NICHOLAS APPLEGATE MUTUAL FUNDS, 485APOS, 1997-12-29

NICHOLAS APPLEGATE MUTUAL FUNDS
485APOS, 1997-12-29

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<PAGE>

As filed with the Securities and Exchange Commission
on December 29, 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. 50 [X]
--

AND/OR

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 52
--

(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.

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

[ ] 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)
[X] 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.

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

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

Item 1. Cover Page. . . . . . . . . . . . . Cover Page

Item 2. Synopsis. . . . . . . . . . . . . . Overview; Global Funds; U.S. Funds;
Fixed Income Funds

Item 3. Condensed Financial Information . . Global Funds; U.S. Funds; Fixed
Income Funds

Item 4. General Description of
Registrant . . . . . . . . . . . . Overview; Global Funds; U.S. Funds;
Fixed Income Funds

Item 5. Management of Fund. . . . . . . . . Organization and Management;
Portfolio Teams

Item 6. Capital Stock and Other
Securities . . . . . . . . . . . . Your Account

Item 7. Purchase of Securities Being
Offered. . . . . . . . . . . . . . Your Account

Item 8. Redemption or Repurchase. . . . . . Your Account

Item 9. Pending Legal Proceedings . . . . . Not Applicable

PART B

Item 10. Cover Page. . . . . . . . . . . . . Cover Page

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

Item 12. General Information and History . . General Information

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

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

Item 15. Control Persons and Principal
Holders of Securities. . . . . . . Not Applicable

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 Fund
Shares; Shareholder Services

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

Item 21. Underwriters. . . . . . . . . . . . Distributor
<PAGE>

Item 22. Calculation of Performance Data . . Performance Information

Item 23. Financial Statements. . . . . . . . Not Applicable

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

<PAGE>

PRELIMINARY PROSPECTUS

The prospectus contains vital information about the Class Q Shares of these
Funds. For your own benefit and protection, please read it before you invest,
and keep it on hand for future reference.

Please note that these Shares

- 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

THE HIGH YIELD BOND FUND MAY INVEST WITHOUT LIMITATION IN DEBT SECURITIES RATED
BELOW INVESTMENT GRADE, SOMETIMES REFERRED TO AS "JUNK BONDS." THESE
LOWER-RATED SECURITIES ARE SPECULATIVE AND INVOLVE GREATER RISKS, INCLUDING
DEFAULT, THAN HIGHER-RATED SECURITIES. SEE "RISK FACTORS AND SPECIAL
CONSIDERATIONS."

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 FUNDS
- --------------------------------------------------------------------------------
International Core Growth
Worldwide Growth
International Small Cap Growth
Emerging Countries

US FUNDS
- --------------------------------------------------------------------------------
Large Cap Growth
Core Growth
Value
Emerging Growth
Mini Cap
Income & Growth
Balanced Growth

FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
Fully Discretionary
High Yield Bond

, 1998
------

SUBJECT TO COMPLETION: ____________, 1998. INFORMATION CONTAINED HEREIN IS
SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO
THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO
THE TIME THE PROSPECTUS IS DELIVERED IN FINAL FORM. UNDER NO CIRCUMSTANCES
SHALL THIS PRELIMINARY PROSPECTUS CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAW OF SUCH JURISDICTION.

1
<PAGE>

TABLE OF CONTENTS

OVERVIEW

A FUND BY FUND LOOK AT GOALS, STRATEGIES, RISKS, AND FINANCIAL HISTORY.

GLOBAL FUNDS
- --------------------------------------------------------------------------------
International Core Growth
Worldwide Growth
International Small Cap Growth
Emerging Countries

US FUNDS
- --------------------------------------------------------------------------------
Large Cap
Core Growth
Value
Emerging Growth
Mini Cap
Income & Growth
Balanced Growth

FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
Fully Discretionary
High Yield Bond

SIMPLIFIED ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
Opening an Account
Buying Shares
Signature Guarantees
Exchanging Shares
Selling and Redeeming Shares

POLICIES AND INSTRUCTIONS FOR OPENING, MAINTAINING AND CLOSING AN ACCOUNT IN ANY
FUND

YOUR ACCOUNT
- --------------------------------------------------------------------------------
Transaction Policies
Features and Account Policies

ORGANIZATION AND MANAGEMENT
- -----------------------------------
Investment Adviser Compensation
Administrator Compensation
Distributor
Portfolio Trades
Investment Objectives
Diversification
Portfolio Teams

DETAILS THAT APPLY TO THE FUNDS AS A GROUP.

RISK FACTORS AND SPECIAL
CONSIDERATIONS
- --------------------------------------------------------------------------------

2
<PAGE>

OVERVIEW

FUND INFORMATION
Concise Fund 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 pursuing the investment objective.

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

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 Class Q Shares, including sales
charges and annual expenses.

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

GOAL OF THE NICHOLAS-APPLEGATE MUTUAL FUNDS
The Nicholas-Applegate Mutual Funds (the "Trust") are designed to provide
investors with a well rounded investment program by offering investors various
portfolios each with different investment objectives and policies (each a
"Fund"). The Class Q Shares of each Fund represent interests in an open-end
diversified open-end management investment company (a mutual fund).

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

WHO MAY WANT TO INVEST IN THE EQUITY FUNDS

- those who are investing for retirement or other long term goals
- those who want higher potential for gain but who are willing to accept
higher risks associated with investing in foreign companies
- those who want professional portfolio management

WHO MAY NOT WANT TO INVEST IN THE EQUITY FUNDS

- those who are investing with a shorter time 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 FIXED INCOME FUNDS

- those who are investing for retirement or other long term goals
- those who desire current income
- those who want a high level of liquidity
- those who want professional portfolio management

WHO MAY NOT WANT TO INVEST IN THE FIXED INCOME FUNDS

- those who are investing with a shorter time frame
- 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 400 employees currently manage over $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.

3
<PAGE>

INTERNATIONAL CORE GROWTH FUND

INVESTMENT OBJECTIVE

Maximum long-term capital appreciation.

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 companies in over 50 countries, and
searches for successful, growing companies managing change advantageously and
poised to exceed growth expectations.

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 capitalizations 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, warrants and convertible securities. It invests
the remainder primarily in investment grade debt securities of any maturity
of foreign companies and foreign governments and their agencies and
instrumentalities. The Fund may also use options and futures contracts as
hedging techniques.

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____.

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.
As with any international fund, performance also depends upon changing values in
foreign currencies, different political and regulatory environments, and other
overall economic factors in the countries where the Fund invests. For further
explanation, see "Risk Factors and Special Considerations" starting on page____.

- -------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES

Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.

SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None
- --------------------------------------------------------------------------------
Deferred sales charge None
- --------------------------------------------------------------------------------
Redemption fee None
- --------------------------------------------------------------------------------
Exchange fee None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 1.00%
- --------------------------------------------------------------------------------
12b-1 expenses None
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.65%
- --------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.65%

- -------------------------
(1) The Investment Adviser has agreed to defers its management fees and to
absorb other operating expenses. Total operating expenses would have been
2,667% and Other expenses would have been 2,567% absent the deferral. See
Investment Adviser Compensation".

4
<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%.

- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$17 $52 $90 $195
- --------------------------------------------------------------------------------

This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.

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

FINANCIAL HIGHLIGHTS

The following schedule provides selected data for a share of capital stock of
the predecessor Qualified Portfolio outstanding throughout each period
indicated. The figures for the period ending September 30, 1997 are unaudited.
The other figures 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 and 1997-1998 Semi-Annual Report.

-----------------------------
2/28/97 4/1/97
to to
3/31/97 9/30/97
- --------------------------------------------------------------------------------
PER SHARE DATA:
Net asset value, beginning of period $12.50 $12.75
Income from investment operations:
Net investment income (deficit) -- (0.01)
Net realized and unrealized gains (losses)
on securities and foreign currency (0.25) 3.43
- --------------------------------------------------------------------------------
Total from investment operations (0.25) 3.42
Less distributions:
Dividends from net investment income -- --
Distributions from capital gains -- --
- --------------------------------------------------------------------------------
Net asset value, end of period $12.75 $16.17
- --------------------------------------------------------------------------------
TOTAL RETURN: (2.00%) 26.82%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $1,020 $1,135,428
Ratio of expenses to average net assets,
after expense reimbursement -- 1.66%*
Ratio of expenses to average net assets,
before expense reimbursement+ 2.667%* 6.16%*
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement+ -- (0.37%)*
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement+ (2,666%)* (4.88%)*
Portfolio turnover** 75.53% 89.81%
Average commission rate paid** $0.0106 $0.0111

* Annualized
** For corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust

5
<PAGE>

WORLDWIDE GROWTH FUND

INVESTMENT OBJECTIVE

Maximum long-term capital appreciation.

INVESTMENT STRATEGY

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, one of
which may be the U.S. The Fund may invest up to 50% 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, warrants and convertible securities. It invests
the remainder in investment grade debt securities of any maturity issued by
foreign companies and foreign governments and their agencies and
instrumentalities. The Fund may also use options and futures contracts as
hedging techniques.

PORTFOLIO MANAGEMENT

The Investment Adviser emphasizes a team approach to portfolio management to
maximize it's overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page_____.

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. As with any international fund, performance also
depends upon 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 - CLASS Q SHARES

Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.

SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None
- --------------------------------------------------------------------------------
Deferred sales charge None
- --------------------------------------------------------------------------------
Redemption fee None
- --------------------------------------------------------------------------------
Exchange fee None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 1.00%
- --------------------------------------------------------------------------------
12b-1 expenses None
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.60%
- --------------------------------------------------------------------------------
Total operating expenses (after expense deferral)1 1.60%

- --------------------------
(1) The Investment Adviser has agreed to defer its management fees and to
absorb other operating expenses. Total operating expenses would have been
34.99% and Other expenses would have been 33.99% absent the deferral. See
"Investment Adviser Compensation".

6
<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%.

- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$16 $50 $87 $190
- --------------------------------------------------------------------------------

This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.

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

FINANCIAL HIGHLIGHTS

----------------------------------
8/31/95 4/1/96 4/1/97
to to to
3/31/96 3/31/97 9/30/97
- --------------------------------------------------------------------------------
PER SHARE DATA:
Net asset value, beginning of period $12.50 $13.27 $15.00
Income from investment operations:
Net investment income (deficit) (0.04) 0.01 (0.02)
Net realized and unrealized gains (losses)
on securities and foreign currency 0.81 1.72 3.96
- --------------------------------------------------------------------------------
Total from investment operations 0.77 1.73 3.94
Less distributions:
Dividends from net investment income -- --
Distributions from capital gains -- -- --
- --------------------------------------------------------------------------------
Net asset value, end of period $13.27 $15.00 $18.94
- --------------------------------------------------------------------------------
TOTAL RETURN: 6.32% 12.87% 26.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $1,115 $641,965 $889,973
Ratio of expenses to average net assets,
after expense reimbursement+ 1.60% 1.61% 1.66%*
Ratio of expenses to average net assets,
before expense reimbursement+ 3.233%* 34.99% 6.16%*
Ratio of net investment income
(deficit) to average net assets,
after expense reimbursement+ (0.50%)* (0.91%)* (0.37%)*
Ratio of net investment income
(deficit) to average net assets,
before expense reimbursement+ (3,231%)* 34.23% (4.88%)*
Portfolio turnover** 132.20% 181.81% 90.09%
Average commission rate paid** $0.0187 $0.0078 $0.0111

* Annualized
** For corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust

7
<PAGE>

INTERNATIONAL SMALL CAP GROWTH FUND

INVESTMENT OBJECTIVE

Maximum long-term capital appreciation.

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 gather financial data on 20,000 companies in over 50 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 market capitalizations in each country ("small cap securities").
The Fund may have less U.S. exposure (up to 35% of its total assets in U.S.
issuers) than the Worldwide Growth Fund.

PRINCIPAL INVESTMENTS

Under normal conditions, the Fund invests 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 stock, warrants and convertible
securities. It invests the remainder primarily in investment grade debt
securities of any maturity issued by foreign companies and foreign
governments and their agencies and instrumentalities. The Fund may also use
options and futures contracts as hedging techniques.

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_____.

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.
As with any international fund, the Fund's performance also depends upon
changing currency values, different political and regulatory environments, and
other overall economic factors in the countries where the Fund invests. In
addition to the risks posed by foreign investing, the securities of smaller,
less well-known companies may be more volatile than larger companies and may
trade less frequently. The 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 further explanation, see "Risk Factors and Special
Considerations" starting on page ____.

- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES

Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.

- -------------------
(1) The Investment Adviser has agreed to defer its management fees and to
absorb other operating expenses. Total operating expenses would have been
151.33% and Other expenses would have been 150.33% absent the deferral.
See "Investment Adviser Compensation".

8
<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%.

This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.

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

FINANCIAL HIGHLIGHTS

The following schedule provides selected data for a share of capital stock of
the predecessor Qualified Portfolio outstanding throughout each period
indicated. The figures for the period ending September 30, 1997 are
unaudited. The other figures 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 and 1997-1998 Semi-Annual Report.

---------------------------------
8/31/95 4/1/96 4/1/97
to to to
3/31/96 3/31/97 9/30/97
- --------------------------------------------------------------------------------
PER SHARE DATA:
Net asset value, beginning of period $12.50 $13.52 $14.01
Income from investment operations:
Net investment income (deficit) 0.01 (0.06) 0.01
Net realized and unrealized gains (losses)
on securities and foreign currency 1.01 2.01 2.93
- --------------------------------------------------------------------------------
Total from investment operations 1.02 1.95 2.94
Less distributions:
Dividends from net investment income -- -- --
Distributions from capital gains -- (1.46) --
- --------------------------------------------------------------------------------
Net asset value, end of period $13.52 $14.01 $16.95
- --------------------------------------------------------------------------------
TOTAL RETURN: 8.16% 15.03% 20.99%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $19,082 $42,150 $183,119
Ratio of expenses to average net assets,
after expense reimbursement+ 1.65%* 1.66% 1.66%*
Ratio of expenses to average net assets,
before expense reimbursement+ 531.72%* 151.33% 22.61%*
Ratio of net investment income (deficit)
to average net assets, after
expense reimbursement+ 0.33%* (64%) (0.74%)*
Ratio of net investment income (deficit)
to average net assets, before
expense reimbursement+ 529.11%* (150.28%) (21.69%)*
Portfolio turnover** 141.02% 206.07% 103.72%
Average commission rate paid** $0.0128 $0.0098 $0.0091

* Annualized
** For corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust

9
<PAGE>

EMERGING COUNTRIES FUND

INVESTMENT OBJECTIVE

Maximum long-term capital appreciation.

