
Receivable for investments
sold in Master Trust
Fund...................... 95,888 9,477 4,755 7,959 -- 252,472
Due from advisor............ 10,163 14,892 -- 5,450 4,406 466
Deferred organization
costs..................... 6,914 6,599 1,524 -- -- 7,645
Prepaid expenses and other
assets.................... -- -- -- -- -- --
---------------------------------------------------------------------------------------
Total assets.............. 17,232,167 3,793,438 29,720,077 3,687,817 56,486 70,821,177
---------------------------------------------------------------------------------------
LIABILITIES
Payable for investments
purchased in Master Trust
Fund...................... 10,694 17,827 257,944 42,518 8,988 94,926
Payable for shares of
beneficial interest
repurchased............... 95,888 9,477 4,755 7,959 -- 252,472
Due to advisor.............. -- 30,779 1,218 -- -- --
Dividend payable............ 93,218 15,139 -- 315 -- --
Accrued expenses............ 42,273 25,875 80,189 44,711 4,423 129,218
---------------------------------------------------------------------------------------
Total liabilities......... 242,073 99,097 344,106 95,503 13,411 476,616
---------------------------------------------------------------------------------------
NET ASSETS.................... $ 16,990,094 $ 3,694,341 $ 29,375,971 $ 3,592,314 $ 43,075 $ 70,344,561
---------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital............. $ 15,129,007 $ 3,922,758 $ 26,616,646 $ 3,228,242 $ 43,012 $ 57,164,262
Accumulated undistributed
net investment income
(deficit)................. 622 (1,230) (264,566) (50,030) (1) (3,058,313)
Accumulated undistributed
net realized gain (loss)
on security
transactions.............. 498,640 (153,974) 2,086,672 69,532 (262) 6,867,386
Accumulated undistributed
foreign exchange gain
(loss).................... -- -- (26,576) (7,885) (17) 393,292
Net unrealized foreign
exchange gain (loss)...... -- -- (2,282) (386) (14) (16,516)
Net unrealized appreciation
(depreciation) on
investments............... 1,361,825 (73,213) 966,077 352,841 357 8,994,450
---------------------------------------------------------------------------------------
Net assets................ $ 16,990,094 $ 3,694,341 $ 29,375,971 $ 3,592,314 $ 43,075 $ 70,344,561
---------------------------------------------------------------------------------------
Shares of beneficial
interest, no par value,
issued and outstanding
(unlimited shares
authorized)............... 1,089,607 300,707 1,747,147 241,603 3,396 4,158,310
---------------------------------------------------------------------------------------
COMPUTATION OF
Net asset value per share of
beneficial interest (Net
assets/Outstanding shares
of beneficial interest)... $ 15.59 $ 12.29 $ 16.81 $ 14.87 $ 12.68 $ 16.92
---------------------------------------------------------------------------------------
* Cost of investments in the
Master Trust Fund:.......... $ 12,296,292 $ 3,077,373 $ 26,327,753 $ 3,228,172 $ 43,012 $ 44,321,024
---------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

63
<PAGE>

NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1997
- ------------------------------------------------------------------------
SERIES A PORTFOLIOS

<TABLE>
<CAPTION>
EMERGING CORE INCOME & BALANCED
GROWTH GROWTH GROWTH GROWTH
<S> <C> <C> <C> <C>
-----------------------------------------------------------------
INVESTMENT INCOME
Net investment income
(deficit) from Master
Trust Fund................ $ (975,837) $ (274,897) $ 1,078,627 $ 149,477
-----------------------------------------------------------------
EXPENSES
Accounting fees........... 55,609 40,529 28,150 11,686
Administration fees....... 4,986 6,377 8,398 7,223
Audit & tax fees.......... 7,850 8,532 9,144 9,522
Co-Administration fees.... 56,024 28,391 10,633 1,865
Distribution fees......... 382,408 209,589 77,395 14,817
Insurance................. 2,870 1,555 626 120
Legal fees................ 33,727 18,310 6,704 1,327
Miscellaneous............. 3,703 1,207 446 86
Organization costs........ 2,139 9,078 7,147 6,424
Registration fees......... 15,883 9,424 3,472 2,948
Shareholder reporting
fees.................... 29,769 20,618 4,761 2,381
Shareholder servicing
fees.................... 152,545 83,836 30,958 5,927
Transfer agent fees....... 196,533 131,687 66,936 40,934
Trustees' fee............. 1,190 1,112 919 953
-----------------------------------------------------------------
Total expenses.......... 945,236 570,245 255,689 106,213
Less: Reimbursement to
(from) advisor.......... -- 62,811 (43,830) (65,824)
Less: Co-Administration
fees waived............. -- (28,391) (10,633) (1,865)
Add: Line of credit
commitment fee.......... 4,282 2,412 904 159
-----------------------------------------------------------------
Net expenses............ 949,518 607,077 202,130 38,683
-----------------------------------------------------------------
Net investment income
(deficit)........... (1,925,355) (881,974) 876,497 110,794
-----------------------------------------------------------------
NET REALIZED & UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) on
security transactions..... 22,751,958 15,467,542 4,451,706 500,670
Net realized foreign
exchange gain (loss)...... -- -- -- --
Net unrealized foreign
exchange gain (loss)...... -- -- -- --
Change in net unrealized
appreciation
(depreciation) of
investments............... (28,323,397) (13,774,880) (1,334,608) (135,773)
-----------------------------------------------------------------
Net gain (loss) on
investments........... (5,571,439) 1,692,662 3,117,098 364,897
-----------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................. $ (7,496,794) $ 810,688 $ 3,993,595 $ 475,691
-----------------------------------------------------------------
</TABLE>

- -------------
+ Commenced operations on February 28, 1997.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL
GOVERNMENT MONEY EMERGING SMALL CAP CORE WORLDWIDE
INCOME MARKET COUNTRIES GROWTH GROWTH+ GROWTH
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Net investment income
(deficit) from Master
Trust Fund................ $ 79,424 $ 877,328 $ (80,377) $ (12,431) $ 1 $ (66,145)
---------------------------------------------------------------------------------------------------
EXPENSES
Accounting fees........... 10,739 18,331 27,388 11,470 -- 26,518
Administration fees....... 6,362 4,986 7,053 1,677 1 7,420
Audit & tax fees.......... 9,591 9,503 9,584 9,605 1,314 8,983
Co-Administration fees.... 492 11,483 9,479 1,546 -- 8,271
Distribution fees......... 3,408 26,500 123,152 7,047 1 60,693
Insurance................. 32 13 78 1 2 472
Legal fees................ 304 3,099 2,719 511 -- 4,971
Miscellaneous............. 20 346 530 540 -- 350
Organization costs........ 6,190 5,298 1,445 -- 111 6,723
Registration fees......... 2,156 1,593 9,398 263 1,194 4,713
Shareholder reporting
fees.................... 1,007 3,191 3,666 967 -- 5,934
Shareholder servicing
fees.................... 1,363 17,667 16,420 2,811 -- 24,277
Transfer agent fees....... 33,873 46,454 35,931 29,674 3,263 59,035
Trustees' fee............. 835 508 914 859 284 1,022
---------------------------------------------------------------------------------------------------
Total expenses.......... 76,372 148,972 247,757 66,971 6,170 219,382
Less: Reimbursement to
(from) advisor.......... (71,815) (138,467) (131,546) (48,512) (6,169) (53,309)
Less: Co-Administration
fees waived............. (492) (11,483) (9,479) (1,546) -- (8,271)
Add: Line of credit
commitment fee.......... 42 978 804 132 -- 703
---------------------------------------------------------------------------------------------------
Net expenses............ 4,107 0 107,536 17,045 1 158,505
---------------------------------------------------------------------------------------------------
Net investment income
(deficit)........... 75,317 877,328 (187,913) (29,476) -- (224,650)
---------------------------------------------------------------------------------------------------
NET REALIZED & UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) on
security transactions..... (33,783) (2) 2,620,500 151,811 13 3,695,538
Net realized foreign
exchange gain (loss)...... -- -- (25,273) (11,302) (2) (78,051)
Net unrealized foreign
exchange gain (loss)...... -- -- (2,504) (493) (1) (4,962)
Change in net unrealized
appreciation
(depreciation) of
investments............... 4,940 -- 733,976 289,270 20 (553,127)
---------------------------------------------------------------------------------------------------
Net gain (loss) on
investments........... (28,843) (2) 3,326,699 429,286 30 3,059,398
---------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................. $ 46,474 $ 877,326 $ 3,138,786 $ 399,810 $ 30 $ 2,834,748
---------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

65
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1997
- ------------------------------------------------------------------------
SERIES B PORTFOLIOS

<TABLE>
<CAPTION>
EMERGING CORE INCOME & BALANCED
GROWTH GROWTH GROWTH GROWTH
<S> <C> <C> <C> <C>
-----------------------------------------------------------------
INVESTMENT INCOME
Net investment income
(deficit) from Master
Trust Fund................ $ (149,654) $ (73,074) $ 248,679 $ 43,791
-----------------------------------------------------------------
EXPENSES
Accounting fees........... 27,135 27,330 23,007 13,233
Administration fees....... 4,986 1,714 1,830 2,074
Audit & tax fees.......... 9,262 9,262 9,262 9,262
Co-Adminstration fees..... 9,543 9,821 3,562 713
Distribution fees......... 179,975 170,941 51,856 12,844
Insurance................. 263 185 41 22
Legal fees................ 5,000 4,622 1,273 352
Miscellaneous............. 5,132 4,740 1,345 655
Organization costs........ 211 212 212 212
Registration fees......... 14,992 14,827 14,106 13,978
Shareholder reporting
fees.................... 34,828 68,881 11,385 3,855
Shareholder servicing
fees.................... 59,828 56,980 17,285 4,281
Transfer agent fees....... 37,937 34,989 20,892 22,684
Trustees' fee............. 816 815 1,015 5,314
-----------------------------------------------------------------
Total expenses.......... 389,908 405,319 157,071 89,479
Less: Reimbursement from
advisor................. (19,914) (83,508) (63,625) (66,671)
Less: Co-Adminstration
fees waived............. (9,543) (9,821) (3,562) (545)
Add: Line of credit
commitment fee.......... 810 834 302 61
-----------------------------------------------------------------
Net expenses............ 361,261 312,824 90,186 22,324
-----------------------------------------------------------------
Net investment income
(deficit)........... (510,915) (385,898) 158,493 21,467
-----------------------------------------------------------------
NET REALIZED & UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) on
security transactions..... (288,290) 765,218 298,853 (20,222)
Net realized foreign
exchange gain (loss)...... -- -- -- --
Net unrealized foreign
exchange gain (loss)...... -- -- -- --
Change in net unrealized
appreciation
(depreciation) of
investments............... (2,501,896) (1,661,676) 282,117 29,343
-----------------------------------------------------------------
Net gain (loss) on
investments........... (2,790,186) (896,458) 580,970 9,121
-----------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................. $ (3,301,101) $ (1,282,356) $ 739,463 $ 30,588
-----------------------------------------------------------------
</TABLE>

- -------------
+ Commenced operations on February 28, 1997.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