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.

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,
Colombia, 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 corporate stock (common and preferred), warrants and convertible
securities. It invests the remainder primarily in investment grade debt
securities of any maturity issued by foreign companies and foreign
governments and their agencies and instrumentalities. The Fund may also use
options and futures contracts as hedging techniques.

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_____.

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.
As with any fund investing in foreign securities, the Fund's performance also
depends upon changing currency values, 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 further explanation, see "Risk
Factors and Special Considerations" starting on page____.

- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES

Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.

SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None
- --------------------------------------------------------------------------------
Deferred sales charge None
- --------------------------------------------------------------------------------
Redemption fee None
- --------------------------------------------------------------------------------
Exchange fee None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 1.25%
- --------------------------------------------------------------------------------
12b-1 expenses None
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.65%
- --------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.90%

- ------------------
(1) The Investment Adviser has agreed to defer its management fees and to
absorb other operating expenses. Total operating expenses would have been
4.20% and Other expenses would have been 2.95% absent the deferral. See
"Investment Adviser Compensation".

10
<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%.

- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$19 $60 $103 $222
- --------------------------------------------------------------------------------

This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.

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

FINANCIAL HIGHLIGHTS

The following schedule provides selected data for a share of capital stock of
the predecessor Qualified Portfolio outstanding throughout each period
indicated. The figures for the period ending September 30, 1997 are
unaudited. The other figures 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 and 1997-1998 Semi-Annual Report.

---------------------------------
8/31/95 4/1/96 4/1/97
to to to
3/31/96 3/31/97 9/30/97
- --------------------------------------------------------------------------------
PER SHARE DATA:
Net asset value, beginning of period $12.50 $13.18 $16.47
Income from investment operations:
Net investment income (deficit) 0.01 (0.04) 0.03
Net realized and unrealized gains (losses)
on securities and foreign currency 0.67 3.37 3.14
- --------------------------------------------------------------------------------
Total from investment operations 0.68 3.33 3.17
Less distributions:
Dividends from net investment income -- --
Distributions from capital gains -- -- --
- --------------------------------------------------------------------------------
Net asset value, end of period $13.18 $16.47 $19.64
- --------------------------------------------------------------------------------
TOTAL RETURN: 5.44% 25.29% 19.25%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $350,058 $8,660,367 $26,971,216
Ratio of expenses to average net assets,
after expense reimbursement+ 1.90%* 1.91% 1.91%*
Ratio of expenses to average net assets,
before expense reimbursement+ 44.24%* 4.20% 2.26%*
Ratio of net investment income (deficit)
to average net assets, after
expense reimbursement+ 0.47% (0.87%)* 0.25%*
Ratio of net investment income (deficit)
to average net assets, before
expense reimbursement+ (35.33%) (3.20%) (0.11%)*
Portfolio turnover** 118.21% 176.20%% 119.86%
Average commission rate paid** $0.0022 $0.0021 $0.0022

* Annualized
** For corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust

11
<PAGE>

LARGE CAP GROWTH FUND

INVESTMENT OBJECTIVE

Maximum long-term capital appreciation.

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 both 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 emphasizes 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").

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 of any
maturity, U.S. Government securities, and equity securities of foreign
issuers. The Fund may also use options and futures contracts as hedging
techniques.

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_____.

RISK FACTORS

As with any growth fund, the value of your investment will fluctuate from 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 values, different regulatory and
political environments, and overall political and economic conditions in
countries where the Fund invests. For further explanation, see "Risk Factors
and Special Considerations" starting on page_____.

- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES

Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.

SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None
- --------------------------------------------------------------------------------
Deferred sales charge None
- --------------------------------------------------------------------------------
Redemption fee None
- --------------------------------------------------------------------------------
Exchange fee None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.75%
- --------------------------------------------------------------------------------
12b-1 expenses None
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.50%
- --------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.25%

- ------------------------
(1) The Investment Adviser has agreed to defer its management fees and to
absorb other operating expenses. For the fiscal year ending March
31,1998 Total operating expenses would have been 2.00% and Other
expenses are expected to be 1.25% absent the deferral. See "Investment
Adviser Compensation".

12
<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%.

- --------------------------------------
1 Year 3 Years
- --------------------------------------
$13 $40
- --------------------------------------

This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.

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

FINANCIAL HIGHLIGHTS

The following schedule provides selected data for a share of capital stock of
the predecessor Qualified Portfolio outstanding throughout the period
indicated. The figures for the period ending September 30, 1997 are
unaudited. Please read in conjunction with the Trust's 1997-1998 Semi-Annual
Report.

-----------------------------
7/21/97
to
9/30/97
- --------------------------------------------------------------------------------
PER SHARE DATA:
Net asset value, beginning of period $12.50
Income from investment operations:
Net investment income (deficit) --
Net realized and unrealized gains (losses)
on securities and foreign currency 0.91
- --------------------------------------------------------------------------------
Total from investment operations 0.91
Less distributions:
Dividends from net investment income --
Distributions from capital gains --
Net asset value, end of period $13.41
- --------------------------------------------------------------------------------
TOTAL RETURN: 38.25%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $24,283
Ratio of expenses to average net assets,
after expense reimbursement+ 1.23%*
Ratio of expenses to average net assets,
before expense reimbursement+ 17.22%*
Ratio of net investment income (deficit)
to average net assets, after
expense reimbursement+ (0.28)%
Ratio of net investment income (deficit)
to average net assets, before
expense reimbursement+ (16.27%)
Portfolio turnover** 269.87%
Average commission rate paid** $0.0599

* Annualized
** For corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust

13
<PAGE>

CORE GROWTH FUND

INVESTMENT OBJECTIVE

Maximum long-term capital appreciation.

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 both 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 capitalizations above $500 million.

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 of any maturity,
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.

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_____.

RISK FACTORS

As with any growth fund, the value of your investment will fluctuate from 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 changes in foreign currency values, different
political and regulatory environments, and the overall political and economic
conditions in countries where the Fund invests. For further explanation, see
"Risk Factors and Special Considerations" starting on page_____.

- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES

Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.

SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None
- --------------------------------------------------------------------------------
Deferred sales charge None
- --------------------------------------------------------------------------------
Redemption fee None
- --------------------------------------------------------------------------------
Exchange fee None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.75%
- --------------------------------------------------------------------------------
12b-1 expenses None
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.50%
- --------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.25%

- ------------------------
(1) The Investment Advisor has agreed to defer its management fees and to
absorb other operating expenses. Total operating expenses would have been
1.84% and Other expenses would have been 1.09% absent the deferral. See
"Investment Adviser Compensation".

14
<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%.

- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$13 $40 $69 $151
- --------------------------------------------------------------------------------

This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.

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

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
--------------------------------------------------------------
6/30/94 4/1/95 4/1/96 4/1/97
to to to to
3/31/95 3/31/96 3/31/97 9/30/97
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $12.50 $13.66 $17.99 $18.01
Income from investment operations:
Net investment income (deficit) (0.02) (0.07) (0.04) (0.08)
Net realized and unrealized gains (losses)
on securities and foreign currency 1.18 4.86 0.32 5.53
- ------------------------------------------------------------------------------------------------------------
Total from investment operations 1.16 4.79 0.28 5.45
Less distributions:
Dividends from net investment income -- -- --
Distributions from capital gains -- (0.46) (0.26) --
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.66 $17.99 $18.01 $23.46
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN: (9.28%) 35.37% 1.39% 30.26%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $2,121 $4,724 $13,115 $13,836,183
Ratio of expenses to average net assets,
after expense reimbursement+ 1.24%* 1.23% 1.25% 1.24%
Ratio of expenses to average net assets,
before expense reimbursement+ 3.52%* 2.84% 1.84% 2.04%*
Ratio of net investment income (deficit)
to average net assets, after expense
reimbursement+ (0.33%)* (0.57%) (0.69%) (0.47%)*
Ratio of net investment income (deficit)
to average net assets, before expense
reimbursement+ (1.61%)* (2.18%) (1.28%) (1.27%)*
Portfolio turnover** 98.09% 114.48% 153.20% 99.41%
Average commission rate paid** N/A $0.0593 $0.0582 $0.0581

</TABLE>

- ----------------------
* Annualized
** For corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust

15
<PAGE>

VALUE FUND

INVESTMENT OBJECTIVE

Maximum long-term capital appreciation.

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 emphasizes companies with market capitalizations generally above $5
billion.

PRINCIPAL INVESTMENTS

Under normal conditions, the Fund invests at least 80% of its total assets in
equity securities. It invests the remainder primarily in preferred and
convertible securities, investment grade debt securities of any maturity, and
securities issued by the U.S. Government and its agencies and
instrumentalities. The Fund may also use options and futures contracts as
hedging techniques.

The Fund's portfolio is designed to have risk, capitalization and industry
characteristics similar to those of the S&P 500 Index.

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____.

RISK FACTORS

As with any equity fund, the value of your investment will fluctuate from day to
day with movements in the stock markets. The companies in which the Fund will
invest 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 depends upon changes in foreign currency values, different
political and regulatory environments, and the overall political and economic
conditions in countries where the Fund invests. For further explanation, see
"Risk Factors and Special Considerations: starting on page _____.

- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES

Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.

SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None
- --------------------------------------------------------------------------------
Deferred sales charge None
- --------------------------------------------------------------------------------
Redemption fee None
- --------------------------------------------------------------------------------
Exchange fee None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.75%
- --------------------------------------------------------------------------------
12b-1 expenses None
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.50%
- --------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.25%

- -----------------------
(1) The Investment Adviser has agreed to defer its management fees and to
absorb other operating expenses. Total operating expenses for fiscal year
ending March 31, 1998 are estimated to be 3.34% and Other expenses are
estimated to be 2.69% absent the deferral. See "Investment Adviser
Compensation".

16
<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%.

- -------------------------------------
1 Year 3 Years
- -------------------------------------
$13 $40
- -------------------------------------

This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.

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

17
<PAGE>

EMERGING GROWTH FUND

INVESTMENT OBJECTIVE

Maximum long-term capital appreciation.

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 both 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 capitalizations below $500 million at
the time of purchase.

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 of any maturity, 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.

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_____.

RISK FACTORS

As with any growth fund, the value of your investment will fluctuate from 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 depends on changes in foreign currency values,
different political and regulatory environments, and the overall political and
economic conditions in the foreign countries where the Fund invests. For
further explanation, see "Risk Factors and Special Considerations" starting on
page _____.

- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES

Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.

SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None
- --------------------------------------------------------------------------------
Deferred sales charge None
- --------------------------------------------------------------------------------
Redemption fee None
- --------------------------------------------------------------------------------
Exchange fee None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 1.00%
- --------------------------------------------------------------------------------
12b-1 expenses None
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.50%
- --------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.50%

- -------------------------
(1) The Investment Adviser has agreed to defer its management fees and to
absorb other operating expenses. Total operating expenses would have been
10.79% and Other expenses would have been 9.79% absent the deferral. See
"Investment Adviser Compensation".

18
<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%.

- ----------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------
$15 $47 $82 $179
- ----------------------------------------------------------------------

This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.

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

FINANCIAL HIGHLIGHTS

-----------------------------------
8/1/95 4/1/96 4/1/97
to to to
3/31/96 3/31/97 9/30/97
- --------------------------------------------------------------------------------
PER SHARE DATA:
Net asset value, beginning of period $12.50 $14.16 $13.19
Income from investment operations:
Net investment income (deficit) (0.03) (0.07) 0.06
Net realized and unrealized gains
(losses) on securities and foreign
currency 1.69 (0.77) 6.04
- --------------------------------------------------------------------------------
Total from investment operations 1.66 (0.84) 6.10
Less distributions:
Dividends from net investment income -- -- --
Distributions from capital gains -- (1.13) --
- --------------------------------------------------------------------------------
Net asset value, end of period $14.16 $13.19 $19.29
- --------------------------------------------------------------------------------
TOTAL RETURN: 13.28% (6.03%) 46.25%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $314 $1,013 $10,481,099
Ratio of expenses to average net assets,
after expense reimbursement+ 1.17%* 1.18% 1.17%*
Ratio of expenses to average net assets,
before expense reimbursement+ 37.86%* 10.79% 2.92%*
Ratio of net investment income (deficit)
to average net assets, after expense
reimbursement+ (1.05%)* (1.02%) (1.02%)*
Ratio of net investment income (deficit)
to average net assets, before expense
reimbursement+ (32.41%)* (10.31%) (2.44%)*
Portfolio turnover** 129.59% 112.90% 46.99%
Average commission rate paid** $0.0523 $0.0520 $0.0531

* Annualized
** For corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust

19
<PAGE>

MINI CAP FUND

INVESTMENT OBJECTIVE

Maximum long-term capital appreciation.

INVESTMENT STRATEGY

The Fund emphasizes companies with market capitalizations generally up to $100
million.

PRINCIPAL INVESTMENTS

PORTFOLIO MANAGEMENT

The Investment Adviser emphasizes a team approach to portfolio management to
maximize it overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page_____.

RISK FACTORS

As with any growth fund, the value of your investment will fluctuate from day to
day with movements in the stock markets. The companies in which the Fund will
invest 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 depends upon changes in foreign currency values, different
political and regulatory environments, and the overall political and economic
conditions in countries where the Fund invests. For further explanation, see
"Risk Factors and Special Considerations: starting on page _____.

- --------------------------------------------------------------------------------
INVESTOR EXPENSES - CLASS Q SHARES

Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.

SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- --------------------------------------------------------------------------------
Sales charge on reinvested dividends None
- --------------------------------------------------------------------------------
Deferred sales charge None
- --------------------------------------------------------------------------------
Redemption fee None
- --------------------------------------------------------------------------------
Exchange fee None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 1.25%
- --------------------------------------------------------------------------------
12b-1 expenses None
- --------------------------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.31%
- --------------------------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.56%

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%.

- --------------------------------------------------------------------------------
1 Year 3 Years 5 years 10 Years
- --------------------------------------------------------------------------------
$16 $49 $85 $185
- --------------------------------------------------------------------------------

This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.

- ------------------
(1) The Investment Adviser has agreed to defer its management fees and to
absorb other operating expenses. Total operating expenses would have been
1.99% and Other expenses would have been 0.74% absent the deferral. See
"Investment Adviser Compensation".

20
<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS

The following schedule provides selected data for a share of capital stock of
the predecessor Qualified Portfolio outstanding throughout each period
indicated. The figures for the period ending September 30, 1997 are
unaudited. The other figures 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 and 1997-1998 Semi-Annual Report.