66
<PAGE>
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL
GOVERNMENT EMERGING SMALL CAP CORE WORLDWIDE
INCOME COUNTRIES GROWTH GROWTH+ GROWTH
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------
INVESTMENT INCOME
Net investment income
(deficit) from Master
Trust Fund................ $ 50,486 $ (53,916) $ (12,108) $ 1 $ (12,127)
----------------------------------------------------------------------------------
EXPENSES
Accounting fees........... 14,342 24,799 13,760 -- 21,673
Administration fees....... 3,581 5,172 1,846 1 1,152
Audit & tax fees.......... 9,262 9,262 9,262 1,289 9,262
Co-Adminstration fees..... 436 6,139 1,473 -- 1,638
Distribution fees......... 4,279 86,600 22,586 1 28,354
Insurance................. 1 47 10 2 31
Legal fees................ 163 2,052 574 -- 755
Miscellaneous............. 461 2,837 809 -- 1,089
Organization costs........ 212 212 212 16 211
Registration fees......... 13,911 14,285 14,094 1,228 14,100
Shareholder reporting
fees.................... 1,541 19,507 7,719 -- 13,055
Shareholder servicing
fees.................... 2,139 28,867 7,508 -- 9,451
Transfer agent fees....... 2,228 39,633 24,748 11,248 32,533
Trustees' fee............. 1,015 915 1,015 -- 915
----------------------------------------------------------------------------------
Total expenses.......... 53,571 240,327 105,616 13,785 134,219
Less: Reimbursement from
advisor................. (47,197) (84,081) (66,499) (13,784) (83,436)
Less: Co-Adminstration
fees waived............. (436) (6,139) (1,473) -- (1,638)
Add: Line of credit
commitment fee.......... 37 521 125 -- 139
----------------------------------------------------------------------------------
Net expenses............ 5,975 150,628 37,769 1 49,284
----------------------------------------------------------------------------------
Net investment income
(deficit)........... 44,511 (204,544) (49,877) -- (61,411)
----------------------------------------------------------------------------------
NET REALIZED & UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) on
security transactions..... 17,066 1,803,877 139,789 9 227,470
Net realized foreign
exchange gain (loss)...... -- (17,335) (11,214) (3) (13,875)
Net unrealized foreign
exchange gain (loss)...... -- (1,898) (390) -- (1,290)
Change in net unrealized
appreciation
(depreciation) of
investments............... (24,165) 605,621 325,117 13 186,506
----------------------------------------------------------------------------------
Net gain (loss) on
investments........... (7,099) 2,390,265 453,302 19 398,811
----------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................. $ 37,412 $ 2,185,721 $ 403,425 $ 19 $ 337,400
----------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

67
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1997
- ------------------------------------------------------------------------
SERIES C PORTFOLIOS

<TABLE>
<CAPTION>
EMERGING CORE INCOME & BALANCED
GROWTH GROWTH GROWTH GROWTH
<S> <C> <C> <C> <C>
-----------------------------------------------------------------
INVESTMENT INCOME
Net investment income
(deficit) from Master
Trust Fund................ $ (1,430,438) $ (600,962) $ 2,153,355 $ 450,981
-----------------------------------------------------------------
EXPENSES
Accounting fees........... 69,919 61,650 35,557 14,566
Administration fees....... 4,986 13,895 16,756 21,743
Audit & tax fees.......... 47,025 7,229 8,583 9,332
Co-Administration fees.... 79,040 59,139 21,350 6,029
Distribution fees......... 1,673,336 1,367,835 463,340 133,791
Insurance................. 4,482 3,676 1,176 337
Legal fees................ 39,609 40,293 13,382 3,897
Miscellaneous............. 4,218 2,630 889 757
Organization costs........ 2,139 9,001 7,216 6,577
Registration fees......... 24,552 20,734 5,900 5,005
Shareholder reporting
fees.................... 11,331 35,133 10,165 3,148
Shareholder servicing
fees.................... 556,255 455,945 154,447 44,597
Transfer agent fees....... 264,089 270,708 108,449 38,095
Trustees' fee............. 5,722 1,447 743 648
-----------------------------------------------------------------
Total expenses.......... 2,786,703 2,349,315 847,953 288,522
Less: Reimbursement to
(from) advisor.......... -- 3,285 (23,479) (50,590)
Less: Co-Administration
fees waived............. -- (59,139) (21,350) (6,029)
Add: Line of credit
commitment fee.......... 6,045 5,026 1,814 513
-----------------------------------------------------------------
Net expenses............ 2,792,748 2,298,487 804,938 232,416
-----------------------------------------------------------------
Net investment income
(deficit)........... (4,223,186) (2,899,449) 1,348,417 218,565
-----------------------------------------------------------------
NET REALIZED & UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) on
security transactions..... 33,211,523 35,664,077 8,550,614 1,455,500
Net realized foreign
exchange gain (loss)...... -- -- -- --
Net unrealized foreign
exchange gain (loss)...... -- -- -- --
Change in net unrealized
appreciation
(depreciation) of
investments............... (42,199,307) (30,168,671) (2,403,198) (647,319)
-----------------------------------------------------------------
Net gain on
investments........... (8,987,784) 5,495,406 6,147,416 808,181
-----------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................. $ (13,210,970) $ 2,595,957 $ 7,495,833 $ 1,026,746
-----------------------------------------------------------------
</TABLE>

- -------------
+ Commenced operations on February 28, 1997.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

68
<PAGE>
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL
GOVERNMENT EMERGING SMALL CAP CORE WORLDWIDE
INCOME COUNTRIES GROWTH GROWTH+ GROWTH
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------
INVESTMENT INCOME
Net investment income
(deficit) from Master
Trust Fund................ $ 203,389 $ (63,283) $ (11,232) $ 16 $ (195,350)
----------------------------------------------------------------------------------
EXPENSES
Accounting fees........... 11,283 25,987 11,244 1 37,524
Administration fees....... 16,232 6,483 1,664 10 21,991
Audit & tax fees.......... 9,536 8,701 9,602 1,315 8,539
Co-Administration fees.... 1,279 7,478 1,220 1 24,197
Distribution fees......... 17,533 106,711 20,268 10 539,559
Insurance................. 74 56 (6) 2 1,407
Legal fees................ 754 2,544 543 -- 15,703
Miscellaneous............. 200 501 38 -- 1,037
Organization costs........ 6,267 511 -- 39 7,264
Registration fees......... 3,388 2,149 373 1,216 8,105
Shareholder reporting
fees.................... 1,319 1,346 1,330 -- 14,253
Shareholder servicing
fees.................... 8,766 35,571 6,738 3 179,853
Transfer agent fees....... 24,415 21,317 16,237 1,731 107,854
Trustees' fee............. 937 493 262 95 1,011
----------------------------------------------------------------------------------
Total expenses.......... 101,983 219,848 69,513 4,423 968,297
Less: Reimbursement to
(from) advisor.......... (76,306) (27,404) (34,513) (4,405) (8,865)
Less: Co-Administration
fees waived............. (1,279) (7,478) (1,220) (1) (24,197)
Add: Line of credit
commitment fee.......... 109 635 104 -- 2,056
----------------------------------------------------------------------------------
Net expenses............ 24,507 185,601 33,884 17 937,291
----------------------------------------------------------------------------------
Net investment income
(deficit)........... 178,882 (248,884) (45,116) (1) (1,132,641)
----------------------------------------------------------------------------------
NET REALIZED & UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) on
security transactions..... (40,291) 2,299,477 80,654 (262) 11,316,290
Net realized foreign
exchange gain (loss)...... -- (21,984) (8,590) (17) (232,218)
Net unrealized foreign
exchange gain (loss)...... -- (2,323) (293) (14) (14,511)
Change in net unrealized
appreciation
(depreciation) of
investments............... (29,932) 696,295 278,387 357 (1,872,212)
----------------------------------------------------------------------------------
Net gain on
investments........... (70,223) 2,971,465 350,158 64 9,197,349
----------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................. $ 108,659 $ 2,722,581 $ 305,042 $ 63 $ 8,064,708
----------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

69
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------
SERIES A PORTFOLIOS

<TABLE>
<CAPTION>
EMERGING GROWTH CORE GROWTH
------------------------------- -------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
-----------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS OPERATIONS
Net investment income
(deficit)................. $ (1,925,355) $ (1,467,001) $ (881,974) $ (641,957)
Net realized gain (loss)
from security
transactions.............. 22,751,958 17,157,012 15,467,542 11,262,503
Net realized foreign
exchange gain (loss)...... -- -- -- --
Net unrealized foreign
exchange gain (loss)...... -- -- -- --
Change in net unrealized
appreciation
(depreciation) of
investments............... (28,323,397) 22,567,484 (13,774,880) 10,033,989
-----------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ (7,496,794) 38,257,495 810,688 20,654,535
-----------------------------------------------------------------
DISTRIBUTIONS TO SHARES OF
BENEFICIAL INTEREST
Net investment income*...... -- -- -- --
Capital gain*............... (15,992,011) (179,082) (8,361,898) --
-----------------------------------------------------------------
Total distributions..... (15,992,011) (179,082) (8,361,898) --
-----------------------------------------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Proceeds from shares sold... 462,516,007 37,959,926 30,931,782 13,279,964
Proceeds from shares issued
for distribution
reinvestment.............. 4,994,971 28,673 2,545,818 --
Cost of shares
repurchased............... (460,435,916) (44,636,699) (27,093,474) (21,950,980)
-----------------------------------------------------------------
Increase (decrease) in net
assets derived from
transactions in shares
of beneficial
interest................ 7,075,062 (6,648,100) 6,384,126 (8,671,016)
-----------------------------------------------------------------
Total increase
(decrease) in net
assets................ (16,413,743) 31,430,313 (1,167,084) 11,983,519
NET ASSETS:
BEGINNING OF PERIOD......... 138,155,390 106,725,077 77,275,060 65,291,541
-----------------------------------------------------------------
END OF PERIOD............... $ 121,741,647 $ 138,155,390 $ 76,107,976 $ 77,275,060
-----------------------------------------------------------------
CHANGES IN SHARES OF
BENEFICIAL INTEREST
Beginning balance........... 7,704,965 8,170,194 4,207,526 4,798,906
Shares sold................. 26,044,720 2,374,005 1,620,624 812,501
Shares issued for
distributions
reinvested................ 280,974 1,774 136,067 --
Shares repurchased.......... (25,992,460) (2,841,008) (1,434,859) (1,403,881)
-----------------------------------------------------------------
Ending balance.......... 8,038,199 7,704,965 4,529,358 4,207,526
-----------------------------------------------------------------
</TABLE>

- -------------
* See Financial Highlights for per share distribution amounts.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

70
<PAGE>
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
INCOME & GROWTH BALANCED GROWTH GOVERNMENT INCOME
------------------------------- ------------------------------- -------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS OPERATIONS
Net investment income
(deficit)................. $ 876,497 $ 1,014,246 $ 110,794 $ 120,127 $ 75,317 $ 65,740
Net realized gain (loss)
from security
transactions.............. 4,451,706 3,025,096 500,670 688,324 (33,783) 74,049
Net realized foreign
exchange gain (loss)...... -- -- -- -- -- --
Net unrealized foreign
exchange gain (loss)...... -- -- -- -- -- --
Change in net unrealized
appreciation
(depreciation) of
investments............... (1,334,608) 3,076,767 (135,773) 188,570 4,940 (44,744)
---------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 3,993,595 7,116,109 475,691 997,021 46,474 95,045
---------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARES OF
BENEFICIAL INTEREST
Net investment income*...... (886,133) (1,011,296) (110,672) (120,078) (75,947) (65,742)
Capital gain*............... (1,316,886) -- (492,706) -- (27,737) --
---------------------------------------------------------------------------------------------------
Total distributions..... (2,203,019) (1,011,296) (603,378) (120,078) (103,684) (65,742)
---------------------------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Proceeds from shares sold... 6,259,230 3,034,140 2,150,368 1,158,459 1,068,961 789,251
Proceeds from shares issued
for distribution
reinvestment.............. 1,074,289 359,472 161,907 19,024 41,246 21,274
Cost of shares
repurchased............... (8,754,583) (8,936,855) (3,188,811) (1,131,809) (1,237,165) (467,444)
---------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets derived from
transactions in shares
of beneficial
interest................ (1,421,064) (5,543,243) (876,536) 45,674 (126,958) 343,081
---------------------------------------------------------------------------------------------------
Total increase
(decrease) in net
assets................ 369,512 561,570 (1,004,223) 922,617 (184,168) 372,384
NET ASSETS:
BEGINNING OF PERIOD......... 31,712,051 31,150,481 5,902,210 4,979,593 1,297,458 925,074
---------------------------------------------------------------------------------------------------
END OF PERIOD............... $ 32,081,563 $ 31,712,051 $ 4,897,987 $ 5,902,210 $ 1,113,290 $ 1,297,458
---------------------------------------------------------------------------------------------------
CHANGES IN SHARES OF
BENEFICIAL INTEREST
Beginning balance........... 2,022,208 2,422,113 365,215 362,417 101,818 75,262
Shares sold................. 381,186 209,464 127,031 75,429 85,134 60,991
Shares issued for
distributions
reinvested................ 65,578 24,649 9,776 1,215 3,298 1,648
Shares repurchased.......... (535,213) (634,018) (186,832) (73,846) (98,715) (36,083)
---------------------------------------------------------------------------------------------------
Ending balance.......... 1,933,759 2,022,208 315,190 365,215 91,535 101,818
---------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

71
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
- --------------------------------------------------------------------------------
SERIES A PORTFOLIOS