-----------------------------------
4/1/95 4/1/96 4/1/97
to to to
3/31/96 3/31/97 9/30/97
- --------------------------------------------------------------------------------
PER SHARE DATA:
Net asset value, beginning of period $12.50 $15.85 $15.94
Income from investment operations:
Net investment income (deficit) (0.05) (0.17) (0.04)
Net realized and unrealized gains (losses)
on securities and foreign currency 3.40 0.84 9.32
- --------------------------------------------------------------------------------
Total from investment operations 3.35 0.67 9.36
Less distributions:
Dividends from net investment income -- --
Distributions from capital gains -- (0.58) --
- --------------------------------------------------------------------------------
Net asset value, end of period $15.85 $15.94 $25.30
- --------------------------------------------------------------------------------
TOTAL RETURN: 26.80% 3.90% 58.72%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $25,237 $28,712 $102,223
Ratio of expenses to average net assets,
after expense reimbursement+ 1.55%* 1.56% 1.57%*
Ratio of expenses to average net assets,
before expense reimbursement+ 2.46%* 1.99% 1.88%*
Ratio of net investment income (deficit)
to average net assets, after expense
reimbursement+ (0.98%)* (1.08%) (1.17%)*
Ratio of net investment income (deficit)
to average net assets, before expense
reimbursement+ (1.38%)* (1.30%) (1.48%)*
Portfolio turnover** 106.99% 164.01% 46.43%
Average commission rate paid** $0.0529 $0.0455 $0.0504

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

* Annualized
** For corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust

21
<PAGE>

INCOME & GROWTH FUND

INVESTMENT OBJECTIVE

Maximum total return, consisting of long-term capital appreciation and current
income.

INVESTMENT STRATEGY

The Fund invests primarily in convertible securities. The Investment Adviser
evaluates each 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 "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 seeks to capture approximately 70-80% of the upside performance of
the underlying equities with 50% or less of the downside exposure.

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 of any maturity, and securities issued by
the U.S. Government and its agencies and instrumentalities. The Fund may
also use options and futures contracts as hedging techniques.

At all times, the Fund invests 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 net assets in debt
securities rated below investment grade by a nationally recognized
statistical rating agency, or of comparable quality if unrated.

The Fund emphasizes companies with market capitalizations above $500 million.

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 ____.

RISK FACTORS

Convertible securities have the investment characteristics of both equity and
debt securities. Accordingly, the value of your investment will fluctuate 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 value of the Fund's debt securities
will change as interest rates fluctuate: if rates go up, the value of debt
securities go down; if rates go down, the value 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 volatility
and risk of loss than investment grade securities, particularly in deteriorating
economic periods. For further explanation, see "Risk Factors and Special
Considerations" starting on page _____.

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

INVESTOR EXPENSES - CLASS Q SHARES

Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.

SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- -------------------------------------------------------------
Sales charge on reinvested dividends None
- -------------------------------------------------------------
Deferred sales charge None
- -------------------------------------------------------------
Redemption fee None
- -------------------------------------------------------------
Exchange fee None
- -------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.75%
- -------------------------------------------------------------
12b-1 expenses None
- -------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.50%
- -------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.25%

- ---------------
(1) The Investment Adviser has agreed to defer its management fees and to absorb
other operating expenses. Total operating expenses would have been 2.90% and
Other expenses would have been 2.15% absent the deferral. See "Investment
Adviser Compensation".

<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%

- -----------------------------------------
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------
$13 $40 $69 $151
- -----------------------------------------

This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.

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

FINANCIAL HIGHLIGHTS

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

<TABLE>
<CAPTION>
-------------------------------------------
8/1/95 4/1/96 4/1/97
TO 3/31/96 TO 3/31/97 TO 9/30/97
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $12.50 $13.72 $15.19
Income from investment operations:
Net investment income (deficit) 0.17 0.42 0.47
Net realized and unrealized gains
(losses) on securities and foreign currency 2.12 1.50 2.86
- ---------------------------------------------------------------------------------------------
Total from Investment operations 1.39 1.92 3.25
Less distributions:
Dividends from net investment income 0.17 (0.42) (0.24)
Distributions from capital gains -- (0.03) --
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $13.72 $15.19 $18.20
- ---------------------------------------------------------------------------------------------
TOTAL RETURN: 11.13% 14.13% 21.47%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $1,085 $4,599 $6,293
Ratio of expenses to average net assets,
after expense reimbursement+ 1.25%* 1.25% 1.24%
Ratio of expenses to average net assets,
before expense reimbursement+ 9.21%* 2.90% 1.84%*
Ratio of net investment income (deficit)
to average net assets, after expense
reimbursement+ 3.59%* 3.29% 2.92%*
Ratio of net investment income (deficit)
to average net assets, before expense
reimbursement+ (4.22%)* 1.61% 2.32%*
Portfolio turnover** 144.97% 166.84% 136.75%
Average commission rate paid** $0.0597 $0.0154 $0.0600

</TABLE>

- ----------------
* Annualized
** For the corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust Fund

<PAGE>

BALANCED GROWTH FUND

INVESTMENT OBJECTIVE

A balance of long-term capital appreciation and current income.

INVESTMENT STRATEGY

The Fund's Investment Adviser actively manages a blended portfolio of equity and
fixed income securities with an emphasis on the 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 investments from various
business sectors.

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, with an
emphasis on companies with market capitalizations in excess of $500 million,
and about 40% of its total assets to debt securities of any maturity issued
by corporations and the U.S. Government and its agencies and
instrumentalities. A portion of the Fund's net assets (less than 35%) may be
invested in debt securities rated below investment grade by a nationally
recognized statistical rating agency, or of comparable quality if unrated.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers. The Fund may also use options as a hedging technique.

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 ____.

RISK FACTORS

As with any fund that invests in common stocks and debt obligations, the
value of your investment will fluctuate with movements in the stock and bond
markets. Equity securities in which the Fund invests may be more volatile
than securities of larger, more established companies. The value of the
Fund's debt securities will change as interest rates fluctuate: if rates go
up, the value of debt securities goes down; if rates go down, the value of
debt securities goes up. 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 further explanation, see "Risk Factors and Special
Considerations" starting on page ____.

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

INVESTOR EXPENSES - CLASS Q SHARES

Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.

- -------------------------
(1) The Investment Adviser has agreed to defer its management fees and to absorb
other operating expenses. Total operating expenses would have been 126.75% and
Other expenses would have been 126% absent the deferral. See "Investment
Adviser Compensation".

24
<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%.

- -----------------------------------------
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------
$13 $40 $69 $151
- -----------------------------------------

This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.

FINANCIAL HIGHLIGHTS

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

Net asset value, beginning of period $12.50 $12.69 $13.42
Income from investment operations:
Net investment income (deficit) 0.15 0.24 0.24
Net realized and unrealized gains
(losses) on securities and foreign currency (0.19) 0.73 3.76
- ---------------------------------------------------------------------------------------------
Total from Investment operations (0.34) 0.97 4.00
Less distributions:
Dividends from net investment income (0.15) (0.24) (0.12)
Distributions from capital gains -- -- --
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $12.69 $13.42 $17.29
- ---------------------------------------------------------------------------------------------
TOTAL RETURN: 2.77% 7.60% 29.83%
RATIOS/SUPPLEMENTAL DATA:
Net assets ($000), end of period $1,231 $72,627 $107,626
Ratio of expenses to average net assets,
after expense reimbursement+ 1.25%* 1.26% 1.26%
Ratio of expenses to average net assets,
before expense reimbursement+ 3,094%* 126.75% 19.37%
Ratio of net investment income (deficit) to
average net assets, after expense reimbursement+ 2.16%* 2.15% 1.59%
Ratio of net investment income (deficit) to
average net assets, before expense reimbursement+ (3.090%)* 123% (16.52%)*
Portfolio turnover** 147.19% 212.95% 136.75%
Average commission rate paid** $0.0594 $0.0586 $0.0600

</TABLE>

- ---------------
* Annualized
** For the corresponding Series of the Master Trust
+ Includes expenses allocated from Master Trust Fund

<PAGE>

FULLY DISCRETIONARY FIXED INCOME FUND

INVESTMENT OBJECTIVE

Maximum total return.

INVESTMENT STRATEGY

The Fund's Investment Adviser seeks to outperform the total return of an index
of either government/corporate investment grade debt or government/corporate/
mortgage investment grade debt over a full market cycle through an actively
managed diversified portfolio of debt securities. When evaluating any bond, the
Investment Adviser selects bonds based upon a "top down" analysis of economic
trends. Its investment philosophy emphasizes interest rate decisions and shifts
among sectors of the bond market. It also analyzes credit quality, the yield to
maturity of the security, and the effect the security will have on the Fund.

PRINCIPAL INVESTMENTS

Under normal conditions, the Fund invests at least 65% of its total assets in
investment grade debt securities issued by U.S. and foreign corporations,
U.S. and foreign governments, and their agencies and instrumentalities. These
securities include bonds, notes, mortgage-backed and asset-backed securities
with rates that are fixed, variable or floating. The Fund may invest up to
20% of its total assets in debt securities rated below investment grade by a
nationally recognized statistical rating agency, or of comparable quality if
unrated. For a description of these ratings, see "Corporate Bond Ratings"
beginning on page ____. The Fund may also use options, futures contracts and
interest rate and currency swaps as hedging techniques. The average
portfolio duration of the Fund will range from two to eight years. The Fund
may invest up to 30% of its total assets in securities payable in foreign
currencies.

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 ____.

RISK FACTORS

As with any fund that invests in bonds, the value of the Fund's investments
fluctuates in response to movements in interest rates. If interest rates go up,
the value of bonds fall; if rates go down, the value of bonds rise. However,
the Investment Adviser expects the Fund's fluctuations to be more moderate than
those of a fund with a longer average duration. The lower-rated debt 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. To the extent the Fund invests in foreign
securities, performance also depends upon changing currency values, different
political and economic environments, and other overall economic conditions in
countries where the Fund invests. For further explanation, see "Risk Factors
and Special Considerations" starting on page ____.

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

INVESTOR EXPENSES - CLASS Q SHARES

Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.

SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- -------------------------------------------------------------
Sales charge on reinvested dividends None
- -------------------------------------------------------------
Deferred sales charge None
- -------------------------------------------------------------
Redemption fee None
- -------------------------------------------------------------
Exchange fee None
- -------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.45%
- -------------------------------------------------------------
12b-1 expenses None
- -------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.50%
- -------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 0.95%

- ---------------
(1) The Investment Adviser has agreed to defer its management fees and to absorb
other operating expenses. Total operating expenses would have been 3.74% and
Other expenses would have been 3.29% absent the deferral. See "Investment
Adviser Compensation".

26
<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%.

- --------------------
1 Year 3 Years
- --------------------
$9 $27
- --------------------

This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.

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

27
<PAGE>

HIGH YIELD BOND FUND

INVESTMENT OBJECTIVE

High level of current income and capital growth.

INVESTMENT STRATEGY

The Fund invests primarily in lower-rated debt securities commonly referred to
as "junk bonds." When evaluating any bond, the Investment Adviser selects bonds
based upon a combination of both "top-down" analysis of economic trends and
"bottom-up" analysis that evaluates the financial condition and competitiveness
of individual companies. It also analyzes credit quality, the yield to maturity
of the security, and the effect the security will have on the average yield to
maturity of the Fund. The Investment Adviser believes it can lower the risks of
investing in lower-rated debt through these professional management techniques
and through diversification.

PRINCIPAL INVESTMENTS

Under normal conditions, the Fund allocates at least 65% of its total assets
in lower-rated debt securities and convertible securities rated below
investment grade. There is no limit on either the portfolio maturity or the
acceptable rating of securities bought by the Fund. For a description of
these ratings, see "Corporate Bond Ratings" beginning on page ____.
Securities may bear rates that are fixed, variable or floating. The Fund may
invest up to 35% of its total assets in equity securities of U.S. and foreign
companies. The Fund is not restricted to investments in companies of any
particular size, but currently intends to invest principally in companies
with market capitalizations above $100 million at the time of purchase. The
Fund may also use options, futures contracts and interest rate and currency
swaps as hedging techniques.

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 ____.

RISK FACTORS

As with any fund that invests primarily in bonds, the value of the Fund's
investments fluctuates in response to movements in interest rates. When
rates go up, debt security prices fall; when rates go down, debt security
prices rise. Lower-rated securities, while usually offering higher yields,
generally have more risk and volatility than higher-rated securities because
of reduced creditworthiness and greater chance of default. Periods of high
interest rates and recession may adversely affect the issuer's ability to pay
interest and principal. To the extent the Fund invests in stocks, the value
of those investments will fluctuate day to day with movements in the stock
market as well as in response to the activities of individual companies. The
Fund which the Fund invests may be more subject to volatile market movements
than securities of longer, more established companies. To the extent the
Fund invests in foreign securities, performance also depends on changes in
foreign currency values, different political and regulatory environments, and
overall economic factors in the countries where the Fund invests. For
further explanation, see "Risk Factors and Special Considerations" starting
on page ____.

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

INVESTOR EXPENSES - CLASS Q SHARES

Investors pay various expenses, either directly or indirectly. Actual expenses
may be more or less than those shown.

SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales charge on purchases None
- -------------------------------------------------------------
Sales charge on reinvested dividends None
- -------------------------------------------------------------
Deferred sales charge None
- -------------------------------------------------------------
Redemption fee None
- -------------------------------------------------------------
Exchange fee None
- -------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
Management fees 0.60%
- -------------------------------------------------------------
12b-1 expenses None
- -------------------------------------------------------------
Other expenses (after expense deferral)(1) 0.40%
- -------------------------------------------------------------
Total operating expenses (after expense deferral)(1) 1.00%

- -------------------------
(1) The Investment Adviser has agreed to defer its management fees and to absorb
other operating expenses. Total operating expenses for the fiscal year ending
March 31, 1998 are estimated to be 1.95% and Other expenses are estimated to be
1.35% absent the deferral. See "Investment Adviser Compensation".

28
<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%.

- -----------------------------------------
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------
$10 $32 $55 $122
- -----------------------------------------

This example is for comparison purposes only and is not a representation of the
Fund's actual expenses and returns, either past or future.