<TABLE>
<CAPTION>
MONEY MARKET EMERGING COUNTRIES
------------------------------- -------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
-----------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS OPERATIONS
Net investment income
(deficit)................. $ 877,328 $ 199,306 $ (187,913) $ (8,681)
Net realized gain (loss)
from security
transactions.............. (2) (322) 2,620,500 75,094
Net realized foreign
exchange gain (loss)...... -- -- (25,273) (7,219)
Net unrealized foreign
exchange gain (loss)...... -- -- (2,504) (9)
Change in net unrealized
appreciation
(depreciation) of
investments............... -- -- 733,976 445,591
-----------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 877,326 198,984 3,138,786 504,776
-----------------------------------------------------------------
DISTRIBUTIONS TO SHARES OF
BENEFICIAL INTEREST
Net investment income*...... (877,328) (199,306) -- (3,691)
Capital gain*............... -- -- (297,905) (12,591)
-----------------------------------------------------------------
Total distributions..... (877,328) -- (297,905) (16,282)
-----------------------------------------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Proceeds from shares sold... 523,124,504 22,041,605 35,141,939 3,534,443
Proceeds from shares issued
for distribution
reinvestment.............. 771,842 180,368 161,618 2,935
Cost of shares
repurchased............... (490,766,887) (22,088,275) (4,174,308) (505,466)
-----------------------------------------------------------------
Increase (decrease) in net
assets derived from
transactions in shares
of beneficial
interest................ 33,129,459 133,698 31,129,249 3,031,912
-----------------------------------------------------------------
Total increase
(decrease) in net
assets................ 33,129,457 133,376 33,970,130 3,520,406
NET ASSETS:
BEGINNING OF PERIOD......... 3,129,223 2,995,847 4,717,767 1,197,361
-----------------------------------------------------------------
END OF PERIOD............... $ 36,258,680 $ 3,129,223 $ 38,687,897 $ 4,717,767
-----------------------------------------------------------------
CHANGES IN SHARES OF
BENEFICIAL INTEREST
Beginning balance........... 3,129,545 2,995,847 336,371 108,885
Shares sold................. 523,124,504 22,041,605 2,155,019 264,950
Shares issued for
distributions
reinvested................ 771,842 180,368 10,441 237
Shares repurchased.......... (490,766,887) (22,088,275) (252,083) (37,701)
-----------------------------------------------------------------
Ending balance.......... 36,259,004 3,129,545 2,249,748 336,371
-----------------------------------------------------------------
</TABLE>

- -------------
* See Financial Highlights for per share distribution amounts.
+ Commenced operations on February 28, 1997.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

72
<PAGE>
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL SMALL CAP GROWTH CORE GROWTH+ WORLDWIDE GROWTH
------------------------------- -------------- -------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1997 1996
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS OPERATIONS
Net investment income
(deficit)................. $ (29,476) $ (2,260) -- $ (224,650) $ (79,808)
Net realized gain (loss)
from security
transactions.............. 151,811 2,128 $ 13 3,695,538 1,986,079
Net realized foreign
exchange gain (loss)...... (11,302) 8,121 (2) (78,051) 186,789
Net unrealized foreign
exchange gain (loss)...... (493) 4,836 (1) (4,962) (12,787)
Change in net unrealized
appreciation
(depreciation) of
investments............... 289,270 108,746 20 (553,127) 2,037,016
----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 399,810 121,571 30 2,834,748 4,117,289
----------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARES OF
BENEFICIAL INTEREST
Net investment income*...... (2,119) (9,359) -- -- (164,263)
Capital gain*............... (28,766) -- -- (2,322,037) (548,948)
----------------------------------------------------------------------------------
Total distributions..... (30,885) (9,359) -- (2,322,037) (713,211)
----------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Proceeds from shares sold... 4,459,847 462,321 612 11,772,722 2,695,773
Proceeds from shares issued
for distribution
reinvestment.............. 11,339 4,744 -- 455,819 89,275
Cost of shares
repurchased............... (326,836) (133,644) -- (12,199,661) (4,916,315)
----------------------------------------------------------------------------------
Increase (decrease) in net
assets derived from
transactions in shares
of beneficial
interest................ 4,144,350 333,421 612 28,880 (2,131,267)
----------------------------------------------------------------------------------
Total increase
(decrease) in net
assets................ 4,513,275 445,633 642 541,591 1,272,811
NET ASSETS:
BEGINNING OF PERIOD......... 1,055,809 610,176 1,000 23,480,586 22,207,775
----------------------------------------------------------------------------------
END OF PERIOD............... $ 5,569,084 $ 1,055,809 $ 1,642 $ 24,022,177 $ 23,480,586
----------------------------------------------------------------------------------
CHANGES IN SHARES OF
BENEFICIAL INTEREST
Beginning balance........... 80,298 52,991 80 1,416,819 1,553,541
Shares sold................. 313,534 37,660 49 685,931 172,676
Shares issued for
distributions
reinvested................ 800 392 -- 27,509 5,816
Shares repurchased.......... (21,427) (10,745) -- 706,830 (315,214)
----------------------------------------------------------------------------------
Ending balance.......... 373,205 80,298 129 1,423,429 1,416,819
----------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

73
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
- --------------------------------------------------------------------------------
SERIES B PORTFOLIOS+

<TABLE>
<CAPTION>
EMERGING GROWTH CORE GROWTH
------------------------------- -------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
-----------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS OPERATIONS
Net investment income
(deficit)................. $ (510,915) $ (112,312) $ (385,898) $ (58,827)
Net realized gain (loss)
from security
transactions.............. (288,290) (229,159) 765,218 (1,452)
Net realized foreign
exchange gain (loss)...... -- -- -- --
Net unrealized foreign
exchange gain (loss)...... -- -- -- --
Change in net unrealized
appreciation
(depreciation) of
investments............... (2,501,896) 1,781,045 (1,661,676) 856,200
-----------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ (3,301,101) 1,439,574 (1,282,356) 795,921
-----------------------------------------------------------------
DISTRIBUTIONS TO SHARES OF
BENEFICIAL INTEREST
Net investment income*...... -- -- -- --
Capital gain*............... -- -- -- --
-----------------------------------------------------------------
Total distributions..... -- -- -- --
-----------------------------------------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Proceeds from sales......... 24,330,440 12,483,997 22,036,974 11,229,429
Proceeds from shares issued
for distribution
reinvestment.............. -- -- -- --
Cost of shares
repurchased............... (6,625,486) (298,833) (2,938,203) (840,372)
-----------------------------------------------------------------
Increase (Decrease) in net
assets derived from
transactions in shares
of beneficial
interest................ 17,704,954 12,185,164 19,098,771 10,389,057
-----------------------------------------------------------------
Total increase
(decrease) in net
assets................ 14,403,853 13,624,738 17,816,415 11,184,978
NET ASSETS:
BEGINNING OF PERIOD......... 13,625,738 1,000 11,185,978 1,000
-----------------------------------------------------------------
END OF PERIOD............... $ 28,029,591 $ 13,625,738 $ 29,002,393 $ 11,185,978
-----------------------------------------------------------------
CHANGES IN SHARES OF
BENEFICIAL INTEREST
Beginning balance........... 816,643 80 688,351 80
Shares sold................. 1,363,267 835,910 1,254,123 743,523
Shares issued for
distributions
reinvested................ -- -- -- --
Shares repurchased.......... (372,800) (19,347) (166,637) (55,252)
-----------------------------------------------------------------
Ending balance.......... 1,807,110 816,643 1,775,837 688,351
-----------------------------------------------------------------
</TABLE>

- -------------
* See Financial Highlights for per share distribution amounts.
+ Commenced operations on May 31, 1995.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

74
<PAGE>
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
INCOME & GROWTH BALANCED GROWTH GOVERNMENT INCOME
------------------------------- ------------------------------- -------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS OPERATIONS
Net investment income
(deficit)................. $ 158,493 $ 18,883 $ 21,467 $ 4,767 $ 44,511 $ 2,096
Net realized gain (loss)
from security
transactions.............. 298,853 (5,589) (20,222) (7,072) 17,066 445
Net realized foreign
exchange gain (loss)...... -- -- -- -- -- --
Net unrealized foreign
exchange gain (loss)...... -- -- -- -- -- --
Change in net unrealized
appreciation
(depreciation) of
investments............... 282,117 134,573 29,343 25,235 (24,165) (2,381)
---------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 739,463 147,867 30,588 22,930 37,412 160
---------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARES OF
BENEFICIAL INTEREST
Net investment income*...... (159,208) (18,662) (21,202) (4,771) (44,764) (2,088)
Capital gain*............... -- -- -- -- (12,311) (43)
---------------------------------------------------------------------------------------------------
Total distributions..... (159,208) (18,662) (21,202) (4,771) (57,075) (2,131)
---------------------------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Proceeds from sales......... 10,404,427 1,989,445 1,680,671 701,091 1,747,622 186,853
Proceeds from shares issued
for distribution
reinvestment.............. 109,978 13,947 16,798 2,978 19,774 1,394
Cost of shares
repurchased............... (480,034) (8,520) (246,899) (50,294) (530,556) (59,748)
---------------------------------------------------------------------------------------------------
Increase (Decrease) in net
assets derived from
transactions in shares
of beneficial
interest................ 10,034,371 1,994,872 1,450,570 653,775 1,236,840 128,499
---------------------------------------------------------------------------------------------------
Total increase
(decrease) in net
assets................ 10,614,626 2,124,077 1,459,956 671,934 1,217,177 126,528
NET ASSETS:
BEGINNING OF PERIOD......... 2,125,077 1,000 672,934 1,000 127,528 1,000
---------------------------------------------------------------------------------------------------
END OF PERIOD............... $ 12,739,703 $ 2,125,077 $ 2,132,890 $ 672,934 $ 1,344,705 $ 127,528
---------------------------------------------------------------------------------------------------
CHANGES IN SHARES OF
BENEFICIAL INTEREST
Beginning balance........... 142,019 80 47,473 80 10,174 80
Shares sold................. 648,630 141,568 110,729 50,735 141,955 14,683
Shares issued for
distributions
reinvested................ 6,743 963 1,106 215 1,600 110
Shares repurchased.......... (29,547) (592) (15,980) (3,557) (42,890) (4,699)
---------------------------------------------------------------------------------------------------
Ending balance.......... 767,845 142,019 143,328 47,473 110,839 10,174
---------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

75
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
- --------------------------------------------------------------------------------
SERIES B PORTFOLIOS+

<TABLE>
<CAPTION>
EMERGING COUNTRIES
-------------------------------
FOR THE FOR THE
YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31,
1997 1996
<S> <C> <C>
-------------------------------
INCREASE (DECREASE) IN NET
ASSETS OPERATIONS
Net investment income
(deficit)................. $ (204,544) $ (9,396)
Net realized gain (loss)
from security
transactions.............. 1,803,877 (42,752)
Net realized foreign
exchange gain (loss)...... (17,335) (2,898)
Net unrealized foreign
exchange gain (loss)...... (1,898) 91
Change in net unrealized
appreciation
(depreciation) of
investments............... 605,621 174,504
-------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 2,185,721 119,549
-------------------------------
DISTRIBUTIONS TO SHARES OF
BENEFICIAL INTEREST
Net investment income*...... -- --
Capital gain*............... (67,888) --
-------------------------------
Total distributions..... (67,888) --
-------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Proceeds from sales......... 19,948,661 3,604,854
Proceeds from shares issued
for distribution
reinvestment.............. 38,740 --
Cost of shares
repurchased............... (1,104,793) (168,323)
-------------------------------
Increase in net assets
derived from
transactions in shares
of beneficial
interest................ 18,882,608 3,436,531
-------------------------------
Total increase in net
assets................ 21,000,441 3,556,080
NET ASSETS:
BEGINNING OF PERIOD......... 3,557,080 1,000
-------------------------------
END OF PERIOD............... $ 24,557,521 $ 3,557,080
-------------------------------
CHANGES IN SHARES OF
BENEFICIAL INTEREST
Beginning balance........... 253,774 80
Shares sold................. 1,230,640 265,757
Shares issued for
distributions
reinvested................ 2,483 --
Shares repurchased.......... (66,698) (12,064)
-------------------------------
Ending balance.......... 1,420,199 253,773
-------------------------------
</TABLE>

- -------------
* See Financial Highlights for per share distribution amounts.
+ Commenced operations on May 31, 1995 except the International Core Growth
Portfolio which commenced operations on February 28, 1997.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

76
<PAGE>
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL SMALL CAP GROWTH CORE GROWTH WORLDWIDE GROWTH
------------------------------- -------------- -------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1997 1996
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS OPERATIONS
Net investment income
(deficit)................. $ (49,877) $ (1,795) -- $ (61,411) $ (6,624)
Net realized gain (loss)
from security
transactions.............. 139,789 (9,212) $ 9 227,470 (33,558)
Net realized foreign
exchange gain (loss)...... (11,214) 3 (3) (13,875) (1,169)
Net unrealized foreign
exchange gain (loss)...... (390) (152) -- (1,290) (73)
Change in net unrealized
appreciation
(depreciation) of
investments............... 325,117 86,896 13 186,506 136,957
----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 403,425 75,740 19 337,400 95,533
----------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARES OF
BENEFICIAL INTEREST
Net investment income*...... (5,186) -- -- -- --
Capital gain*............... -- -- -- -- --
----------------------------------------------------------------------------------
Total distributions..... (5,186) -- -- -- --
----------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Proceeds from sales......... 3,702,565 1,436,777 8 3,764,249 1,875,734
Proceeds from shares issued
for distribution
reinvestment.............. 4,495 -- -- -- --
Cost of shares
repurchased............... (512,097) (26,723) -- (132,022) (25)
----------------------------------------------------------------------------------
Increase in net assets
derived from
transactions in shares
of beneficial
interest................ 3,194,963 1,410,054 8 3,632,227 1,875,709
----------------------------------------------------------------------------------
Total increase in net
assets................ 3,593,202 1,485,794 27 3,969,627 1,971,242
NET ASSETS:
BEGINNING OF PERIOD......... 1,486,794 1,000 1,000 1,972,242 1,000
----------------------------------------------------------------------------------
END OF PERIOD............... $ 5,079,996 $ 1,486,794 $ 1,027 $ 5,941,869 $ 1,972,242
----------------------------------------------------------------------------------
CHANGES IN SHARES OF
BENEFICIAL INTEREST
Beginning balance........... 106,534 80 80 137,552 80
Shares sold................. 246,154 108,479 1 241,408 137,474
Shares issued for
distributions
reinvested................ 290 -- -- -- --
Shares repurchased.......... (33,337) (2,025) -- (8,169) (2)
----------------------------------------------------------------------------------
Ending balance.......... 319,641 106,534 81 370,791 137,552
----------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

77
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
- --------------------------------------------------------------------------------
SERIES C PORTFOLIOS

<TABLE>
<CAPTION>
EMERGING GROWTH CORE GROWTH
------------------------------- -------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
-----------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS OPERATIONS
Net investment income
(deficit)................. $ (4,223,186) $ (3,277,713) $ (2,899,449) $ (2,371,066)
Net realized gain (loss)
from security
transactions.............. 33,211,523 25,025,135 35,664,077 25,076,226
Net realized foreign
exchange gain (loss)...... -- -- -- --
Net unrealized foreign
exchange gain (loss)...... -- -- -- --
Change in net unrealized
appreciation
(depreciation) of
investments............... (42,199,307) 33,698,001 (30,168,671) 23,755,815
-----------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ (13,210,970) 55,445,423 2,595,957 46,460,975
-----------------------------------------------------------------
DISTRIBUTIONS TO SHARES OF
BENEFICIAL INTEREST
Net investment income*...... -- -- -- --
Capital gain*............... (23,811,530) (934,772) (17,382,672) --
-----------------------------------------------------------------
Total distributions..... (23,811,530) (934,772) (17,382,672) --
-----------------------------------------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Proceeds from sales......... 67,825,520 34,428,228 35,028,635 28,016,055
Proceeds from shares issued
for distribution
reinvestment.............. 2,692,729 70,462 2,654,979 --
Cost of shares
repurchased............... (57,920,772) (38,969,582) (42,857,133) (40,405,355)
-----------------------------------------------------------------
Increase (decrease) in net
assets derived from
transactions in shares
of beneficial
interest................ 12,597,477 (4,470,892) (5,173,519) (12,389,300)
-----------------------------------------------------------------
Total increase
(decrease) in net
assets................ (24,425,023) 50,039,759 (19,960,234) 34,071,675
NET ASSETS:
BEGINNING OF PERIOD......... 207,332,005 157,292,246 177,461,331 143,389,656
-----------------------------------------------------------------
END OF PERIOD............... $ 182,906,982 $ 207,332,005 $ 157,501,097 $ 177,461,331
-----------------------------------------------------------------
CHANGES IN SHARES OF
BENEFICIAL INTEREST
Beginning balance........... 11,765,386 12,138,614 9,825,753 10,660,454
Shares sold................. 3,815,165 2,229,275 1,872,637 1,736,793
Shares issued for
distributions
reinvested................ 156,388 4,429 144,369 --
Shares repurchased.......... (3,285,558) (2,606,932) (2,287,215) (2,571,494)
-----------------------------------------------------------------
Ending balance.......... 12,451,381 11,765,386 9,555,544 9,825,753
-----------------------------------------------------------------
</TABLE>

- -------------
* See Financial Highlights for per share distribution amounts.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

78
<PAGE>
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
INCOME & GROWTH BALANCED GROWTH GOVERNMENT INCOME
------------------------------- ------------------------------- -------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS OPERATIONS
Net investment income
(deficit)................. $ 1,348,417 $ 1,577,283 $ 218,565 $ 249,565 $ 178,882 $ 195,107
Net realized gain (loss)
from security
transactions.............. 8,550,614 6,045,361 1,455,500 2,116,964 (40,291) 288,875
Net realized foreign
exchange gain (loss)...... -- -- -- -- -- --
Net unrealized foreign
exchange gain (loss)...... -- -- -- -- -- --
Change in net unrealized
appreciation
(depreciation) of
investments............... (2,403,198) 5,862,603 (647,319) 505,781 (29,932) (128,268)
---------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 7,495,833 13,485,247 1,026,746 2,872,310 108,659 355,714
---------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARES OF
BENEFICIAL INTEREST
Net investment income*...... (1,361,226) (1,579,024) (218,006) (250,682) (180,214) (195,316)
Capital gain*............... (1,851,637) -- (1,482,915) -- -- --
---------------------------------------------------------------------------------------------------
Total distributions..... (3,212,863) (1,579,024) (1,700,921) (250,682) (180,214) (195,316)
---------------------------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Proceeds from sales......... 10,562,292 5,125,006 4,321,529 2,569,236 2,994,991 2,475,860
Proceeds from shares issued
for distribution
reinvestment.............. 564,331 118,288 180,525 28,551 47,133 37,183
Cost of shares
repurchased............... (12,263,595) (19,943,781) (3,424,124) (5,102,586) (2,262,515) (3,965,294)
---------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets derived from
transactions in shares
of beneficial
interest................ (1,136,972) (14,700,487) 1,077,930 (2,504,799) 779,609 (1,452,251)
---------------------------------------------------------------------------------------------------
Total increase
(decrease) in net
assets................ 3,145,998 (2,794,264) 403,755 116,829 708,054 (1,291,853)
NET ASSETS:
BEGINNING OF PERIOD......... 58,997,309 61,791,573 16,586,339 16,469,510 2,986,287 4,278,140
---------------------------------------------------------------------------------------------------
END OF PERIOD............... $ 62,143,307 $ 58,997,309 $ 16,990,094 $ 16,586,339 $ 3,694,341 $ 2,986,287
---------------------------------------------------------------------------------------------------
CHANGES IN SHARES OF
BENEFICIAL INTEREST
Beginning balance........... 3,712,379 4,741,312 1,023,861 1,196,550 236,490 348,596
Shares sold................. 628,939 353,167 256,836 163,082 241,093 192,231
Shares issued for
distributions
reinvested................ 33,465 8,002 10,900 1,833 3,781 2,908
Shares repurchased.......... (730,681) (1,390,102) (201,990) (337,604) (180,657) (307,245)
---------------------------------------------------------------------------------------------------
Ending balance.......... 3,644,102 3,712,379 1,089,607 1,023,861 300,707 236,490
---------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

79
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
- --------------------------------------------------------------------------------
SERIES C PORTFOLIOS

<TABLE>
<CAPTION>
EMERGING COUNTRIES
-------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31,
1997 1996
<S> <C> <C>
-------------------------------
INCREASE (DECREASE) IN NET
ASSETS OPERATIONS
Net investment income
(deficit)................. $ (248,884) $ (15,679)
Net realized gain (loss)
from security
transactions.............. 2,299,477 (48,875)
Net realized foreign
exchange gain (loss)...... (21,984) (4,594)
Net unrealized foreign
exchange gain (loss)...... (2,323) 45
Change in net unrealized
appreciation
(depreciation) of
investments............... 696,295 268,631
-------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 2,722,581 199,528
-------------------------------
DISTRIBUTIONS TO SHARES OF
BENEFICIAL INTEREST
Net investment income*...... -- --
Capital gain*............... (163,843) --
-------------------------------
Total distributions..... (163,843) --
-------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Proceeds from sales......... 24,484,540 4,602,574
Proceeds from shares issued
for distribution
reinvestment.............. 63,361 --
Cost of shares
repurchased............... (2,075,412) (516,724)
-------------------------------
Increase (decrease) in net
assets derived from
transactions in shares
of beneficial
interest................ 22,472,489 4,085,850
-------------------------------
Total increase
(decrease) in net
assets................ 25,031,227 4,285,378
NET ASSETS:
BEGINNING OF PERIOD......... 4,344,744 59,366
-------------------------------
END OF PERIOD............... $ 29,375,971 $ 4,344,744
-------------------------------
CHANGES IN SHARES OF
BENEFICIAL INTEREST
Beginning balance........... 316,899 5,503
Shares sold................. 1,557,372 350,179
Shares issued for
distributions
reinvested................ 4,177 --
Shares repurchased.......... (131,301) (38,783)
-------------------------------
Ending balance.......... 1,747,147 316,899
-------------------------------
</TABLE>

- -------------
* See Financial Highlights for per share distribution amounts.
+ Commenced operations on February 28, 1997.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

80
<PAGE>
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL SMALL CAP GROWTH CORE GROWTH WORLDWIDE GROWTH
------------------------------- -------------- -------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997+ 1997 1996
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS OPERATIONS
Net investment income
(deficit)................. $ (45,116) $ (3,506) $ (1) $ (1,132,641) $ (703,331)
Net realized gain (loss)
from security
transactions.............. 80,654 (10,145) (262) 11,316,290 5,902,488
Net realized foreign
exchange gain (loss)...... (8,590) 660 (17) (232,218) 571,253
Net unrealized foreign
exchange gain (loss)...... (293) 181 (14) (14,511) (39,907)
Change in net unrealized
appreciation
(depreciation) of
investments............... 278,387 74,042 357 (1,872,212) 6,622,118
----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 305,042 61,232 63 8,064,708 12,352,621
----------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARES OF
BENEFICIAL INTEREST
Net investment income*...... (1,204) (75) -- -- (38,714)
Capital gain*............... -- -- -- (7,050,772) (1,617,540)
----------------------------------------------------------------------------------
Total distributions..... (1,204) (75) -- (7,050,772) (1,656,254)
----------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST
Proceeds from sales......... 3,600,080 894,986 42,012 12,717,331 9,990,990
Proceeds from shares issued
for distribution
reinvestment.............. 872 53 -- 871,898 248,301
Cost of shares
repurchased............... (1,245,898) (46,840) -- (15,413,631) (20,981,346)
----------------------------------------------------------------------------------
Increase (decrease) in net
assets derived from
transactions in shares
of beneficial
interest................ 2,355,054 848,199 42,012 (1,824,402) (10,742,055)
----------------------------------------------------------------------------------
Total increase
(decrease) in net
assets................ 2,658,892 909,356 42,075 (810,466) (45,688)
NET ASSETS:
BEGINNING OF PERIOD......... 933,422 24,066 1,000 71,155,027 71,200,715
----------------------------------------------------------------------------------
END OF PERIOD............... $ 3,592,314 $ 933,422 $ 43,075 $ 70,344,561 $ 71,155,027
----------------------------------------------------------------------------------
CHANGES IN SHARES OF
BENEFICIAL INTEREST
Beginning balance........... 71,526 2,126 80 4,244,437 4,932,460
Shares sold................. 255,944 73,086 3,316 746,203 627,728
Shares issued for
distributions
reinvested................ 60 5 -- 52,366 15,968
Shares repurchased.......... (85,927) (3,691) -- (884,696) (1,331,719)
----------------------------------------------------------------------------------
Ending balance.......... 241,603 71,526 3,396 4,158,310 4,244,437
----------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

81
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS
- ------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Nicholas-Applegate Mutual Funds (the "Trust") is organized as a diversified,
open-end management investment company which offers 52 separate series comprised
of Portfolios A, with an initial sales charge, B, with a back-end sales charge,
C, with a level asset-based sales charge, Institutional, with no load, and
Qualified (also known as Advisory), with no load (each a "Portfolio" and
collectively the "Portfolios"). The Portfolios of the Trust seek to achieve
their respective investment objectives by investing all of their assets in
corresponding series of Nicholas-Applegate Investment Trust (the "Master
Trust"), a diversified open-end management investment company offering seventeen
investment vehicles (the "Funds"). For a description of the investments
objectives of each Fund, see Note A to the accompanying Funds' financial
statements.