29
<PAGE>

SIMPLIFIED ACCOUNT INFORMATION

<TABLE>

<S><C>
OPENING AN ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
Regular Investment Participants in Qualified Retirement Plans
- ------------------------------------------------------------------------------------------------------------------------------------
This is the minimum initial Contact you plan administrator
investment $250,000 or sponsor
- -------------------------------------------------------------------
Use this type of
application New Account Form (Non-Retirement)
- ------------------------------------------------------------------------------------------------------------------------------------
Before completing the Each Fund 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 application If you need assistance, contact your financial representative, or call us (800) 551-8043.
- ------------------------------------------------------------------------------------------------------------------------------------
If you are a participant in a Make purchases through your plan administrator or sponsor
qualified retirement plan who is responsible for transmitting orders.
- ------------------------------------------------------------------------------------------------------------------------------------
If you are sending money Mail application and send check, payable to:
by CHECK NICHOLAS-APPLEGATE MUTUAL FUNDS, PO BOX 8326, BOSTON, MA 02266-8326.
The Trust WILL NOT accept third-party checks.
- ------------------------------------------------------------------------------------------------------------------------------------
Please read the bank wire or ACH section under the "Buying Shares" section below. You will
If you are sending money need to obtain an account number with the Trust by sending a completed application to:
by BANK WIRE OR ACH 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
- ------------------------------------------------------------------------------------------------------------------------------------
Regular Investment Participants in Qualified Retirement Plans
- ------------------------------------------------------------------------------------------------------------------------------------
For this type of account
This is the minimum $10,000 Contact you plan administrator
subsequent investment or sponsor
- ------------------------------------------------------------------------------------------------------------------------------------
The Trust is generally open on days that the New York Stock Exchange is open. All transactions
The price you will receive received in good order before the market closes receive that day's price.
- ------------------------------------------------------------------------------------------------------------------------------------
If you are a participant in a Make purchases through your plan administrator or sponsor,
qualified retirement plan who is responsible for transmitting orders.
- ------------------------------------------------------------------------------------------------------------------------------------
If you are sending money Instruct your bank to wire the amount you wish to invest to:
by BANK WIRE STATE STREET BANK & TRUST CO. -- ABA #011000028
DDA #9904-645-0
STATE STREET BOS, ATTN: MUTUAL FUNDS
CREDIT: NICHOLAS-APPLEGATE [FUND NAME], [YOUR NAME], [ACCOUNT NAME OR NUMBER]
- ------------------------------------------------------------------------------------------------------------------------------------
Call your bank to ensure (1) that your bank supports ACH, and (2) this feature is
If you are sending money active on your bank account. To establish this option, either complete the
by BANK WIRE OR ACH appropriate sections when opening an account, or contact your financial representative,
or call us at (800) 551-8043 for further information. To initiate an ACH
purchase, call the Trust at (800) 551-8043.

EXCHANGING SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
For this type of account Regular Investment Participants in Qualified Retirement Plans
- ------------------------------------------------------------------------------------------------------------------------------------
This is the minimum $250,000 Contact your plan administrator or sponsor
exchange amount to open
a new account
- ------------------------------------------------------------------------------------------------------------------------------------
The price you will receive The Trust is generally open on days that the New York Stock Exchange is open. All transactions
received in good order before the market closes receive that day's price
- ------------------------------------------------------------------------------------------------------------------------------------
Things you should know The exchange must be to the Class Q Shares of another Fund or the Money Market Fund
and to an account 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 Fund you are exchanging from, make sure that you leave an amount equal to or
greater than the Fund'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. Participants in qualified retirement plans may exchange through
the plan administrator or sponsor and only with those Funds that are included in the plan.
- ------------------------------------------------------------------------------------------------------------------------------------
How to request an Either contact your financial representative, or call the Trust at (800) 551-8043. The Trust will
exchange by PHONE 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 Put your exchange request in writing, including: the name on the account, the name of the Fund
exchange by MAIL and the account number you are exchanging from, the shares or dollar amount you wish to
exchange, and the Fund you wish to exchange to. Mail this request to:
PO BOX 8326, BOSTON, MA 02266-8326.
</TABLE>

30
<PAGE>

SELLING OR REDEEMING SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
IN WRITING BY PHONE
----------------------------------------------------------------------------------------------------------

Selling shares by phone is a service
option which must be established on your
account prior to making a request. See the
"Your Account" section, or contact your
financial representative or the Trust at
(800) 551-8043 for further information.
The maximum amount which may be requested
Certain requests may require a SIGNATURE by phone, regardless of account size, is
GUARANTEE. See that section below for further $50,000. Amounts greater than that must
information. You may sell up to the full be requested in writing. If you wish to
Things you should know account value. receive your monies by bank wire,
the minimum request is $5,000.
----------------------------------------------------------------------------------------------------------
If you purchased shares through a financial representative or plan
administrator/sponsor, you should call them 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, a plan administrator/sponsor or us for
further information.
- ------------------------------------------------------------------------------------------------------------------------------------
The price you will receive The Trust is generally open on days that the New York Stock Exchange is open.
All transactions received in good order before the market closes receive that day's price.
- ------------------------------------------------------------------------------------------------------------------------------------
If you are a participant Makes sales through your plan administrator or sponsor,
in a qualified who is responsible for transmitting orders.
retirement plan
- ------------------------------------------------------------------------------------------------------------------------------------
If you want to receive your Please put your request in writing,
monies by BANK WIRE including: the name of the account owners,
account number and the Fund and share Class
you are redeeming from, the share or dollar amount Either contact your financial representative
you wish to sell, signed by all account owners. or call us at (800) 551-8043.
Mail this request to: The proceeds will be sent to the existing
NICHOLAS-APPLEGATE MUTUAL FUNDS, bank wire address listed on the account.
PO BOX 8326, BOSTON, MA 02266 8326.
The check will be sent to the existing bank
wire address listed on the account.
- ------------------------------------------------------------------------------------------------------------------------------------
Either contact your financial representative
or call us at (800) 551-8043.
If you want to receive your The proceeds will be sent to the existing
monies by ACH Please call us at (800) 551-8043. ACH instructions on the account and will
generally be received at your bank two
business days after your request is received.

SIGNATURE GUARANTEE
- ------------------------------------------------------------------------------------------------------------------------------------

A definition A signature guarantee is required of a financial institution to verify the authenticity of an individual's
signature. It can usually be obtained from a broker, commercial or savings bank, or credit union.
- ------------------------------------------------------------------------------------------------------------------------------------
A signature guarantee is needed when making a written request for the following reasons:
When you need one 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>

YOUR ACCOUNT

TRANSACTION POLICIES

PURCHASE OF SHARES. Class Q Shares are offered at net asset value without a
sales charge to qualified retirement plans, financial and other institutions and
"wrap accounts." The minimum initial investment is $250,000, and the minimum
subsequent investment is $10,000. The Distributor may waive these minimums from
time to time. Certain Funds also offer Class A, B, C and I Shares. You can
obtain more information about these other share Classes from Nicholas-Applegate
Securities at (800) 551-8643.

VALUATION OF SHARES. The net asset value per share (NAV) for Class Q Shares of
the Fund 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 Class' net
assets by the number of its shares outstanding.

BUY AND SELL PRICES. When you buy shares, you pay the NAV, as described earlier.
When you sell shares, you receive the NAV. Your financial institution may
charge you a fee to execute orders on your behalf.

EXECUTION OF REQUESTS. Each Fund is open on the days 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 or another agent designated by the Trust. Investments by
participants of qualified retirement plans are made through the plan sponsor or
administrator.

At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing. Each Fund
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 Fund 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 Fund may be responsible for any losses that may
occur in your account due to an unauthorized telephone call.

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 Fund 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).

FEATURES AND ACCOUNT POLICIES

The services referred to in this section 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.

RETIREMENT PLANS. You may invest in each Fund 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, your
financial representative or plan sponsor. 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. Participants in qualified retirement plans will receive account
information from their plan sponsor or administrator.

DIVIDENDS. The Funds generally distribute most or all of their net earnings in
the form of dividends. Each Fund pays dividends of net investment income as
follows:

ANNUALLY QUARTERLY MONTHLY
- -------- --------- -------
International Core Growth Balanced Growth High Yield Bond
Worldwide Growth Income and Growth FullyDiscretionary
International Small Cap
Emerging Countries
Large Cap Growth
Core Growth
Value
Emerging Growth
Mini Cap

Any net capital gains are distributed annually.

32
<PAGE>

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 can choose to have a check for your dividends mailed to you.
Interest will not accrue or be paid on uncashed dividend checks.

SHAREHOLDER SERVICES. The Investment Adviser may make payments from its own
resources to brokers, consultants, and financial institutions for performing
certain services for shareholders and for the maintenance of shareholder
accounts.

TAXABILITY OF DIVIDENDS. As long as a Fund meets the requirements for being a
tax-qualified regulated investment company, which each Fund 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 Fund whether reinvested or taken as
cash, are generally considered taxable. Dividends from a Fund'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 Fund minimum, you may be asked to
purchase more shares within 60 days. If you do not take action, the Fund may
close out your account and mail you the proceeds. Your account will not be
closed if its drop in value is due to Fund performance.

AUTOMATIC WITHDRAWALS. You may make automatic withdrawals from a Fund of $250 or
more on a monthly or quarterly basis if you have an account of $15,000 or more
in the Fund. 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 Class Q Shares of each Fund 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 Fund into Class Q Shares of another Fund,
subject to conditions outlined in the Statement of Additional Information and
the applicable provisions of the qualified retirement plan.

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ORGANIZATION AND MANAGEMENT

INVESTMENT ADVISER COMPENSATION

Each Fund pays the Investment Adviser a monthly fee pursuant to an investment
advisory agreement. The Emerging Countries and Mini Cap Funds each pays at the
annual rate of 1.25% of the Fund's net assets. The Worldwide Growth,
International Growth and International Small Cap Funds each pays at the annual
rate of 1.00% on the first $500 million of the Fund's net assets, .90% on the
next 500 million of the Fund's net assets, and .85% on net assets on the Fund in
excess of $1 billion. The Fully Discretionary Fund pays at the annual rate of
0.45% of the first $500 million of the Fund's average net assets, 0.40% of the
next $250 million of net assets, and 0.35% of net assets in excess of $750
million. The High Yield Bond Fund pays at the annual rate of 0.60% of the
Fund's net assets. The Large Cap Growth, Core Growth, Value, Mini Cap, Income &
Growth, and Balanced Growth Funds each pays 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 Investment Adviser has agreed to waive or defer its management fees payable
by the Funds, and to absorb other operating expenses of the Funds, so that the
expenses for the Class Q Shares of the Funds will not exceed the following
expense ratios on an annual basis through March 31, 1998: Worldwide Growth Fund
1.60%, International Core Growth and International Small Cap Growth Funds
- -1.65%, Emerging Countries Fund - 1.90%, Fully Discretionary and High Yield
Bond Funds - 0.95%; Income & Growth, Balanced Growth, Large Cap, Value and
Core Growth Funds - 1.25%; Emerging Growth Fund - 1.50% and Mini-Cap - 1.56%.
Each Fund 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 Fund are less than the percentage limitation set forth above
for any such year.

ADMINISTRATOR COMPENSATION

The Funds pay administrative fees for administrative personnel and services
(including certain legal and financial reporting services). Each Fund pays
Nicholas-Applegate Capital Management an annual fee of .10% of net assets. Each
Fund pays Investment Company Administration Corporation (ICAC) an annual fee at
an annual rate ranging from .05% to .01% of average net assets, with a minimum
of $40,000 per Fund.

DISTRIBUTOR:
Nicholas-Applegate Securities
600 West Broadway, 30th Floor
San Diego, California 92101
(800) 551-8045

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 Fund or that provide research services to the Fund, 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 investment objective is fundamental and may only be changed with
shareholder approval. The fundamental limitations are described in the
Statement of Additional Information. All other changes may be made by the Board
of Trustees without shareholder approval.

DIVERSIFICATION

All the Funds are diversified.

PRIOR MASTER-FEEDER STRUCTURE

Prior to __________, 199__, the various Classes of each of the Funds were
separate Portfolios of the Trust, and invested all of their assets in
corresponding portfolios of Nicholas-Applegate Investment Trust (the "Master
Trust"). In this "master-feeder" structure, the Investment Adviser served as
the adviser to the Master Trust, and the Trust had no separate adviser. The
master-feeder structure was terminated, with the approval of the shareholders
of the Trust, in order to achieve certain economies for the Trust.

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PORTFOLIO TEAMS

EQUITY MANAGEMENT - INTERNATIONAL/GLOBAL

CATHERINE SOMHEGYI, PARTNER
Chief Investment Officer - Global Equity Management
Joined firm in 1987; prior investment management experience with
Professional Asset Securities, Inc. and Pacific Century Advisers
M.B.A. and B.S. - University of Southern California
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
EMERGING COUNTRIES, EMERGING GROWTH,

LARRY SPEIDELL, PARTNER, CFA
Director of Global/Systematic Portfolio Management and Research
Joined firm in 1994; 23 years prior investment management
experience with Batterymarch Financial Management and
Putnam Management Company
M.B.A. - Harvard University; B.E. - Yale University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
EMERGING COUNTRIES AND VALUE

JOHN J. KANE, PARTNER
Portfolio Manager - U.S. Systematic
Joined firm in 1994; 25 years prior investment
management/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
WORLDWIDE GROWTH, AND VALUE

AARON HARRIS
Portfolio Manager - Emerging Countries
Joined firm in 1995; 1 year prior investment management
experience at Chemical Bank
B.A. - Princeton University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL
SMALL CAP AND EMERGING COUNTRIES

PEDRO V. MARCAL
Portfolio Manager - Emerging Countries
Joined firm in 1994; 5 years prior investment management
experience with A.B. Laffer, V.A. Canto & Associates, and
A-Mark Precious Metals
B.A. - University of California, San Diego
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL
SMALL CAP AND EMERGING COUNTRIES

ESWAR MENON
Portfolio Manager - Emerging Countries
Joined firm in 1995; 5 years prior investment management
experience with Koeneman Capital Management and
Integrated Device Technology
M.B.A., summa cum laude - University of Chicago;
M.S. - University of California, Santa Barbara;
B.S. - Indian Institute of Technology, Madras
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL
SMALL CAP AND EMERGING COUNTRIES

LORETTA J. MORRIS
Portfolio Manager - International
Joined firm in 1990; 10 years prior investment management
experience with Collins Associates
Attended California State University, Long Beach;
CFA Level II candidate
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH AND INTERNATIONAL
SMALL CAP GROWTH

ALEX MUROMCEW
Portfolio Manager - International
Joined firm in 1996; 6 years prior investment management
experience with Jardine Fleming Securities (Japan); Emerging
Markets Investors Corporation; Teton Partners LP
M.B.A. - Stanford University; B.A. - Dartmouth College
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH AND INTERNATIONAL
SMALL CAP GROWTH

ERNESTO RAMOS, PH.D.
Portfolio Manager - International
Joined firm in 1994; 14 years prior investment management 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
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH AND
EMERGING COUNTRIES,

JOHN TRIBOLET
Investment Analyst
Joined firm in 1997; 5 years prior experience with Kemper
Securities, Inc. and PaineWebber
M.B.A. - University of Chicago; B.A. - Columbia University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH AND INTERNATIONAL SMALL CAP

JESSICA HILINSKI
Assistant Portfolio Manager
Joined firm in 1996; 3 years prior experience in Eaton Vance
Management and Union Capital Advisors
Attended University of Pennsylvania
EMERGING COUNTRIES

AYLIN UCKUNKAYA
Investment Analyst
Joined firm in 1997; 4 years investment management experience with
Global Securities
B.A. Instanbul University
EMERGING COUNTRIES

JON BORCHARDT
Assistant Portfolio Manager
Joined firm in 1994; 5 years prior investment management
experience with Union Bank
B.S. University of San Francisco
EMERGING COUNTRIES, LATIN AMERICAN FUND

JULIA SZE
Portfolio Manager
Joined firm in 1997; 8 years prior experience with Credit Lyonnais
International Asset Management
M.A. and B.A. Stanford University
PACIFIC RIM FUND

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EQUITY MANAGEMENT - U.S.

JOHN C. MARSHALL, JR., PARTNER
Chief Investment Officer - Institutional Equity Management
Joined firm in 1989; 8 years prior investment management experience with
Pacific Century Advisers; San Diego Trust & Savings Bank; Howard, Weill,
Labouisse, Fredrichs Inc.
M.B.A. and B.B.A. - Southern Methodist University
CORE GROWTH, LARGE CAP GROWTH

CATHERINE SOMHEGYI, PARTNER
Chief Investment Officer - Global Equity Management Joined firm in 1987;
prior investment management experience with Professional Asset Securities,
Inc. and Pacific Century Advisers
M.B.A. and B.S. - University of Southern California
EMERGING GROWTH, MINI CAP, BALANCED GROWTH, INCOME & GROWTH

THOMAS BLEAKLEY
Portfolio Manager
Joined firm in 1995; 3 years prior investment management experience with
Twentieth Century Investors and Dell Computer Corporation
M.B.A. - University of Texas - Boston University
EMERGING GROWTH, MINI CAP

SANDRA 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
INCOME & GROWTH, GLOBAL GROWTH & INCOME

ANDREW B. GALLAGHER
Portfolio Manager
Joined firm in 1992; 7 years prior investment management experience with
Pacific Century Advisors and Sentinel Asset Management
M.B.A. - San Diego State University; B.A. - University of California, Irvine
CORE GROWTH, LARGE CAP GROWTH

RONALD J. KRYSTYNIAK CFA
Portfolio Manager
Joined firm in 1996; 7 years prior investment management experience with
Pilgrim Baxter & Associates and Peterson Consulting & Company
B.S. - Syracuse University
EMERGING GROWTH, MINI CAP

MAREN LINDSTROM
Portfolio Manager
Joined firm in 1994; 5 years prior investment management experience with
Societe Generale; Banque D'Orsay; and Prudential Asset Management
M.B.A. - University of California, Los Angeles;
B.A. - University of Michigan
CORE GROWTH, INCOME & GROWTH

JOHN C. MCCRAW
Portfolio Manager
Joined firm in 1992; prior investment management experience with Nations Bank
M.B.A. - University of California, Irvine;
B.A. - Flagler College
EMERGING GROWTH, MINI CAP

MARK STUCKELMAN
Portfolio Manager, U.S. Systematic
Joined firm in 1995; 5 years experience with Wells Fargo Bank Investment
Management Group; Fidelity Management Trust Co.; and BARRA
M.B.A. - University of Pennsylvania/Wharton School; B.A. - University of
California, Berkeley
VALUE

STAN ROGERS
Portfolio Manager
Joined firm in 1997; 7 years prior investment management experience with
Tennessee Consolidated Retirement System
B.A. - The University of the South
INCOME & GROWTH

THOMAS J. SULLIVAN
Assistant 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

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FIXED INCOME

FRED S. ROBERTSON, III, PARTNER
Chief Investment Officer - Fixed Income
Joined firm in 1995; 22 years prior investment management experience with
Criterion Investment Management Company and DuPont Chemical Pension Fund
M.B.A. - College of William and Mary; B.S. - Cornell University
BALANCED GROWTH, FULLY DISCRETIONARY

JAMES E. KELLERMAN, PARTNER
Portfolio Manager
Joined firm in 1995; 20 years prior investment management experience with
Criterion Investment Management Company and Brown Brothers Harriman and
Equitable Life Insurance Co.
M.B.A. - St. John's University; B.B.A. - Susquehanna University
BALANCED GROWTH, FULLY DISCRETIONARY

MALCOM S. DAY, CFA
Portfolio Manager
Joined firm in 1995; 3 years prior investment management experience with
Payden & Rygel
M.B.A. - University of California, Los Angeles;
B.S. - Northern University
BALANCED GROWTH, FULLY DISCRETIONARY

DOUGLAS FORSYTH, CFA
Portfolio Manager
Joined firm in 1994; 3 years prior investment management experience with
AEGON USA
B.B.A. - University of Iowa
HIGH YIELD BOND

JAN FRIEDLI
Portfolio Manager
Joined firm in 1997; 7 years prior investment management experience with
Stone Capital Management, PIMCO, and the Vanguard Group, Inc.
M.B.A. - University of Chicago, B.S. Villanova University
HIGH YIELD BOND

SUSAN MALONE
Portfolio Manager
Joined firm in 1996; 7 years prior investment management experience with
BEA Associates
M.B.A. - New York University; B.S. - Carnegie Mellon University
BALANCED GROWTH, HIGH YIELD BOND

ASHVIN SYAL, CFA
Portfolio Manager
Joined firm in 1996; Six years prior investment management experience
with Payden & Rygel
M.B.A. - University of California, Los Angeles;
M.M.S. and B.S. - University of Bombay
FULLY DISCRETIONARY

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RISK FACTORS AND SPECIAL CONSIDERATIONS

MUTUAL FUND CONSIDERATIONS IN GENERAL

Prospective investors should know that any mutual fund investment is subject to
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. You should consider an investment in any of
the Funds as a long-term investment.

DERIVATIVE CONTRACTS AND SECURITIES CONSIDERATIONS

The term "derivative" traditionally applies to certain contracts that "derive"
their value from changes in the value of underlying securities, currencies,
commodities or indices. Investors refer to certain types of securities that
incorporate the performance characteristics of these contracts as derivatives.
Derivatives are sophisticated instruments that typically involve a small
investment of cash relative to the magnitude of risks assumed. These include
swap agreements, options, futures, and convertible securities. The Trust seeks
to use derivative contracts and securities to reduce the Funds volatility and
increase its total performance. While the price reaction of certain derivatives
to market changes may differ from traditional investments such as stocks and
bonds, derivatives do not necessarily present greater market risks than
traditional investments. Derivatives are also subject to credit risks related
to the counterparty's ability to perform, and any deterioration in the
counterparty's creditworthiness could adversely affect the instrument. The
Funds will only use derivatives in manner consistent with their investment
objectives, policies and limitations.

GLOBAL INVESTING CONSIDERATIONS

CURRENCY FLUCTUATIONS. Because the assets of certain Funds 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.

For example, Hong Kong transferred its sovereignty from Great Britain to the
People's Republic of China in 1997. China has espoused policies antagonistic
to free enterprise capitalism and democracy. There can be no assurance that
China will continue to protect property rights in Hong Kong after 1997,
although China has moved toward free enterprise, and has established stock
exchanges of its own.

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 each 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 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 the Funds
are not fully invested, or could result in the a Fund being unable to sell a
security in a falling market.

CUSTODIAL AND REGISTRATION PROCEDURES. Systems for the registration and
transfer of securities in foreign markets can be less developed than similar
systems in the United States. There may be no standardized process for
registration of securities or a central

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registration system to track share ownership. The process for transferring
shares may be cumbersome, costly, time-consuming and uncertain. For example,
the share registrar may require a shareholder to travel to that country to
present required documentation before buying or selling securities. In some
instances, there may be no requirements to maintain back-up shareholder records.
Failure by the share registrar to properly maintain shareholder records, protect
the same against fire or computer virus, or carry adequate insurance against
such occurrences, potentially could result in a loss of a Fund's investment in
those securities.

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.

LOWER RATED SECURITIES
CONSIDERATIONS
The Balanced Growth, Income & Growth, Fully Discretionary & High Yield Bond
Funds each invest in debt and convertible securities below investment grade.
These securities usually offer higher yields than higher rated securities but
are also subject to more risk than higher rated securities.

Lower-rated or unrated debt obligations are more likely to react to developments
affecting market and credit risks that are more high-rated securities, which
react primarily to movements in the past level of interest rates. In the past,
economic downturns or increases in interest rates caused a higher incidence of
default by 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 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-rated securities generally tend to be more volatile and the market less
liquid than those of higher-rated securities. Consequently, the Funds may at
times experience difficulty in liquidating their investments at the desired
times and prices.

The average percentages of assets invested by the Funds listed below in bonds
of each permissible rating, on a monthly dollar-weighted basis, were as
follows for the year ended March 31, 1997: Income & Growth--AA__%; A__%;
BBB__%; BB__%; B__%; CCC___%; nonrated___%; Balanced Growth--AA__%; A__%;
BBB__%; BB__%; B__%; CCC___%; nonrated___%; Fully Discretionary--AA__%; A__%;
BBB__%; BB__%; B__%; CCC___%; nonrated___%; High Yield Bond--AA__%; A__%;
BBB__%; BB__%; B__%; CCC___%; nonrated___%.

THE FUNDS' INVESTMENTS

EQUITY SECURITIES. Equity securities include common stocks, convertible
securities and warrants. 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. Smaller and medium sized 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. 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
interest 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. 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.
Debt Securities with longer maturities tend to be more sensitive to interest
rate movements than those with shorter maturities.

Debt obligations that carry a rating of at least BAA from Moody's or BBB from
Standard and Poor's, or a comparable rating from another rating agency or, if
not rated by an agency, 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. For
a further explanation of these ratings, see the Statement of Additional
Information.

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.

ZERO COUPON SECURITIES. The Income & Growth and Balanced Growth Funds may
invest up to 35% of their net assets in zero coupon securities issued or
guaranteed by the U.S. Government and its agencies and instrumentalities. These
securities are sold at a substantial discount from face value and redeemed at
face value at their maturity date without interim payments of principal and
interest. They may be subject to greater volatility than other securities. In
addition, because income is accrued on a current basis, a Fund may have to sell
other portfolio securities to make necessary income distributions.

MORTGAGE-RELATED SECURITIES. Collateralized Mortgage Obligations(CMOs) are debt
obligations collateralized by a pool of

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mortgage loans or mortgage passes-through securities. Typically CMOs are
collateralized by certificates issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, such as GNMA. GNMA certificates are
mortgaged-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.

ASSET BACKED SECURITIES. The non-mortgage-related asset-backed securities in
which the Funds invest include, but are not limited to, interests in pools of
receivables, such as credit card and accounts receivables and motor vehicle and
other installment purchase obligations and leases. Interests in these pools are
not backed by the U.S. Government and may or may not be secured.

The credit characteristic of asset-backed securities differs in a number of
respects from that of traditional debt securities. Asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to other debt obligations, and there is a possibility that recoveries
on repossessed collateral may not be available to support payment on these
securities

SOVEREIGN DEBT SECURITIES. Certain Funds may invest in sovereign debt
securities issued by governments of foreign countries. The sovereign debt in
which the Funds may invest may be rated below investment grade. These
securities usually offer higher yields than higher rated securities but are also
subject to greater risk than higher rated securities.

BRADY BONDS. Brady bonds represent a type of sovereign debt known as Brady
Bonds. These obligations were created under a debt restructuring plan
introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady, in which
foreign entities issued these obligations in exchange for their existing
commercial bank loans. Brady Bonds have been issued by Argentina, Brazil, Costa
Rica, Dominican Republic, Mexico, Philippines, Uruguay and Venezuela, and may be
issued by other emerging countries.

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 as
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. An illiquid investment is generally an
investment that is not registered in the 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 the 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, that
is, the purchase by the Fund of a security that 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.

SECURITIES SWAPS. Securities swaps represent 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.

SHORT SALES. 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 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.

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 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.

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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. The Fund might experience loss if the financial
institution defaults on the loan.

FOREIGN CURRENCY TRANSACTIONS. Each Fund investing in Foreign Securities 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 such 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. Certain Funds may deal in options on securities, securities indices
and foreign currencies. The Funds may use options to manage stock prices,
interest rate 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. Certain Funds may enter into futures
contracts, or options thereon, involving foreign currency, interest rates,
securities, and securities indices, for hedging purposes only. A stock index
futures contract is a bilateral agreement pursuant to which two parties agree
to take or make delivery of an amount of cash equal to a specified dollar
amount times the difference between the stock index value at the close of the
last trading day of the contract and the price at which the futures contract
is originally struck. No physical delivery of the underlying stocks in the
index is made.

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 and any related 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.

NON-HEDGING STRATEGIC TRANSACTIONS. Each Fund's options, futures and swap
transactions will generally be entered into for hedging purposes - to protect
against possible changes in the market values of securities held in or to be
purchased for the Fund's portfolio resulting from securities markets,
currency, or interest rate fluctuations, to protect the Fund's unrealized
gains in the values of its portfolio securities, to facilitate the sale of
such securities for investment purposes, to manage the effective maturity or
duration of the Fund's Portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchase or sale of
particular securities. However, in addition to the hedging transactions
referred to above, the Fully Discretionary Fund may enter into options,
futures and swap transactions to enhance potential gain in circumstances
where hedging is not involved. The Fund's net loss exposure resulting from
transactions entered into for such purposes will not exceed 5% of the Fund's
net assets at any one time and, to the extent necessary, the Fund will close
out transactions in order to comply with this limitation. Such transactions
are subject to the limitations described above under "Options" and "Futures
and Options on Futures."

CORPORATE BOND RATINGS

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS

Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes are most unlikely to impair the fundamentally strong
position of such issues.

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

A - Bonds Rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa - Bonds rated Baa are considered 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.

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

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

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

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

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

DESCRIPTION OF S&P'S CORPORATE BOND RATINGS

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

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

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

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

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

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

CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business financial or economic conditions, it is not likely to have the capacity
to pay interest and repay principal. The CCC rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied B or B -
Rating.