Pursuant to Rule 24f-2 under the Investment Company Act, the Trust has elected
to register an indefinite number of shares. The Trust commenced operations on
April 19, 1993.

INVESTMENT INCOME AND REALIZED AND UNREALIZED GAINS AND LOSSES

Each Portfolio accrues income, net of expenses, daily on its investment in the
applicable Fund. All of the net investment income (deficit) and realized and
unrealized gains and losses from securities transactions and foreign currency of
the Fund are allocated pro rata among the investors in the Fund at the time of
such determination.

FEDERAL INCOME TAXES

It is the Portfolios' policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of their taxable income to their shareholders. Accordingly, no
federal income tax provisions are required if the Portfolios continue to comply
with such requirements.

The Funds are treated as partnerships for federal income tax purposes. Any
interest, dividends and gains or losses of the Funds will be deemed to have been
"passed through" to the Portfolios.

Net investment income and net realized gains for the year (or period where
appropriate) differ for financial statement and tax purposes primarily because
of one or all of the following: deferral of wash-sale losses, passive foreign
investments, unrealized appreciation/depreciation, and capital loss
carryforwards.

As of March 31, 1997, Emerging Growth Portfolio B, Balanced Growth Portfolio
B, Government Income Portfolios A and C, Money Market Portfolio A and
International Core Growth Portfolio C had available for Federal tax purposes
$499,752, $27,294, $33,783, $155,720, $324 and $209, respectively, of unused
capital loss carryovers which expire through 2005.

The character of distributions made during the year (or period where
appropriate) from net investment income or net realized gains may differ from
their ultimate characterization for federal income tax purposes due to book/tax
differences in the character of income and expense recognition. The prospectus
for the Nicholas-Applegate Mutual Funds describe each Portfolio's policies with
respect to declaration and payment of dividends and distribution of capital
gains.

DEFERRED ORGANIZATION COSTS

Organization costs incurred by the Trust have been allocated to certain
Portfolios based upon management's best estimate of the costs applicable to each
Portfolio. These costs have been deferred and are amortized over a period of 60
months from the date the Portfolios commenced operations.

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

82
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------

In the event that any of the initial shares are redeemed by the holder during
the period of amortization of the Portfolio's organization costs, the redemption
proceeds will be reduced by any such unamortized organization costs in the same
proportion as the number of initial shares being redeemed bears to the number of
those shares outstanding at the time of redemption.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

2. TRANSACTIONS WITH AFFILIATES

ADVISORY AGREEMENTS

The investment adviser to the Master Trust is Nicholas-Applegate Capital
Management ("Nicholas-Applegate" or "Investment Adviser"). The advisory fee is
computed daily for the Funds based upon the percentage of each Fund's average
daily net assets.

DISTRIBUTION AND SHAREHOLDER SERVICE PLAN

The Trust has approved a distribution plan whereby Nicholas Applegate
Securities (the "Distributor"), an affiliate of Nicholas-Applegate Capital
Management, is compensated for distribution-related expenses at an annual rate,
payable monthly, of 0.25%, 0.75% and 0.75% of Series A , B and C Portfolios'
average daily net assets, respectively, except for Government Income B and C
Portfolios, which is 0.50% and 0.50%, respectively.

The Money Market Portfolio compensates the Distributor at the rate of 0.15% of
average daily net assets.

Under a distribution agreement, the Distributor who is the principal
underwriter for the sale of shares of the Portfolios, retains a portion of any
contingent deferred sales load on redemptions for the Portfolios, and retains a
portion of the initial sales load imposed on purchases of shares of the Series A
Portfolios. This agreement may be terminated by either party upon 60 days'
written notice. For the fiscal year ended March 31, 1997, the Distributor earned
approximately $2,376,000 from sales loads, of which approximately $1,743,000 was
re-allowed to other brokers.

The Trust has approved a shareholder service plan under which the Distributor
is also compensated for non-distribution related expenses at an annual rate, as
follows: 0.10%, 0.25% and 0.25% of the average daily net asset value of the
Series A (including Money Market Portfolio), Series B, and Series C Portfolios,
respectively.

ADMINISTRATIVE SERVICES AGREEMENT

Effective November 15, 1996, the Trust agreed to compensate the Investment
Adviser for co-administrative services at annual rate of up to 0.10% of average
daily net assets of each of the Portfolios. These fees are in addition to the
administrative fees charged by Investment Company Administration Corporation.
The Investment Adviser has agreed to waive these fees if the related Portfolio's
expenses before reimbursement is greater than the expense limitation. In
subsequent years, each Portfolio will reimburse the Investment Adviser, up to
actual cost, when operating expenses before reimbursement are less than the
applicable expense limitation. As of March 31, 1997, Emerging Growth Portfolios
A and C owed the Investment Adviser $11,797 and $16,578, respectively, which
were included in accrued expenses.

EXPENSE LIMITATIONS

Nicholas-Applegate and the Trust have undertaken to limit the Portfolios'
expenses to the following annual levels through March 31, 1998. In subsequent
years, overall operating expenses for each Portfolio will not fall below the
applicable percentage

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

83
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------

limitation until the Investment Adviser has been fully reimbursed for fees
foregone and expenses paid by the Investment Adviser under this agreement, as
each Portfolio will reimburse the Investment Adviser in subsequent years when
operating expenses (before reimbursement) are less than the applicable
percentage limitation.

<TABLE>
<CAPTION>
A B C
--------- --------- ---------
<S> <C> <C> <C>
Emerging Growth Portfolios.......... 1.95% 2.60% 2.60%
Core Growth Portfolios.............. 1.60% 2.25% 2.25%
Income & Growth Portfolios.......... 1.60% 2.25% 2.25%
Balanced Growth Portfolios.......... 1.60% 2.25% 2.25%
Government Income Portfolios........ 0.90% 1.30% 1.30%
Money Market Portfolio.............. 1.10% -- --
Emerging Countries Portfolios....... 2.25% 2.90% 2.90%
International Small Cap Growth
Portfolios........................ 1.95% 2.60% 2.60%
International Core Growth
Portfolios........................ 1.95% 2.60% 2.60%
Worldwide Growth Portfolios......... 1.85% 2.50% 2.50%
</TABLE>

During the period from November 22, 1993 to March 31, 1997,
Nicholas-Applegate, at its discretion, paid for all of the Money Market
Portfolio expenses. Nicholas-Applegate may continue to make such additional
payments for expenses within the limitation at its discretion.

These percentages are based on the average net assets of the Portfolios,
exclusive of interest, taxes, brokerage commissions and other costs incurred in
connection with portfolio securities transactions, capital expenditures, and
extraordinary expenses.

The cumulative unreimbursed amounts paid by Nicholas-Applegate, including
co-administrative fees, on behalf of the Portfolios, during the periods from
inception (respectively) to March 31, 1997, are as follows:

<TABLE>
<CAPTION>
A B C
--------- --------- ---------
<S> <C> <C> <C>
Emerging Growth Portfolios..... -- $ 65,692 --
Core Growth Portfolios......... $ 46,458 135,856 $ 55,854
Income & Growth Portfolios..... 204,503 102,312 95,277
Balanced Growth Portfolios..... 283,977 102,866 221,303
Government Income Portfolios... 283,963 79,686 290,668
Money Market Portfolio......... 396,479 -- --
Emerging Countries
Portfolios.................... 261,976 129,701 119,191
International Small Cap Growth
Portfolios.................... 132,827 104,001 96,551
International Core Growth
Portfolios.................... 6,169 13,784 4,406
Worldwide Growth Portfolios.... 244,075 120,764 91,831
</TABLE>

RELATED PARTIES

Certain officers of the Trust and the Master Trust are also officers of the
Investment Adviser and the Distributor.

3. INVESTMENT TRANSACTIONS

Additions and reductions in the investments in the respective Master Trust
Funds for the fiscal year ended March 31, 1997 were as follows:

<TABLE>
<CAPTION>
ADDITIONS REDUCTIONS
(000S) (000S)
----------- -----------
<S> <C> <C>
Emerging Growth Portfolio A..... $ 462,566 $ 472,415
Emerging Growth Portfolio B..... 24,356 7,009
Emerging Growth Portfolio C..... 67,934 81,916
Core Growth Portfolio A......... 30,961 33,470
Core Growth Portfolio B......... 22,134 3,314
Core Growth Portfolio C......... 35,099 59,890
Income & Growth Portfolio A..... 6,314 10,142
Income & Growth Portfolio B..... 10,404 507
Income & Growth Portfolio C..... 10,590 15,734
</TABLE>

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

84
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ADDITIONS REDUCTIONS
(000S) (000S)
----------- -----------
<S> <C> <C>
Balanced Growth Portfolio A..... $ 2,230 $ 3,697
Balanced Growth
Portfolio B.................... 1,681 250
Balanced Growth
Portfolio C.................... 4,383 5,164
Government Income Portfolio A... 1,161 1,377
Government Income Portfolio B... 1,748 564
Government Income Portfolio C... 3,080 2,500
Money Market Portfolio.......... 524,583 492,336
Emerging Countries Portfolio
A.............................. 35,237 4,526
Emerging Countries Portfolio
B.............................. 20,013 1,313
Emerging Countries Portfolio
C.............................. 24,511 2,328
International Small Cap Growth
Portfolio A.................... 4,460 346
International Small Cap Growth
Portfolio B.................... 3,703 512
International Small Cap Growth
Portfolio C.................... 3,600 1,244
International Core Growth
Portfolio A.................... 2 --
International Core Growth
Portfolio B.................... 1 --
International Core Growth
Portfolio C.................... 43 --
Worldwide Growth Portfolio A.... 11,830 14,258
Worldwide Growth Portfolio B.... 3,764 132
Worldwide Growth Portfolio C.... 12,726 22,530
</TABLE>

4. CREDIT FACILITY

The Portfolios participate with other Nicholas-Applegate Mutual Funds
portfolios in a $75 million unsecured redemption credit facility ("Facility") to
be utilized for temporary or emergency purposes, including the financing of
redemptions. In connection therewith, the Portfolios have agreed to pay
commitment fees on its pro rata portion of the Facility. Interest is charged to
the Portfolios at rates based on prevailing market rates in effect at the time
of borrowings. At March 31, 1997, there were no outstanding borrowing under the
Facility. The maximum amount borrowed under this line of credit at any time
during the period ended March 31, 1997 was $0.