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

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

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

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

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

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FOR MORE INFORMATION

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

ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS
Includes 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 Funds.

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/semi-annual report or SAI , please
call or write:

Nicholas Applegate Mutual Funds
P.O. Box 82169
San Diego, CA 92138-2169
Telephone: (800) 551-8643

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<PAGE>

NICHOLAS-APPLEGATE-Registered Trademark- MUTUAL FUNDS
CLASS Q SHARES
600 West Broadway, 30th Floor
San Diego, California 92101
(800) 551-8643

STATEMENT OF ADDITIONAL INFORMATION

_______, 1998

Nicholas-Applegate Mutual Funds (the "Trust") is an open-end
management investment company currently offering a number of separate
diversified funds. This Statement of Additional Information contains
information regarding the Class Q shares of these funds (each a "FUND" and
collectively the "Funds"): Nicholas-Applegate Large Cap Fund (the "Large Cap
Fund"); Nicholas-Applegate Core Growth Fund (the "Core Growth Fund");
Nicholas-Applegate Value Fund (the "Value Fund"); Nicholas-Applegate Emerging
Growth Fund (the "Emerging Growth Fund"); Nicholas-Applegate Income & Growth
Fund (the "Income & Growth Fund"); Nicholas-Applegate Balanced Growth Fund (the
"Balanced Fund"); Nicholas-Applegate Fully Discretionary Fixed Income Fund (the
"Fully Discretionary Fund"); Nicholas-Applegate High Yield Bond Fund (the "High
Yield Bond Fund"); Nicholas-Applegate International CORE GROWTH FUND (THE
"International Core Growth Fund"); Nicholas-Applegate Worldwide Growth Fund (the
"Worldwide Fund"); Nicholas-Applegate International Small Cap Growth Fund (the
"International Small Cap Growth Fund"); and Nicholas-Applegate Emerging
Countries Fund (the "Emerging Countries Fund").

The various Funds of the Trust may from time to time be collectively
referred to as the "Nicholas-Applegate Advisory Funds."

This Statement of Additional Information is not a prospectus, but
contains information in addition to and more detailed than that set forth in the
Funds' 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 written above.

TABLE OF CONTENTS

Page

General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-3
Investment Objectives, Policies and Risks. . . . . . . . . . . . . . . . . .B-3
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . .B-30
Principal Holders of Securities. . . . . . . . . . . . . . . . . . . . . . .B-32
Trustees and Principal Officers. . . . . . . . . . . . . . . . . . . . . . .B-32
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-34
Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-36
Distributor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-38
Portfolio Transactions and Brokerage . . . . . . . . . . . . . . . . . . . .B-39
Purchase and Redemption of Fund Shares . . . . . . . . . . . . . . . . . . .B-41
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-41
Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-43
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . . . .B-45
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . .B-49
Custodian, Transfer and Dividend Disbursing Agent,
Independent Auditors and Legal Counsel . . . . . . . . . . . . . . . . . .B-56
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-57
Appendix A - Description of Securities Ratings . . . . . . . . . . . . . . .A-1

B-1

<PAGE>

SUBJECT TO COMPLETION: ___________________,1998. INFORMATION CONTAINED HEREIN
IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO
THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE
TIME THE PROSPECTUS IS DELIVERED IN FINAL FORM. UNDER NO CIRCUMSTANCES SHALL
THIS STATEMENT OF ADDITIONAL INFORMATION CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAW OF SUCH
JURISDICTION

B-2

<PAGE>

GENERAL INFORMATION

The Trust was organized in December 1992 as a business trust under the
laws of Delaware. Information regarding 13 Funds of the Trust is included in
this Statement of Additional Information. Each of the Funds consists of more
one or more classes of shares, including Class Q shares which are the subject of
this statement of additional information.

Prior to a reorganization of the Trust which became effective on
__________, 1998 (the "Reorganization"), the Trust offered shares in a number of
separate diversified portfolios each of which invested all of its assets in a
corresponding master fund of Nicholas-Applegate Investment Trust (the "Master
Trust"). The Reorganization eliminated this two-tiered "master-feeder"
structure.

INVESTMENT OBJECTIVES, POLICIES AND RISKS

The following discussion describes the various investment policies and
techniques employed by the Funds. There can be no assurance that any of the
Funds will achieve their investment objectives.

EQUITY SECURITIES OF GROWTH COMPANIES

Each Fund may invest in equity securities of domestic and foreign
companies, the earnings and stock prices of which are expected by the 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 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 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 rates 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.

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CONVERTIBLE SECURITIES AND WARRANTS

Each 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.

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

B-4

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EURODOLLAR CONVERTIBLE SECURITIES

The Income & Growth, International Core Growth, Worldwide,
International Small Cap, Emerging Countries and High Yield Bond Funds 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.

EURODOLLAR AND YANKEE DOLLAR INSTRUMENTS

The Fully Discretionary and High Yield Bond Funds may invest in
Eurodollar and Yankee Dollar instruments. Eurodollar instruments are bonds that
pay interest and principal in U.S. dollars held in banks outside the United
States, primarily in Europe. Eurodollar instruments are usually issued on
behalf of multinational companies and foreign governments by large underwriting
groups composed of banks and issuing houses from many countries. Yankee Dollar
instruments are U.S. Dollar denominated bonds issued in the U.S. by foreign
banks and corporations. These investments involve risks that are different from
investments in securities issued by U.S. issuers. See "Foreign Investment
Considerations."

RISKS OF INVESTING IN DEBT SECURITIES

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

B-5

<PAGE>

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.

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,

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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, the Funds 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.

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
Growth, Emerging Countries , High Yield Bond and Fully Discretionary 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

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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.

MUNICIPAL SECURITIES

The Fully Discretionary Fund may invest in debt obligations issued by
state and local governments, territories and possessions of the U.S., regional
government authorities, and their agencies and instrumentalities ("municipal
securities"). Municipal securities include both notes (which have maturities of
less than one year) and bonds (which have maturities of one year or more) that
bear fixed or variable rates of interest.

In general, "municipal securities" debt obligations are issued to
obtain funds for a variety of public purposes, such as the construction, repair,
or improvement of public facilities including airports, bridges, housing,
hospitals, mass transportation, schools, streets, water and sewer works.
Municipal securities may be issued to refinance outstanding obligations as well
as to raise funds for general operating expenses and lending to other public
institutions and facilities.

The two principal classifications of municipal securities are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit, and taxing power
for the payment of principal and interest. Characteristics and methods of
enforcement of general obligation bonds vary according to the law applicable to
a particular issuer, and the taxes that can be levied for the payment of debt
service may be limited or unlimited as to rates or amounts of special
assessments. Revenue securities are payable only from the revenues derived from
a particular facility, a class of facilities or, in some cases, from the
proceeds of a special excise tax. Revenue bonds are issued to finance a wide
variety of capital projects including: electric, gas, water and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals. Although the principal security behind these bonds
may vary, many provide additional security in the form of a debt service reserve
fund the assets of which may be used to make principal and interest payments on
the issuer's obligations. Housing finance authorities have a wide range of
security, including partially or fully insured mortgages, rent subsidized and
collateralized mortgages, and the net revenues from housing or other public
projects. Some authorities are provided further security in the form of a
state's assistance (although without obligation) to make up deficiencies in the
debt service reserve fund.

The Fund may purchase insured municipal debt in which scheduled
payments of interest and principal are guaranteed by a private, non-governmental
or governmental insurance company. The insurance does not guarantee the market
value of the municipal debt or the value of the shares of the Fund.

Securities of issuers of municipal obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Bankruptcy Reform Act of 1978. In addition,
the obligations of such issuers may become subject to laws enacted in the future
by Congress, state legislatures or referenda extending the time for payment of
principal or interest, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. Furthermore,
as a result of legislation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
obligations may be materially affected.

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MORAL OBLIGATION SECURITIES. Municipal securities may include "moral
obligation" securities which are usually issued by special purpose public
authorities. If the issuer of moral obligation bonds cannot fulfill its
financial responsibilities from current revenues, it may draw upon a reserve
fund, the restoration of which is moral commitment but not a legal obligation of
the state or municipality which created the issuer.

INDUSTRIAL DEVELOPMENT AND POLLUTION CONTROL BONDS. The Fund may
invest in tax-exempt industrial development bonds and pollution control bonds
which, in most cases, are revenue bonds and generally are not payable from the
unrestricted revenues of an issuer. They are issued by or on behalf of public
authorities to raise money to finance privately operated facilities for
business, manufacturing, housing, sport complexes, and pollution control.
Consequently, the credit quality of these securities is dependent upon the
ability of the user of the facilities financed by the bonds and any guarantor to
meet its financial obligations.

MUNICIPAL LEASE OBLIGATIONS. The Fund may invest in lease obligations
or installment purchase contract obligations of municipal authorities or
entities ("municipal lease obligations"). Although lease obligations do not
constitute general obligations of the municipality for which its taxing power is
pledged, a lease obligation is ordinarily backed by the municipality's covenant
to budget for, appropriate and make the payment due under the lease obligation.
The Fund may also purchase "certificates of participation," which are securities
issued by a particular municipality or municipal authority to evidence a
proportionate interest in base rental or lease payments relating to a specific
project to be made by the municipality, agency or authority. However, certain
lease obligations contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease or installment purchase payments in
any year unless money is appropriated for such purpose for such year. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of default and foreclosure might prove
difficult. In addition, these securities represent a relatively new type of
financing, and certain lease obligations may therefore be considered to be
illiquid securities.

The Fund will attempt to minimize the special risks inherent in
municipal lease obligations and certificates of participation by purchasing only
lease obligations which meet the following criteria: (1) rated A or better by
at least one nationally recognized securities rating organization; (2) secured
by payments from a governmental lessee which has actively traded debt
obligations; (3) determined by the Investment Adviser to be critical to the
lessee's ability to deliver essential services; and (4) contain legal features
which the Investment Adviser deems appropriate, such as covenants to make lease
payments without the right of offset or counterclaim, requirements for insurance
policies, and adequate debt service reserve funds.

SHORT-TERM OBLIGATIONS. The Fund may invest in short-term municipal
obligations These securities include the following:

Tax Anticipation Notes are used to finance working capital needs of
municipalities and are issued in anticipation of various seasonal tax revenues,
to be payable from these specific future taxes. They are usually general
obligations of the issuer, secured by the taxing power of the municipality for
the payment of principal and interest when due.

Revenue Anticipation Notes are issued in expectation of receipt of
other kinds of revenue, such as federal revenues available under the Federal
Revenue Sharing Program. They also are usually general obligations of the
issuer.

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Bond Anticipation Notes normally are issued to provide interim
financing until long-term financing can be arranged. The long-term bonds then
provide the money for the repayment of the notes.

Construction Loan Notes are sold to provide construction financing for
specific projects. After successful completion and acceptance, many projects
receive permanent financing through the Federal National Mortgage Association or
the Government National Mortgage Association.

Short-Term Discount Notes (tax-exempt commercial paper) are short-term
(365 days or less) promissory notes issued by municipalities to supplement their
cash flow.

ZERO COUPON SECURITIES

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

PARTICIPATION INTERESTS

The High Yield Bond Fund may invest in participation interests,
subject to the limitation on investments by the Funds in illiquid investments.
The Fund currently does not intend to invest more than 5% of its net assets in
such interests. Participation interests represent an undivided interest in or
assignment of a loan made by an issuing financial institution. No more than 5%
of the Fund's net assets can be invested in participation interests of the same
issuing borrower. Participation interests are primarily dependent upon the
financial strength of the borrowing corporation, which is obligated to make
payments of principal and interest on the loan, and there is a risk that such
borrowers may have difficulty making payments. In the event the borrower fails
to pay scheduled interest or principal payments, the Fund could experience a
reduction in its income and might experience a decline in the net asset value of
its shares. In the event of a failure by the financial institution to perform
its obligation in connection with the participation, the Fund might incur
certain costs and delays in realizing payment or may suffer a loss of principal
and/or interest. The Investment Adviser has set certain creditworthiness
standards for issuers of loan participations and monitors their
creditworthiness.

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 Trust's Board of Trustees will
determine what unrated and 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

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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.

INDEX AND CURRENCY-LINKED SECURITIES

The High Yield Bond Fund may invest in "index-linked" or
"commodity-linked" notes, which are debt securities of companies that call for
interest payments and/or payment at maturity in different terms than the typical
note where the borrower agrees to make fixed interest payments and to pay a
fixed sum at maturity. Principal and/or interest payments on an index-linked
note depend on the performance of one or more market indices, such as the S&P
500 Index or a weighted index of commodity futures such as crude oil, gasoline
and natural gas. The Fund may also invest in "equity linked" and
"currency-linked" debt securities. At maturity, the principal amount of an
equity-linked debt security is exchanged for common stock of the issuer or is
payable in an amount based on the issuer's common stock price at the time of
maturity. Currency-linked debt securities are short-term or intermediate term
instruments having a value at maturity, and/or an interest rate, determined by
reference to one or more foreign currencies. Payment of principal or periodic
interest may be calculated as a multiple of the movement of one currency against
another currency, or against an index.

Index and currency-linked securities are derivative instruments which
may entail substantial risks. Such instruments may be subject to significant
price volatility. The company issuing the instrument may fail to pay the amount
due on maturity. The underlying investment or security may not perform as
expected by the Investment Adviser. Markets, underlying securities and indexes
may move in a direction that was not anticipated by the Investment Adviser.
Performance of the derivatives may be influenced by interest rate and other
market changes in the U.S. and abroad. Certain derivative instruments may be
illiquid. See "Illiquid Securities" below.

MORTGAGE-RELATED SECURITIES

Each Fund (other than the Value, International Core Growth,
International Small Cap Growth, 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 Fully Discretionary Fund may also invest in debt
securities which are secured with collateral consisting of U.S. mortgage-related
securities, and in other types of U.S. mortgage-related securities.

U.S. MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their residential mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by repayments of principal resulting from the
sale of the underlying residential property, refinancing or foreclosure, net of

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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 Fully Discretionary Fund may invest is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Like a bond,
interest is paid, in most cases, semiannually. CMOs may be collateralized by
whole mortgage loans, but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by GNMA, FHLMC, FNMA or equivalent
foreign entities.

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

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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 Fully Discretionary and High Yield Bond Funds 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 may also invest in depository
receipts.

The United States Government from time to time has 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
Funds' investment objectives and policies or investment of all of the Funds'
assets in another investment company with different investment objectives and
policies than the Funds. However, a Fund 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 Fund.