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

85
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES FOR THE NICHOLAS-APPLEGATE INVESTMENT TRUST
MARCH 31, 1997

<TABLE>
<CAPTION>
EMERGING CORE INCOME & BALANCED
GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
---------------------------------------------------------
ASSETS
Investments, at value*...... $ 513,702,221 $ 429,954,685 $ 133,124,390 $ 25,327,714
Foreign currencies, at
value**................... -- -- -- --
Cash........................ 7,296 -- 1,763 514
Receivable for investment
securities sold........... 5,647,577 6,131,600 427,413 1,058,379
Receivable for interests
sold...................... 1,685,096 1,205,089 202,752 15,798
Dividends receivable........ 104,509 74,306 105,839 6,081
Interest receivable......... 3,935 27,425 718,983 187,456
Due from advisor............ -- -- -- --
Deferred organization
costs..................... 14,447 16,342 8,103 5,779
Other assets................ 119,971 466 187 2,900
---------------------------------------------------------
Total assets.............. 521,285,052 437,409,913 134,589,430 26,604,621
---------------------------------------------------------
LIABILITIES
Payable for investment
securities purchased...... 5,620,659 3,198,970 3,069,606 1,446,188
Payable for interests
repurchased............... 13,505,243 936,646 733,123 118,699
Due to advisor.............. 447,116 301,517 90,595 13,802
Accrued expenses............ 149,501 170,271 44,704 13,962
Cash overdraft.............. -- 28,578 -- --
---------------------------------------------------------
Total liabilities......... 19,722,519 4,635,982 3,938,028 1,592,651
---------------------------------------------------------
NET ASSETS $ 501,562,533 $ 432,773,931 $ 130,651,402 $ 25,011,970
---------------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital............. $ 344,243,025 $ 318,631,289 $ 85,728,279 $ 18,287,185
Accumulated net investment
income (deficit).......... (9,945,231) (2,250,183) 15,837,317 2,070,209
Accumulated net realized
gain (loss)............... 120,964,919 95,465,448 18,641,969 2,678,804
Accumulated net realized
foreign exchange gain
(loss).................... -- -- -- --
Net unrealized foreign
exchange gain (loss)...... -- -- -- --
Net unrealized appreciation
(depreciation) on
investments............... 46,299,820 20,927,377 10,443,837 1,975,772
---------------------------------------------------------
Net assets................ $ 501,562,533 $ 432,773,931 $ 130,651,402 $ 25,011,970
---------------------------------------------------------
*Investments, at cost........ $ 467,402,401 $ 409,027,308 $ 122,680,553 $ 23,351,942
---------------------------------------------------------
**Foreign currencies, at
cost......................... -- -- -- --
---------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

86
<PAGE>
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
INTERNATIONAL
GOVERNMENT EMERGING SMALL CAP INTERNATIONAL WORLDWIDE
INCOME MONEY MARKET COUNTRIES GROWTH CORE GROWTH GROWTH
FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------
ASSETS
Investments, at value*...... $6,645,508 $ 36,381,250 $ 148,615,133 $ 60,125,918 $4,959,420 $ 104,555,910
Foreign currencies, at
value**................... -- -- 10,253,752 1,140,629 104,781 938,477
Cash........................ 8,743 736 -- -- -- --
Receivable for investment
securities sold........... 43,062 -- 14,065,771 2,505,675 231,643 5,612,574
Receivable for interests
sold...................... 29,252 -- 1,060,310 196,701 8,988 343,764
Dividends receivable........ 685 -- 130,452 81,043 5,387 184,526
Interest receivable......... 87,624 2,110 2,235 -- 21 514
Due from advisor............ 5,359 2,000 -- -- 595 25,043
Deferred organization
costs..................... 5,316 4,553 -- 529 -- 6,630
Other assets................ 4 88 2,706 -- -- --
---------------------------------------------------------------------------------------
Total assets.............. 6,825,553 36,390,737 174,130,359 64,050,495 5,310,835 111,667,438
---------------------------------------------------------------------------------------
LIABILITIES
Payable for investment
securities purchased...... 523,378 -- 13,826,788 489,820 557,913 4,518,099
Payable for interests
repurchased............... 9,501 -- 353,188 7,959 -- 311,556
Due to advisor.............. 24,688 17,137 151,114 25,225 -- 88,419
Accrued expenses............ 14,381 25,009 27,618 35,528 4,995 87,583
Cash overdraft.............. -- -- 1,434,767 605,419 79,051 2,846,405
---------------------------------------------------------------------------------------
Total liabilities......... 571,948 42,146 15,793,475 1,163,951 641,959 7,852,062
---------------------------------------------------------------------------------------
NET ASSETS $6,253,605 $ 36,348,591 $ 158,336,884 $ 62,886,544 $4,668,876 $ 103,815,376
---------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital............. $5,346,086 $ 36,348,919 $ 141,911,478 $ 53,544,182 $4,480,421 $ 67,019,886
Accumulated net investment
income (deficit).......... 1,088,938 -- (294,130) (52,729) 2,864 264,027
Accumulated net realized
gain (loss)............... (58,511) (328) 11,593,258 2,950,994 142,256 23,282,898
Accumulated net realized
foreign exchange gain
(loss).................... -- -- (138,069) (6,280) (13,888) 573,896
Net unrealized foreign
exchange gain (loss)...... -- -- (12,587) (6,666) (1,322) (24,280)
Net unrealized appreciation
(depreciation) on
investments............... (122,908) -- 5,276,934 6,457,043 58,545 12,698,949
---------------------------------------------------------------------------------------
Net assets................ $6,253,605 $ 36,348,591 $ 158,336,884 $ 62,886,544 $4,668,876 $ 103,815,376
---------------------------------------------------------------------------------------
*Investments, at cost........ $6,768,417 $ 36,381,250 $ 143,338,199 $ 53,668,875 $4,900,875 $ 91,856,961
---------------------------------------------------------------------------------------
**Foreign currencies, at
cost........................ -- -- $ 10,125,382 $ 1,140,493 $ 103,656 $ 939,277
---------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

87
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR NICHOLAS-APPLEGATE INVESTMENT TRUST
FOR THE YEAR ENDED MARCH 31, 1997

<TABLE>
<CAPTION>
EMERGING CORE INCOME & BALANCED
GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
--------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................... $ 889,913 $ 1,091,361 $ 1,998,357 $ 62,192
Interest.................... 1,793,613 1,536,884 3,344,440 847,653
--------------------------------------------------------------------
Total income............ 2,683,526 2,628,245 5,342,797 909,845
--------------------------------------------------------------------
EXPENSES:
Advisory fee.............. 5,836,182 3,594,196 902,615 196,321
Accounting fee............ 227,961 205,513 82,626 65,767
Administration fee........ 34,905 138,879 34,823 7,596
Audit & tax fees.......... 105,901 87,431 20,549 6,121
Custodian fee............. 144,315 104,051 37,891 27,971
Insurance................. 10,843 4,479 1,013 152
Legal fee................. 11,605 6,337 2,606 345
Miscellaneous............. 39,817 32,328 7,917 2,957
Organization costs........ 8,515 15,542 7,709 5,501
Trustees' fee............. 6,500 6,500 6,500 4,000
--------------------------------------------------------------------
Total expense........... 6,426,544 4,195,256 1,104,249 316,731
Less: Reimbursement to
(from) advisor.......... -- -- 39,067 (68,056)
--------------------------------------------------------------------
Net expenses............ 6,426,544 4,195,256 1,143,316 248,675
--------------------------------------------------------------------
Net investment income
(deficit)........... (3,743,018) (1,567,011) 4,199,481 661,170
--------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss)
from security
transactions.............. 96,622,117 76,538,109 15,692,945 1,969,019
Net realized foreign
exchange (loss)........... -- -- -- --
Net unrealized foreign
exchange (loss)........... -- -- -- --
Change in net unrealized
appreciation
(depreciation) of
investments............... (114,330,357) (67,826,297) (3,821,355) (768,824)
--------------------------------------------------------------------
Net gain (loss) on
investments........... (17,708,240) 8,711,812 11,871,590 1,200,195
--------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS............. $ (21,451,258) $ 7,144,801 $ 16,071,071 $ 1,861,365
--------------------------------------------------------------------
</TABLE>

- -------------
+ Commenced operations on December 27, 1996.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

88
<PAGE>
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL
GOVERNMENT MONEY EMERGING SMALL CAP CORE WORLDWIDE
INCOME MARKET COUNTRIES GROWTH GROWTH GROWTH
FUND FUND FUND FUND FUND+ FUND
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................... -- -- $ 679,747 $ 426,462 $ 5,637 $ 891,102
Interest.................... $ 367,834 $ 960,138 149,808 54,657 4,958 61,483
----------------------------------------------------------------------------------------------
Total income............ 367,834 960,138 829,555 481,119 10,595 952,585
----------------------------------------------------------------------------------------------
EXPENSES:
Advisory fee.............. 23,112 44,318 915,695 477,212 5,726 1,028,250
Accounting fee............ 63,694 66,579 93,917 75,496 1,158 74,912
Administration fee........ 1,661 4,922 20,598 13,683 152 29,846
Audit & tax fees.......... 1,016 2,251 9,384 7,953 158 18,808
Custodian fee............. 17,758 25,866 98,062 72,779 3,985 122,467
Insurance................. 110 43 204 259 -- 1,086
Legal fee................. 78 364 1,393 656 7 1,361
Miscellaneous............. 375 923 3,908 2,982 44 6,871
Organization costs........ 5,059 4,938 -- 299 -- 6,296
Trustees' fee............. 6,500 6,500 6,500 6,500 2,197 6,500
----------------------------------------------------------------------------------------------
Total expense........... 119,363 156,704 1,149,661 657,819 13,427 1,296,397
Less: Reimbursement to
(from) advisor.......... (84,903) (76,932) 22,429 (13,583) (5,696) (62,497)
----------------------------------------------------------------------------------------------
Net expenses............ 34,460 79,772 1,172,090 644,236 7,731 1,233,900
----------------------------------------------------------------------------------------------
Net investment income
(deficit)........... 333,374 880,366 (342,535) (163,117) 2,864 (281,315)
----------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss)
from security
transactions.............. (56,975) (4) 11,849,728 3,140,492 142,256 15,788,457
Net realized foreign
exchange (loss)........... -- -- (113,212) (171,484) (13,888) (333,967)
Net unrealized foreign
exchange (loss)........... -- -- (12,593) (4,450) (1,322) (21,431)
Change in net unrealized
appreciation
(depreciation) of
investments............... (49,150) -- 3,898,413 3,921,418 58,545 (2,434,302)
----------------------------------------------------------------------------------------------
Net gain (loss) on
investments........... (106,125) (4) 15,622,336 6,885,976 185,591 12,998,757
----------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS............. $ 227,249 $ 880,362 $ 15,279,801 $ 6,722,859 $ 188,455 $ 12,717,442
----------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

89
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR NICHOLAS-APPLEGATE INVESTMENT TRUST

<TABLE>
<CAPTION>
EMERGING GROWTH FUND CORE GROWTH FUND
------------------------------- -------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1997 MARCH 31, 1996
<S> <C> <C> <C> <C>
-----------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income
(deficit)................. $ (3,743,018) $ (2,945,373) $ (1,567,011) $ (752,357)
Net realized gain (loss)
from security
transactions.............. 96,622,117 78,797,996 76,538,109 50,587,998
Net realized foreign
exchange gain (loss)...... -- -- -- --
Net unrealized foreign
exchange gain (loss)...... -- -- -- --
Change in net unrealized
appreciation
(depreciation) of
investments............... (114,330,357) 91,635,716 (67,826,297) 52,583,826
-----------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations......... (21,451,258) 167,488,339 7,144,801 102,419,467
-----------------------------------------------------------------
DISTRIBUTIONS TO PARTNERS
Net investment income....... -- -- -- --
-----------------------------------------------------------------
TRANSACTIONS IN INTERESTS
Contributions by partners... 626,817,132 107,044,506 158,154,505 113,757,799
Withdrawals by partners..... (687,889,723) (161,495,614) (153,067,978) (79,489,585)
-----------------------------------------------------------------
Net increase (decrease) in
net assets from
transactions in
interests............... (61,072,591) (54,451,108) 5,086,527 34,268,214
-----------------------------------------------------------------
Total increase
(decrease) in net
assets................ (82,523,849) 113,037,231 12,231,328 136,687,681
NET ASSETS
BEGINNING OF PERIOD......... 584,086,382 471,049,151 420,542,603 283,854,922
-----------------------------------------------------------------
END OF PERIOD............... $ 501,562,533 $ 584,086,382 $ 432,773,931 $ 420,542,603
-----------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

90
<PAGE>
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
BALANCED GROWTH FUND GOVERNMENT INCOME FUND
INCOME & GROWTH FUND ----------------------------- ---------------------------
------------------------------- FOR THE FOR THE FOR THE FOR THE
FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
YEAR ENDED YEAR ENDED MARCH 31, MARCH 31, MARCH 31, MARCH 31,
MARCH 31, 1997 MARCH 31, 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income
(deficit)................. $ 4,199,481 $ 4,142,172 $ 661,170 $ 638,909 $ 333,374 $ 291,713
Net realized gain (loss)
from security
transactions.............. 15,692,945 10,319,301 1,969,019 2,837,068 (56,975) 363,388
Net realized foreign
exchange gain (loss)...... -- -- -- -- -- --
Net unrealized foreign
exchange gain (loss)...... -- -- -- -- -- --
Change in net unrealized
appreciation
(depreciation) of
investments............... (3,821,355) 10,732,341 (768,824) 742,010 (49,150) (175,424)
---------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations......... 16,071,071 25,193,814 1,861,365 4,217,987 227,249 479,677
---------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PARTNERS
Net investment income....... -- -- -- -- -- --
---------------------------------------------------------------------------------------------
TRANSACTIONS IN INTERESTS
Contributions by partners... 34,105,984 15,608,507 8,738,263 4,914,004 5,988,848 3,577,045
Withdrawals by partners..... (31,283,589) (35,130,807) (9,432,209) (7,102,941) (4,440,486) (4,912,231)
---------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from
transactions in
interests............... 2,822,395 (19,522,300) (693,946) (2,188,937) 1,548,362 (1,335,186)
---------------------------------------------------------------------------------------------
Total increase
(decrease) in net
assets................ 18,893,466 5,671,514 1,167,419 2,029,050 1,775,611 (855,509)
NET ASSETS
BEGINNING OF PERIOD......... 111,757,936 106,086,422 23,844,551 21,815,501 4,477,994 5,333,503
---------------------------------------------------------------------------------------------
END OF PERIOD............... $ 130,651,402 $ 111,757,936 $ 25,011,970 $ 23,844,551 $ 6,253,605 $ 4,477,994
---------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

91
<PAGE>
NICHOLAS-APPLEGATE MUTUAL FUNDS
NOTES TO THE FINANCIAL STATEMENTS -- Continued
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR NICHOLAS-APPLEGATE INVESTMENT TRUST

<TABLE>
<CAPTION>
EMERGING COUNTRIES FUND
MONEY MARKET FUND ------------------------------
-------------------------------- FOR THE
FOR THE FOR THE FOR THE YEAR ENDED
YEAR ENDED YEAR ENDED YEAR ENDED MARCH 31,
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1997 1996
<S> <C> <C> <C> <C>
-----------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income
(deficit)................. $ 880,366 $ 200,767 $ (342,535) $ 26,122
Net realized gain (loss)
from security
transactions.............. (4) (325) 11,849,728 (35,846)
Net realized foreign
exchange gain (loss)...... -- -- (113,212) (25,318)
Net unrealized foreign
exchange gain (loss)...... -- -- (12,593) (1,712)
Change in net unrealized
appreciation
(depreciation) of
investments............... -- -- 3,898,413 1,753,151
-----------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations......... 880,362 200,442 15,279,801 1,716,397
-----------------------------------------------------------------
DISTRIBUTIONS TO PARTNERS
Net investment income....... (880,366) (200,767) -- --
-----------------------------------------------------------------
TRANSACTIONS IN INTERESTS
Contributions by partners... 525,513,379 22,251,491 143,835,272 16,175,253
Withdrawals by partners..... (492,338,631) (22,108,039) (20,677,175) (1,272,742)
-----------------------------------------------------------------
Net increase (decrease) in
net assets from
transactions in
interests............... 33,174,748 143,452 123,158,097 14,902,511
-----------------------------------------------------------------
Total increase
(decrease) in net
assets................ 33,174,744 143,127 138,437,898 16,618,908
NET ASSETS
BEGINNING OF PERIOD......... 3,173,847 3,030,720 19,898,986 3,280,078
-----------------------------------------------------------------
END OF PERIOD............... $ 36,348,591 $ 3,173,847 $ 158,336,884 $ 19,898,986
-----------------------------------------------------------------
</TABLE>

- -------------
+ Commenced operations on December 27, 1996.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

92
<PAGE>
- -------------------------------------------------------------------

<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL SMALL CAP CORE GROWTH
GROWTH FUND FUND
----------------------------- ------------ WORLDWIDE GROWTH FUND
FOR THE FOR THE FOR THE -------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED FOR THE FOR THE
MARCH 31, MARCH 31, MARCH 31, YEAR ENDED YEAR ENDED
1997 1996 1997+ MARCH 31, 1997 MARCH 31, 1996
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income
(deficit)................. $ (163,117) $ 73,015 $ 2,864 $ (281,315) $ 299,362
Net realized gain (loss)
from security
transactions.............. 3,140,492 61,956 142,256 15,788,457 8,223,209
Net realized foreign
exchange gain (loss)...... (171,484) 197,499 (13,888) (333,967) 792,348
Net unrealized foreign
exchange gain (loss)...... (4,450) 1,753 (1,322) (21,431) 585
Change in net unrealized
appreciation
(depreciation) of
investments............... 3,921,418 2,583,077 58,545 (2,434,302) 9,091,332
------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations......... 6,722,859 2,917,300 188,455 12,717,442 18,406,836
------------------------------------------------------------------------------
DISTRIBUTIONS TO PARTNERS
Net investment income....... -- -- -- -- --
------------------------------------------------------------------------------
TRANSACTIONS IN INTERESTS
Contributions by partners... 37,692,390 6,044,445 4,487,783 34,174,758 17,650,729
Withdrawals by partners..... (5,334,333) (2,768,514) (7,362) (43,419,850) (33,276,911)
------------------------------------------------------------------------------
Net increase (decrease) in
net assets from
transactions in
interests............... 32,358,057 3,275,931 4,480,421 (9,245,092) (15,626,182)
------------------------------------------------------------------------------
Total increase
(decrease) in net
assets................ 39,080,916 6,193,231 4,668,876 3,472,350 2,780,654
NET ASSETS
BEGINNING OF PERIOD......... 23,805,628 17,612,397 -- 100,343,026 97,562,372
------------------------------------------------------------------------------
END OF PERIOD............... $ 62,886,544 $ 23,805,628 $ 4,668,876 $ 103,815,376 $ 100,343,026
------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------

93
<PAGE>
NICHOLAS-APPLEGATE INVESTMENT TRUST
NOTES TO THE FUND'S FINANCIAL STATEMENTS
- ------------------------------------------------------------------------

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Nicholas-Applegate Investment Trust (the "Master Trust"), a diversified,
open-end management investment company organized as a Delaware business trust,
is comprised of seventeen investment vehicles (each a "Fund" and collectively
the "Funds") as of March 31, 1997. Up to five Portfolios of Nicholas-Applegate
Mutual Funds invest in the respective Funds of the Master Trust to achieve their
investment objective.

The investment objectives of the Funds are as follows:

Emerging Growth Fund seeks to maximize long-term capital appreciation through
investment primarily in equity securities of U.S. companies with less than $500
million in market capitalization.

Core Growth Fund seeks to maximize long-term capital appreciation through
investment primarily in U.S. companies, generally over $500 million in total
stock market value.

Income & Growth Fund seeks to maximize total return through investment
primarily in convertible and equity securities of U.S. companies.

Balanced Growth Fund seeks to provide a balance of long-term capital
appreciation and current income by investing approximately 60% of its total
assets in equity and convertible securities of primarily U.S. companies and 40%
of its total assets in debt securities, money market instruments and other
short-term investments.

Government Income Fund seeks to maximize current income through investment
primarily in intermediate-term debt securities of the U.S. government and its
agencies and instrumentalities.

Money Market Fund seeks to achieve a high level of current income consistent
with preservation of capital and maintenance of liquidity through investment in
investment grade securities with an average maturity of 90 days.

Emerging Countries Fund seeks to maximize long-term capital appreciation
through investment primarily in equity securities of companies in developing
countries of the world.

International Small Cap Growth Fund (formerly International Growth Fund) seeks
to maximize long-term capital appreciation through investment primarily in
equity securities of international companies with smaller to middle market
capitalizations.

International Core Growth Fund seeks to maximize long-term capital
appreciation through investment primarily in equity securities of international
companies with larger market capitalizations.

Worldwide Growth Fund seeks to maximize long-term capital appreciation through
investment primarily in growth stocks of U.S. and foreign companies.

SECURITIES TRANSACTIONS

Equity securities are valued at the last sale price (for exchange-listed
securities) or the mean between the last bid and asked price (if lacking any
sales and for over-the-counter securities). Debt securities generally are valued
at the mean between the last bid and asked prices. Securities with 60 days or
less remaining to maturity are valued on an amortized cost basis which
approximates market value.

Securities for which market quotations are not readily available are valued at
fair value determined in good faith by or under the direction of the Master
Trust's Board of Trustees.

Securities transactions are recognized on the trade date. Realized gains and
losses from securities transactions are calculated using the first-in, first-out
method. Dividend income (net of foreign taxes withheld when applicable) is
recognized on the ex-dividend date, and interest income is recorded on the

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

94
<PAGE>
NICHOLAS-APPLEGATE INVESTMENT TRUST
NOTES TO THE FUND'S FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------

accrual basis. Discounts and premiums on securities purchased are amortized over
the life of the respective securities.

FEDERAL INCOME TAXES
The Funds are treated as partnerships for federal income tax purposes. Any
interest, dividends and gains or losses of a Fund will be deemed to have been
"passed through" to the Portfolios.

DEFERRED ORGANIZATION COSTS

Organization costs incurred by the Master Trust have been allocated to the
various Funds based upon management's best estimate of the costs applicable to
each Fund. These costs have been deferred and are amortized over a period of 60
months from the date the Funds commenced operations.

USE OF ESTIMATES

B. TRANSACTIONS WITH AFFILIATES

ADVISORY AGREEMENTS

The investment adviser to the Master Trust is Nicholas-Applegate Capital
Management ("Nicholas-Applegate"). The advisory fee is computed daily based upon
the following annual percentages of each Fund's average daily net assets:

<TABLE>
<CAPTION>
FIRST $500 NEXT $500 EXCESS OF
FUND MILLION MILLION $1 BILLION
- ---------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Emerging Growth Fund........ 1.00% 1.00% 1.00%
Core Growth Fund............ 0.75% 0.675% 0.65%
Income & Growth Fund........ 0.75% 0.675% 0.65%
Balanced Growth Fund........ 0.75% 0.675% 0.65%
Government Income Fund...... 0.40% 0.35% 0.35%
Money Market Fund........... 0.25% 0.2275% 0.2275%
Emerging Countries Fund..... 1.25% 1.25% 1.25%
International Small Cap
Growth Fund............... 1.00% 0.90% 0.85%
International Core Growth
Fund...................... 1.00% 0.90% 0.85%
Worldwide Growth Fund....... 1.00% 0.90% 0.85%
</TABLE>

EXPENSE LIMITATIONS

Nicholas-Applegate and the Master Trust have undertaken to limit the Funds'
and Portfolios' expenses to certain annual levels through March 31, 1998. In
subsequent years, overall operating expenses for each Fund will not fall below
the percentage limitation until the Investment Adviser has been fully reimbursed
for fees foregone and expenses paid by the Investment Adviser under this
agreement, as each Fund will reimburse the Investment Adviser in subsequent
years when operating expenses (before reimbursement) are less than the
applicable percentage limitation.