DEPOSITORY RECEIPTS. Each of the Funds may invest in American
Depository Receipts ("ADRs"), which are receipts issued by an American bank or
trust company evidencing ownership of underlying securities issued by a foreign
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 Value, International Core Growth, Fully

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Discretionary, High Yield Bond, Worldwide, International Small Cap Growth 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.

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 Funds' 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.

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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 VALUE
Fund) 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. Except as
indicated in "Non-Hedging Strategic Transactions", 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
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

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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 Value and Balanced
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 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 Value, Balanced and
Fully Discretionary 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 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.

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

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

In addition, foreign options 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 Value, Income & Growth,
Balanced and Fully Discretionary 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, because the Fund must maintain a secured position with respect to any
call option on a

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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 Fund's ability to sell portfolio securities at a
time when such sale might be advantageous.

The Staff of the Securities and Exchange Commission (the "Commission")
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 exception, 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 Fully Discretionary, High Yield Bond, International Core Growth,
Worldwide, International Small Cap Growth, 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 movements adverse to a
Fund's position, the Fund may forfeit the entire amount of the premium plus
related transaction costs.

FORWARD CURRENCY CONTRACTS

The Fully Discretionary, High Yield Bond, International Core Growth,
Worldwide, International Small Cap Growth, 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.

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FUTURES CONTRACTS AND RELATED OPTIONS

Each of the Funds (other than the Balanced Fund) may invest in futures
contracts and options on futures contracts as a hedge against changes in 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 Balanced
Fund) 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 and Balanced Funds) may invest in interest rate
or financial futures contracts. Bond prices are established in both the cash
market and the futures market. In the cash market, bonds are purchased and sold
with payment for the full purchase price of the bond being made in cash,
generally within five business days after the trade. In the futures market, a
contract is made to purchase or sell a bond in the future for a set price on a
certain date. Historically, the prices for bonds established in the futures
markets have generally tended to move in the aggregate in concert with cash
market prices, and the prices have maintained fairly predictable relationships.

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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 Government, International
Core Growth, Fully Discretionary, High Yield Bond, Worldwide, International
Small Cap Growth, 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.

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

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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 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

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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 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.
Except as described below under "Non-Hedging Strategic Transactions," 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 or liquid debt or equity securities, equal to the market value of the
futures contracts, in a segregated

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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 FUND as a regulated investment company. See
"Taxes."

INTEREST RATE AND CURRENCY SWAPS

The Fully Discretionary and High Yield Bond Funds may enter into
interest rate swap transactions and purchase or sell interest rate caps and
floors, and may enter into currency swap cap transactions. An interest rate or
currency swap involves an agreement between the Fund and another party to
exchange payments calculated as if they were interest on a specified
("notional") principal amount (e.g., an exchange of floating rate payments by
one party for fixed rate payments by the other). An interest rate cap or floor
entitles the purchaser, in exchange for a premium, to receive payments of
interest on a notional principal amount from the seller of the cap or floor, to
the extent that a specified reference rate exceeds or falls below a
predetermined level.

The Fund usually enters into such transactions on a "net" basis, with
the Fund receiving or paying, as the case may be, only the net amount of the two
payment streams. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each swap is accrued on a
daily basis, and an amount of cash or high-quality liquid securities having an
aggregate net asset value at least equal to the accrued excess is maintained in
a segregated account by the Trust's custodian. If the Fund enters into a swap
on other than a net basis, or sells caps or floors, the Fund maintains a
segregated account in the full amount accrued on a daily basis of the Fund's
obligations with respect to the transaction. Such segregated accounts are
maintained in accordance with applicable regulations of the Commission.

The Fund will not enter into any of these derivative transactions
unless the unsecured senior debt or the claims paying ability of the other party
to the transaction is rated at least "high quality" at the time of purchase by
at least one of the established rating agencies (e.g., AAA or AA by S&P). The
swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and agents
utilizing standard swap documentation, and the Investment Adviser has determined
that the swap market has become relatively liquid. Swap transactions do not
involve the delivery of securities or other underlying assets or principal, and
the risk of loss with respect to such transactions is limited to the net amount
of payments that the Fund is contractually obligated to make or receive. Caps
and floors are more recent innovations for which standardized documentation has
not yet been developed; accordingly, they are less liquid than swaps, and caps
and floors purchased by the Fund are considered to be illiquid assets.

INTEREST RATE SWAPS. As indicated above, an interest rate swap is a
contract between two entities ("counterparties") to exchange interest payments
(of the same currency) between the parties. In the most common interest rate
swap structure, one counterparty agrees to make floating rate payments to the
other counterparty, which in turn makes fixed rate payments to the first
counterparty. Interest payments are determined by applying the respective
interest rates to an agreed upon amount, referred to as the "notional principal
amount." In most such transactions, the floating rate payments are tied to the
London

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Interbank Offered Rate, which is the offered rate for short-term
Eurodollar deposits between major international banks. As there is no exchange
of principal amounts, an interest rate swap is not an investment or a borrowing.

CROSS-CURRENCY SWAPS. A cross-currency swap is a contract between two
counterparties to exchange interest and principal payments in different
currencies. A cross-currency swap normally has an exchange of principal at
maturity (the final exchange); an exchange of principal at the start of the swap
(the initial exchange) is optional. An initial exchange of notional principal
amounts at the spot exchange rate serves the same function as a spot transaction
in the foreign exchange market (for an immediate exchange of foreign exchange
risk). An exchange at maturity of notional principal amounts at the spot
exchange rate serves the same function as a forward transaction in the foreign
exchange market (for a future rate for the exchange risk). The currency swap
market convention is to use the spot rate rather than the forward rate for the
exchange at maturity. The economic difference is realized through the coupon
exchanges over the life of the swap. In contrast to single currency interest
rate swaps, cross-currency swaps involve both interest rate risk and foreign
exchange risk.

SWAP OPTIONS. The Fully Discretionary and High Yield Bond Funds may
invest in swap options. A swap option is a contract that gives a counterpart
the right (but not the obligation) to enter into a new swap agreement or to
shorten, extend, cancel or otherwise change an existing swap agreement, at some
designated future time on specified terms. It is different from a forward swap,
which is a commitment to enter into a swap that starts at some future date with
specified rates. A swap option may be structured European-style (exercisable on
the pre-specified date) or American-style ( exercisable during a designated
period). The right pursuant to a swap option must be exercised by the right
holder. The buyer of the right to receive fixed pursuant to a swap option is
said to own a call.

CAPS AND FLOORS. The Fully Discretionary and High Yield Bond Funds
may invest in interest rate caps and floors and currency swap cap transactions.
An interest rate cap is a right to receive periodic cash payments over the life
of the cap equal to the difference between any higher actual level of interest
rates in the future and a specified strike (or "cap") level. The cap buyer
purchases protection for a floating rate move above the strike. An interest
rate floor is the right to receive periodic cash payments over the life of the
floor equal to the difference between any lower actual level of interest rates
in the future and a specified strike (or "floor") level. The floor buyer
purchases protection for a floating rate move below the strike. The strikes are
typically based on the three-month LIBOR (although other indices are available)
and are measured quarterly. Rights arising pursuant to both caps and floors are
exercised automatically if the strike is in the money. Caps and floors
eliminate the risk that the buyer fails to exercise an-in-the-money option.

RISKS ASSOCIATED WITH SWAPS. The risks associated with interest rate
and currency swaps and interest rate caps and floors are similar to those
described above with respect to dealer options. In connection with such
transactions, the Fund relies on the other party to the transaction to perform
its obligations pursuant to the underlying agreement. If there were a default
by the other party to the transaction, the Fund would have contractual remedies
pursuant to the agreement, but could incur delays in obtaining the expected
benefit of the transaction or loss of such benefit. In the event of insolvency
of the other party, the Fund might be unable to obtain its expected benefit. In
addition, while the Fund will seek to enter into such transaction only with
parties which are capable of entering into closing transactions with the Fund,
there can be no assurance that the Fund will be able to close out such a
transaction with the other party, or obtain an offsetting position with any
other party, at any time prior to the end of the term of the underlying
agreement. This may impair the Fund's ability to enter into other transactions
at a time when doing so might be advantageous.

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NON-HEDGING STRATEGIC TRANSACTIONS

Each Fund's options, futures and swap transactions will generally be
entered into for hedging purposes to protect against possible changes in the
market values of securities held in or to be purchased for the Fund's portfolio
resulting from securities markets, currency or interest rate fluctuations, to
protect the Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of the Fund's portfolio, or to establish a
position in the derivatives markets as a temporary substitute for purchase or
sale of particular securities. However, in addition to the hedging transactions
referred to above, the Fully Discretionary Fund may enter into options, futures
and swap transactions to enhance potential gain in circumstances where hedging
is not involved. The Fund's net loss exposure resulting from transactions
entered into for such purposes will not exceed 5% of the Fund's net assets at
any one time and, to the extent necessary, the Fund will close out transactions
in order to comply with this limitation. Such transactions are subject to the
limitations described above under "Options," "Futures Contracts," and "Interest
Rate and Currency Swaps."

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.

REVERSE REPURCHASE AGREEMENTS

The High Yield Bond Fund may enter into reverse repurchase agreements,
which involve the sale of a security by the Fund and its agreement to repurchase
the security (or, in the case of mortgage-backed securities, substantially
similar but not identical securities) at a specified time and price. The Fund
will maintain in a segregated account with the Custodian cash, U.S. Government
securities or other appropriate liquid securities in an amount sufficient to
cover its obligations under these agreements with broker-dealers (no such
collateral is required on such agreements with banks). Under the 1940 Act,
these agreements are considered borrowings by the Fund, and are subject to the
percentage limitations on borrowings described below. The agreements are
subject to the same types of risks as borrowings.

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

B-25

<PAGE>

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 FUND 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.

The Trust has entered into a Credit Agreement on behalf of its
various series, including the Funds, 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 Funds or other series of the Trust, in
order to provide the Funds or such other series with cash to meet such
redemption requests. The Credit Agreement expires on April 10, 1998, unless
renewed by the parties.

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<PAGE>

Under the Credit Agreement, each Fund 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 The Chase Manhattan Bank. If, as a result of
changes in applicable laws, regulations or guidelines 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 Fund is liable for repayment of a Revolving Credit Loan to any
other Fund.

The Credit Agreement contains, among other things, covenants that
require each Fund 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

The Core Growth, Emerging Growth, Worldwide, High Yield Bond and
International Small Cap Growth 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

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<PAGE>

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 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 Investment Company 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

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<PAGE>

of policy, the 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 Fund as a regulated investment company. See "Dividends,
Distributions and 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 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 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 PORTFOLIO for many years, are described
generally in the Funds' prospectus. In making decisions with respect to equity
securities for the Funds, GROWTH OVER TIME-Registered Trademark- is the
Investment Adviser's underlying goal, and the Investment Adviser emphasizes
growth over time through investment in securities of companies with earnings
growth potential.

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<PAGE>

Its investment techniques focus 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.

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

DIVERSIFICATION

Each Fund is "diversified" within the meaning of the Investment
Company 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 Funds, has adopted the following
fundamental policies that cannot be changed without the affirmative vote of a
majority of the outstanding shares of the appropriate Fund (as defined in the
Investment Company Act).

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.

The investment objective of each Fund and Fund is a fundamental
policy. In addition, no 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 Fund's total assets may be invested without
regard to this restriction and a Fund will be permitted to invest all or a
portion of its assets in another diversified, open-end management investment
company with substantially the same investment objective, policies and
restrictions as the Fund. This restriction also does not apply to investments
by a 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
Fund will be permitted to invest all or a portion of its

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<PAGE>

assets in Another diversified, open-end management investment company with
substantially the same investment objective, policies and restrictions as the
FUND.

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 Fund
will be permitted to invest all or a portion of its assets in another
diversified, open-end management investment company with substantially the same
investment objective, policies and restrictions as the Fund. This restriction
does not apply to investments by a Fund in securities of the U.S. Government or
its agencies and instrumentalities.

4. May purchase or sell real estate. However, a 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 Fund may purchase publicly
distributed debt instruments and certificates of deposit and enter into
repurchase agreements. Each 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 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 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% of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid.

10. May purchase securities on margin, except for initial and
variation margin on options and futures contracts, and except that a 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 Fund, the
Emerging Growth Fund, the Worldwide Fund, the High Yield Bond Fund and the
International Small Cap Growth Fund), except that a 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 Fund will be permitted to invest all or a portion of its assets in
another diversified, open-end management investment company with substantially
the same investment objective, policies and restrictions as the Fund; (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 Fund.

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13. May issue senior securities, except that a Fund may borrow money
as permitted by restrictions 6 and 7 above. This restriction shall not prohibit
the 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 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 (except in the case of the Fully Discretionary Fund, which may do so
for non-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.

OPERATING RESTRICTIONS

As a matter of operating (not fundamental) policy adopted by the Board
of Trustees of the Trust, no 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 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.

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

PRINCIPAL HOLDERS OF SECURITIES

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

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 Funds, except for the shares indicated above that are held by
Nicholas-Applegate Capital Management.

TRUSTEES AND PRINCIPAL OFFICERS

TRUST

The names, ages 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. Private investor.
President, Hightower Management Co., a financial management firm (January
1992 to _____); formerly President, Nicholas-Applegate Capital Management
(from August 1984 to December 1991). Director of

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<PAGE>

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 Advisors Incorporated,
economic consultants (since 1981); Director, Nicholas-Applegate Fund, Inc.
(since 1987); Director, U.S. Filter Corporation (since March 1991) and 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 Sept. 1985 to May
1988) and Professor of Business Economics, University of Southern California
(1976 to 1984). Mr. Laffer is considered to be an "interested person" of the
Trust because A.B. Laffer, V.A. Canto & Associates received material
compensation from the Investment Adviser for consulting services provided from
time to time to the Investment Adviser, and because during the last two fiscal
years his son was 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).

ARTHUR E. NICHOLAS (__), TRUSTEE*. 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. Formerly Trustee, Nicholas-Applegate Investment
Trust (________ 1993 to _________ 1998).

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). Formerly Trustee, Nicholas-Applegate Investment
Trust (________ 1993 to _________ 1998).

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); Senior Executive Vice President, Director and
Member of the Executive Committee, PaineWebber, Inc. (until 1979); and Trustee,
Nicholas-Applegate Investment Trust (until _______ 1998). 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.

THEODORE J. COBURN (__), TRUSTEE. 17 Cotswold Road, Brookline,
Massachusetts. Partner, Brown Coburn & Co. an investment banking firm (since
1991), and

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<PAGE>

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); and Trustee, Nicholas-Applegate Investment
Trust (_____1993 to _______ 1998).