The cumulative unreimbursed amounts paid by Nicholas-Applegate on behalf of
the Funds, during the period from inception (respectively) to March 31, 1997,
are as follows:

<TABLE>
<CAPTION>
FUND
- -----------------------------------------------
<S> <C>
Balanced Growth Fund........................... $ 312,927
Government Income Fund......................... 340,580
Money Market Fund.............................. 358,833
Emerging Countries Fund........................ 89,344
International Small Cap Growth Fund............ 209,240
International Core Growth Fund................. 5,696
Worldwide Growth Fund.......................... 296,420
</TABLE>

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

95
<PAGE>
NICHOLAS-APPLEGATE INVESTMENT TRUST
NOTES TO THE FUND'S FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------

C. INVESTMENT TRANSACTIONS

The aggregate purchases and sales of investment securities, other than
short-term obligations, for the fiscal year ended March 31, 1997, were as
follows (in 000's):

<TABLE>
<CAPTION>
FUND PURCHASES SALES
- -------------------------------- ----------- -----------
<S> <C> <C>
Emerging Growth Fund............ $ 618,124 $ 720,027
Core Growth Fund................ 698,508 689,415
Income & Growth Fund............ 201,594 192,617
Balanced Growth Fund............ 54,281 53,566
Government Income Fund.......... 33,624 31,669
Emerging Countries Fund......... 235,294 124,478
International Small Cap Growth
Fund.......................... 125,061 94,641
International Core Growth
Fund.......................... 6,103 1,669
Worldwide Growth Fund........... 181,284 188,408
</TABLE>

At March 31, 1997, the net unrealized appreciation (depreciation) based on the
cost of investments for Federal income tax purposes was as follows (in 000's):

<TABLE>
<CAPTION>
GROSS GROSS NET UNREALIZED
TAX COST OF UNREALIZED UNREALIZED APPRECIATION
FUND INVESTMENTS APPRECIATION DEPRECIATION (DEPRECIATION)
- ------------- ----------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Emerging
Growth
Fund....... $ 468,068 $ 77,636 $ 32,001 $ 45,635
Core Growth
Fund....... 409,134 43,158 22,337 20,821
Income &
Growth
Fund....... 122,709 12,275 1,859 10,416
Balanced
Growth
Fund....... 23,352 2,780 804 1,976
Government
Income
Fund....... 6,768 -- 123 (123)
Money Market
Fund....... 36,381 -- -- --
Emerging
Countries
Fund....... 143,340 10,716 5,441 5,275
International
Small Cap
Growth
Fund....... 53,734 8,139 1,747 6,392
International
Core Growth
Fund....... 4,907 161 108 53
Worldwide
Growth
Fund....... 91,969 15,291 2,704 12,587
</TABLE>

D. MARKET AND CREDIT RISKS AND DERIVATIVE INSTRUMENTS

The Master Trust's investment in foreign securities may entail risks due to
the potential of political and economic instability in the countries where the
securities are being offered. In addition, foreign exchange fluctuations could
affect the value of positions held. It is the Master Trust's policy to
continuously monitor its exposure to these risks.

Some of the Funds may utilize forward foreign currency exchange contracts as
part of their strategy of preserving capital. Upon entering into forward foreign
currency contracts, the Funds are required to deposit with the broker an amount
of cash or cash equivalents equal to the amount of the contract. The daily
changes in the contract are recorded as unrealized gains or losses. The Funds
recognize a realized gain or loss when the contract is sold.

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

96
<PAGE>
NICHOLAS-APPLEGATE INVESTMENT TRUST
NOTES TO THE FUNDS' FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------

E. SELECTED RATIO DATA

<TABLE>
<CAPTION>
RATIO OF NET
INVESTMENT RATIO OF NET
RATIO OF RATIO OF INCOME INVESTMENT
EXPENSES TO EXPENSES TO (DEFICIT) TO INCOME (DEFICIT)
AVERAGE NET AVERAGE NET AVERAGE NET TO AVERAGE NET
ASSETS, ASSETS, ASSETS, AFTER ASSETS, BEFORE
AFTER BEFORE EXPENSE EXPENSE BROKER
REIMBURSEMENTS REIMBURSEMENTS REIMBURSEMENTS REIMBURSEMENTS PORTFOLIO COMMISSIONS
(RECOUPMENT) (RECOUPMENT) (RECOUPMENT) (RECOUPMENT) TURNOVER RATE PER SHARE
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
EMERGING GROWTH(1)
For the year ended
03/31/97.................. 1.10% 1.10% (0.64%) (0.64%) 112.90% $0.0520
For the year ended
03/31/96.................. 1.11% 1.11% (0.57%) (0.57%) 129.59% $0.0523
For the year ended
03/31/95.................. 1.12% 1.11% (0.53%) (0.52%) 100.46% --
For the period ended
03/31/94*................. 1.12% 1.16% (0.80%) (0.84%) 50.51% --
CORE GROWTH(2)
For the year ended
03/31/97.................. 0.88% 0.88% (0.33%) (0.33%) 153.20% $0.0582
For the year ended
03/31/96.................. 0.89% 0.89% (0.22%) (0.22%) 114.48% $0.0593
For the year ended
03/31/95.................. 0.89% 0.89% 0.05% 0.05% 98.09% --
For the period ended
03/31/94*................. 0.92% 0.92% (0.03%) (0.03%) 84.84% --
INCOME & GROWTH(2)
For the year ended
03/31/97.................. 0.95% 0.92% 3.49% 3.52% 166.84% $0.0154
For the year ended
03/31/96.................. 0.95% 0.94% 3.94% 3.94% 144.97% $0.0597
For the year ended
03/31/95.................. 0.93% 0.95% 4.37% 4.35% 125.51% --
For the period ended
03/31/94*................. 0.94% 0.97% 3.51% 3.48% 177.52% --
BALANCED GROWTH(2)
For the year ended
03/31/97.................. 0.95% 1.21% 2.53% 2.27% 212.95% $0.0586
For the year ended
03/31/96.................. 0.95% 1.37% 2.83% 2.37% 197.19% $0.0594
For the year ended
03/31/95.................. 0.95% 1.33% 2.13% 1.75% 110.40% --
For the period ended
03/31/94*................. 0.94% 1.37% 1.93% 1.50% 85.43% --
GOVERNMENT INCOME FUND(2)
For the year ended
03/31/97.................. 0.60% 2.07% 5.77% 4.30% 573.72% --
For the year ended
03/31/96.................. 0.60% 2.75% 6.12% 4.00% 190.47% --
For the year ended
03/31/95.................. 0.80% 2.21% 5.32% 3.91% 258.72% --
For the period ended
03/31/94*................. 0.80% 2.80% 3.43% 1.43% 159.17% --
MONEY MARKET FUND(2)
For the year ended
03/31/97.................. 0.45% 0.88% 4.97% 4.53% n/a --
For the year ended
03/31/96.................. 0.45% 3.20% 5.34% 2.59% n/a --
For the year ended
03/31/95.................. 0.31% 3.23% 4.61% 1.69% n/a --
For the period ended
03/31/94*................. 0.24% 151.02% 2.12% (148.66%) n/a --
EMERGING COUNTRIES FUND(3)
For the year ended
03/31/97.................. 1.60% 1.57% (0.47%) (0.44%) 176.20% $0.0021
For the year ended
03/31/96.................. 1.60% 2.80% 0.30% (0.90%) 118.21% $0.0022
For the period ended
03/31/95*................. 1.60% 1.81% 1.73% 1.52% 60.79% --
INTERNATIONAL SMALL CAP GROWTH
FUND(4)
For the year ended
03/31/97.................. 1.35% 1.38% (0.34%) (0.37%) 206.07% $0.0098
For the year ended
03/31/96.................. 1.35% 1.98% 0.39% (0.24%) 141.02% $0.0128
For the year ended
03/31/95.................. 1.35% 1.85% 0.24% (0.26%) 74.88% --
For the period ended
03/31/94*................. 1.35% 2.28% 0.41% (0.52%) 23.71% --
INTERNATIONAL CORE GROWTH
FUND(5)
For the period ended
03/31/97*................. 1.29% 2.25% 0.48% (0.47%) 75.53% $0.0106
WORLDWIDE GROWTH FUND(2)
For the year ended
03/31/97.................. 1.20% 1.26% (0.27%) (0.33%) 181.81% $0.0078
For the year ended
03/31/96.................. 1.20% 1.26% 0.31% 0.25% 132.20% $0.0187
For the year ended
03/31/95.................. 1.20% 1.30% 0.24% 0.14% 98.54% --
For the period ended
03/31/94*................. 1.20% 1.36% 0.01% (0.15%) 95.09% --
</TABLE>

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

(1) Commenced operations on October 1, 1993.
(2) Commenced operations on April 19, 1993.
(3) Commenced operations on November 28, 1994.
(4) Commenced operations on December 31, 1993.
(5) Commenced operations on December 27, 1996.
* Annualized

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

97
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- ------------------------------------------------------------------------
ERNST & YOUNG LLP
515 SOUTH FLOWER STREET
LOS ANGELES, CALIFORNIA 90071
PHONE: 213 977 3200

TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
NICHOLAS-APPLEGATE MUTUAL FUNDS

We have audited the accompanying statements of assets and liabilities of the
Series A, B and C Portfolios of Nicholas-Applegate Mutual Funds (comprising
respectively, Emerging Growth Portfolios A, B and C, Core Growth Portfolios A,
B, and C, Income and Growth Portfolios A, B and C, Balanced Growth Portfolios A,
B and C, Government Income Portfolios A, B and C, Money Market Portfolio,
Emerging Countries Portfolios A, B and C, International Small Cap Growth
(formerly "International Growth") Portfolios A, B and C, International Core
Growth Portfolios A, B and C, and Worldwide Growth Portfolios A, B and C)
(hereinafter the "Portfolios"), as of March 31, 1997, and the related statements
of operations for the fiscal year then ended, and the statements of changes in
net assets and the financial highlights for each of the two fiscal years in the
period then ended, except for International Core Growth Portfolios A, B and C
which are for the fiscal year then ended. These financial statements and
financial highlights are the responsibility of the Portfolios' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each of
the two fiscal years in the period ended March 31, 1995 were audited by other
auditors whose report dated May 12, 1995 expressed an unqualified opinion on
those financial highlights.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements and the 1996 and 1997 financial
highlights referred to above present fairly, in all material respects, the
financial position of each of the respective series A, B and C Portfolios of
Nicholas-Applegate Mutual Funds as of March 31, 1997, the results of their
operations for the fiscal year then ended, and changes in their net assets and
the financial highlights for each of the two fiscal years in the period then
ended, as described in the first paragraph, in conformity with generally
accepted accounting principles.

/s/ Ernst & Young LLP
May 13, 1997

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

98
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- ------------------------------------------------------------------------
ERNST & YOUNG LLP
515 SOUTH FLOWER STREET
LOS ANGELES, CALIFORNIA 90071
PHONE: 213 977 3200

TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
NICHOLAS-APPLEGATE INVESTMENT TRUST

We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the following series of
Nicholas-Applegate Investment Trust: Emerging Growth Fund, Core Growth Fund,
Income & Growth Fund, Balanced Growth Fund, Government Income Fund, Money Market
Fund, Emerging Countries Fund, International Small Cap Growth Fund (formerly
"International Growth Fund"), International Core Growth Fund, and Worldwide
Growth Fund (hereinafter the "Funds") as of March 31, 1997, and the related
statements of operations for the fiscal year then ended, and the statements of
changes in net assets for each of the two fiscal years in the period then ended,
except for International Core Growth Fund which is for the fiscal year then
ended. These financial statements are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The selected ratio data for each of the two
fiscal years in the period ended March 31, 1995 were audited by other auditors
whose report dated May 12, 1995 expressed an unqualified opinion on those
selected ratio data.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of March 31, 1997, by correspondence with
the custodians and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective Funds of
Nicholas-Applegate Investment Trust as of March 31, 1997, the results of their
operations for the fiscal year then ended, and changes in their net assets for
each of the two fiscal years in the period then ended as described in the first
paragraph, in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP
May 13, 1997

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

<PAGE>
<ARTICLE> 6
<RESTATED>
<CIK> 0000895430
<NAME> NICHOLAS-APPLEGATE MUTUALS FUNDS
<SERIES>
<NUMBER> 30
<NAME> EMERGING GROWTH PORTFOLIO A
<MULTIPLIER> 1
<CURRENCY> US$

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 86973981
<INVESTMENTS-AT-VALUE> 121913319
<RECEIVABLES> 12733003
<ASSETS-OTHER> 3863
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 134650185
<PAYABLE-FOR-SECURITIES> 12733003
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 175535
<TOTAL-LIABILITIES> 12908538
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 105600700
<SHARES-COMMON-STOCK> 8038199
<SHARES-COMMON-PRIOR> 7704965
<ACCUMULATED-NII-CURRENT> (5037611)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10797806
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10380752
<NET-ASSETS> 121741647
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> (975837)
<EXPENSES-NET> 949518
<NET-INVESTMENT-INCOME> (1925355)
<REALIZED-GAINS-CURRENT> 22751958
<APPREC-INCREASE-CURRENT> (28323397)
<NET-CHANGE-FROM-OPS> (7496794)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (15992011)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26044720
<NUMBER-OF-SHARES-REDEEMED> (25992460)
<SHARES-REINVESTED> 280974
<NET-CHANGE-IN-ASSETS> (16413743)
<ACCUMULATED-NII-PRIOR> (3112256)
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<PAGE>
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