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); and Formerly Trustee, Nicholas-Applegate
Investment Trust (_______1993 to ______ 1998). Ms. DeRemer is considered to be
an "interested person" of the Master Trust under the 1940 Act because DeRemer
Associates received material compensation from the Investment Adviser 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); Trustee,
Nicholas-Applegate Investment Trust (from __________ to ____________, 1998).

JOHN D. WYLIE (__), PRESIDENT. Partner (since January 1994), Chief
Investment Officer - Investor Services Group (since December 1995), and Fund
Manager (since January 1990), Nicholas-Applegate Capital Management.

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).

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).

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).

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<PAGE>

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):

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

Fred C. Applegate $10,635 None N/A $36,250 (47*)
Arthur B. Laffer $ 9,558 None N/A $31,750 (47*)
Charles E. Young $ 9,827 None N/A $31,750 (47*)
Dann V. Angeloff $ 0 NONE N/A $36,750 (16*)
Walter E. Auch $ 0 NONE N/A $18,250 (15*)
Theodore J. Coburn $ 0 NONE N/A $34,250 (16*)
Darlene Deremer $ 0 NONE N/A $17,250 (15*)
George F. Keane $ 0 NONE N/A $18,250 (15*)

</TABLE>

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

INVESTMENT ADVISER

The Investment Adviser to the 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 1984 to manage discretionary
accounts investing in publicly traded securities for a variety of investors.
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 have been adopted.

THE INVESTMENT ADVISORY AGREEMENT

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<PAGE>

Under the Investment Advisory Agreement between the Trust and the
Investment Adviser with respect to the Funds, the Trust retains the Investment
Adviser to manage the Funds' investment Portfolio, subject to the direction of
the 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 Trust in connection with the matters to which the Investment Advisory
Agreement relates, except for liability resulting from willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of the
Investment Adviser's reckless disregard of its duties and obligations under the
Investment Advisory Agreement. The 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 Trust. The Investment Adviser is not
entitled to indemnification with respect to any liability to the 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.

Prior to the reorganization of the Trust and the elimination of its
master-feeder structure, the Trust had not engaged the services of an investment
adviser for the Trust's Qualified Portfolios because these Portfolios invested
all of their assets in master funds of the Master Trust. Consequently, the
amounts of the advisory fees earned by the Investment Adviser and reported below
were for services provided to the Master Funds of the Master Trust. 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 and reimbursement of
expenses by the Investment Adviser (or recoupment of fees previously deferred
and expenses previously reimbursed) as a result of the expense limitations and
fee waivers described below under "Expense Limitation" were as follows:

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<PAGE>

Fee Reductions and
Expense Reimbursements (or
Fund Advisory Fees Recoupments)
- -----------------------------------------------------------------------------
<S> <C> <C>
Large Cap Growth Fund $ 2,359 $7,907
Core Growth Fund 3,594,196 0
Value Fund 17,527 30,135
Emerging Growth Fund 5,836,182 0
Income & Growth Fund 902,615 (39,067)
Balanced Growth Fund 196,321 68,056
Fully Discretionary Fund 20,207 83,987
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)
High Yield Bond Fund 17,627 19,182

</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
Trust (by the Board of Trustees of the 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 Fund (including
administrative fees and distribution expenses for the 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 Funds do not exceed the amounts specified in the
Funds' prospectus.

ADMINISTRATOR

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 Funds. The management or administrative

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<PAGE>

services of ICAC for 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.

For its services, ICAC receives under the Administration Agreement
annual fees from each Fund equal to the Fund's pro rata portion (based on its
net assets compared to the Trust's total net assets) of a fee equal to 0.05% of
the first $100 million of the Trust's average net assets, 0.04% of the next $150
million, 0.03% of the next $300 million, 0.02% of the next $300 million and
0.01% thereafter, subject to a $40,000 annual minimum. As a result, ICAC
currently receives aggregate compensation at the rate of $_______ per year for
all of the Funds of the Trust. Such fees will be allocated among the series in
each grouping based on relative net asset values.

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 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,

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<PAGE>

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 Funds. 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 Funds, 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. The minimum assets
for investors in Class Q Shares of the Funds may be waived from time to time.
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.

SHAREHOLDER SERVICE PLAN

The Trust has also adopted a Shareholder Service Plan with respect to
the Funds. Under the Shareholder Service Plan, the Distributor is compensated
at the annual rate of 0.25% of the average daily net assets of each Fund
attributable to the Class Q shares of such Fund, for certain shareholder service
expenses provided by the Distributor and fees paid to plan sponsors and others
for the provision of support services to their clients who are beneficial owners
of shares of the Funds.

Support services include, among other things, establishing and
maintaining accounts and records relating to their clients that invest in Fund
shares; processing dividend and distribution payments from the Funds on behalf
of clients; preparing tax reports; arranging for bank wires; responding to
client inquiries concerning their investments in Fund shares; providing the
information to the Funds 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 Fund or class at
any time, without penalty, by the Board.

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<PAGE>

Under the Shareholder Service Plan, the Distributor pays plan sponsors
and others an account servicing fee of up to 0.25% annually of the average daily
net assets of each Fund attributable to the Class Q shares of such Fund in the
accounts of their customers, as compensation for providing certain
shareholder-related services.

MISCELLANEOUS

Pursuant to the Shareholder Service Plan, the Board of Trustees
reviews at least quarterly a written report of the service expenses incurred on
behalf of shares of the Funds by the Distributor. The report includes an
itemization of the service expenses and the purposes of such expenditures.
Because the Trust offers shares of numerous Funds (other than those to which
this Statement of Additional Information applies) which are subject to Rule
12b-1 under the Investment Company Act, 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 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 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, brokers who sell shares of the Funds 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 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 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
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 substantially the same
time on behalf of the Funds and one or more other accounts managed by the

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<PAGE>

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 master funds of the
Master Trust, (which were predecessors to the corresponding 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; 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.; Emerging Countries Fund -- Associates Corp. of
North America, Merrill Lynch & Co., Rashid Hussain Berhad Securities, Peregrine
Brokerage; Fully Discretionary Fixed Income Fund -- J.P. Morgan & Co.; Value
Fund -- Salomon Bros., Goldman Sachs; and High Yield Bond Fund -- J.P. Morgan &
Co., UBS Securities. 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); International Core Growth Fund
- --Associates Corp. of North America ($130,000), Merrill Lynch & Co. ($194,000);
Emerging Countries Fund -- Associates Corp. of North America ($3,036,000); Fully
Discretionary Fixed Income Fund -- J.P. Morgan & Co. ($78,271); and Value Fund
- -- Salomon Bros. ($49,875).

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

Year Ended
--------------------------------------------------
March 31, 1997 March 31, 1996 March 31, 1995
--------------------------------------------------
<S> <C> <C> <C>
International Core Growth Fund $24,643 N/A N/A
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 N/A N/A
Core Growth Fund 1,139,938 862,396 728,347
Value Fund 8,996 N/A N/A

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<PAGE>

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
Fully Discretionary Fund -0- -0- N/A
High Yield Bond Fund 200 N/A N/A
</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. The Investment Adviser has not
separately identified a portion of such commissions as applicable to the
provision of such research, statistical or otherwise.

PURCHASE AND REDEMPTION OF FUND SHARES

Class Q shares of the Funds may be purchased and redeemed at their
net asset value without any initial or deferred sales charge.

The price paid for purchases and redemptions of shares of the Funds is
based on the net asset value per share, which is calculated once daily at the
close of trading (normally 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 or any sub-transfer agent prior to the time of
determination of net asset value. Dealers are responsible for promptly
transmitting purchase orders to the Transfer Agent or a sub-transfer agent. The
Trust reserves the right in its sole discretion to suspend the continued
offering of the Funds' 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
Funds. Payment for shares redeemed will be made not more than seven days after
receipt of a written or telephone request in appropriate form, except as
permitted by the Investment Company Act and the rules thereunder. Such payment
may be postponed or the right of redemption suspended at times when the New York
Stock Exchange is closed for other than customary weekends and holidays, when
trading on such Exchange is restricted, when an emergency exists as a result of
which disposal by a Portfolio of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Portfolio fairly to
determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.

SHAREHOLDER SERVICES

The services offered by the Trust to shareholders of the Class Q
shares can vary, depending on the needs of the retirement plan, and should be
arranged by contacting the Trust, the Distributor, the Administrator or the
Transfer Agent.

SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of shares of a Fund, a Shareholder
Investment Account is established for each investor under which the shares are
held for the investor by the Transfer Agent. No certificates will be issued for
shares of the Class Q shares of a Fund.

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
Class Q shares of a Fund at net asset value. An investor may direct the
Transfer Agent in writing not less than five full business days

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<PAGE>

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 Fund 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
Fund. 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 of Class Q shares of one Fund may elect to
cross-reinvest dividends or dividends and capital gain distributions paid by
that Fund (the "paying Fund") into Class Q shares of any other Fund (the
"receiving Fund") subject to the following conditions: (i) the aggregate value
of the shareholder's account(s) in the paying Fund(s) must equal or exceed
$5,000 (this condition is waived if the value of the account in the receiving
Fund equals or exceeds that Fund's minimum initial investment requirement), (ii)
as long as the value of the account in the receiving Fund is below that Fund's
minimum initial investment requirement, dividends and capital gain distributions
paid by the receiving Fund must be automatically reinvested in the receiving
Fund, and (iii) if this privilege is discontinued with respect to a particular
receiving Fund, the value of the account in that Fund must equal or exceed the
Fund's minimum initial investment requirement or the Fund will have the right,
if the shareholder fails to increase the value of the account to such minimum
within 90 days after being notified of the deficiency, automatically to redeem
the account and send the proceeds to the shareholder. These cross-reinvestments
of dividends and capital gain distributions will be at net asset value (without
a sales charge).

AUTOMATIC WITHDRAWAL

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

REDEMPTION IN KIND

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

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<PAGE>

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.

EXCHANGE PRIVILEGE

Shares of a Fund may be exchanged into shares of any other Fund or
Class A shares as provided in the Prospectus. The Trust's exchange privilege is
not intended to afford shareholders a way to speculate on short-term market
movements. Accordingly the Trust reserves the right to limit the number of
exchanges an investor or participant may make in any year, to avoid excessive
Fund expenses.

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

TELEPHONE PRIVILEGE

Investors may exchange or redeem shares by telephone if they have
elected the telephone privilege on their account applications as provided in the
Prospectus.

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

REPORTS TO INVESTORS

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

NET ASSET VALUE

The net asset value of a share of a Class of a Fund is calculated by
dividing (i) the value of the securities held by the Fund (i.e., the value of
its investments in a Fund), plus any cash or other assets, minus the Class'
proportional interest in the Fund's liabilities (including accrued estimated
expenses on an annual basis) and all liabilities allocable to such Class, by
(ii) the total number of shares of the Class outstanding. The value of the
investments and assets of 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

B-44
<PAGE>

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 Board of Trustees of
the Trust will reconsider the time at which they compute net asset value. In
addition, the asset value of A 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 Fund or the Fund
is more than 60 days, unless this is determined by the Board of Trustees of the
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 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 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 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 Trust's Board of Trustees. Such valuations and procedures
will be reviewed periodically by the Board of Trustees.

B-45
<PAGE>

The 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
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.

DIVIDENDS, DISTRIBUTIONS AND TAXES

The Balanced and Income & Growth Funds declare and pay quarterly
dividends of net investment income. The Fully Discretionary Fund declares and
pays monthly dividends of net investment income. All other Funds declare and
pay annual dividends of all investment income. Each Fund makes distributions at
least annually of its net capital gains, if any. In determining amounts of
capital gains to be distributed by a Fund, any capital loss carryovers from
prior years will be offset against its capital gains.

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 Fund 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 Fund (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) for taxable years beginning on
or before August 5, 1997 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 Fund's assets is represented by cash, U.S. Government securities and
securities of other regulated investment companies, and other securities (for
purposes of this calculation generally limited, in respect of any one issuer, to
an amount not greater than 5% of the market value of the Fund'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 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 Fund 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 Fund
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

B-46

<PAGE>

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 Fund in
October, November, or December of that year to shareholders of record on a
date in such a month and paid by the Fund 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 Funds 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 Fund from ordinary income, and distributions of
the Fund'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 Funds is derived from dividends on common or preferred stock of
domestic corporations. Dividend income earned by a Fund will be eligible for
the dividends received deduction only if the 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 Fund 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 Fund 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 Fund'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 Fund 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%
(20% for property sold after July 28, 1997 that was held more than 18 months)
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 Fund.

Any loss realized on a sale, redemption or exchange of shares of a
Fund 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 Fund 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 Fund
if the shareholder acquires shares in a Fund 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 Fund 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

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<PAGE>

consult their tax advisers to determine whether any portion of the income
dividends received from the Fund is considered tax exempt in their particular
states.

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 Funds. In
addition, losses realized by a Fund 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 Funds are not entirely clear. The transactions may
increase the amount of short-term capital gain realized by a Fund which is taxed
as ordinary income when distributed to shareholders.

The Funds may make one or more of the elections available under the
Code which are applicable to straddles. If the Funds 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 application 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 qualifying income and diversification requirements applicable to
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 Fund'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

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<PAGE>

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 Fund'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
Fund's taxable year whether the foreign taxes paid by the Fund will
"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 Fund. 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 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 interest 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.

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<PAGE>

The Funds 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 Funds may be required to withhold for U.S. federal income taxes
31% of all taxable distributions payable to shareholders who fail to provide the
Funds with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain
other shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal income 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
Fund with respect to distributions by the Fund 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 Funds, compare Fund performance to various indices, and publish rankings of
the Funds prepared by various ranking services. Any performance information
should be considered in light of the Fund's investment objectives and policies,
characteristics and quality of its portfolio, and the market conditions during
the given period, and should not be considered to be representative of what may
be achieved in the future. For purposes of calculating the historical
performance of a Fund, the Trust will take into account the historical
performance of the series of the Trust corresponding to the Fund prior to the
Reorganization of the Trust as well as the historical performance of that
series' corresponding master fund of the Master Trust for periods, if any, prior
to the date of inception of the series.

TOTAL RETURN

The total return for a Fund 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 Fund 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.

B-50

<PAGE>

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 Fund is calculated based on a 30-day or one-month
period, according to the following formula:

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

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

Yields for the Portfolios predecessors to the corresponding Class of
shares of the Funds for the 30-day period ended September 30, 1997 were as
follows:

Income & Growth Fund Class Q Shares ______%

Balanced Growth Fund Class Q Shares ______%

Government Income Fund Class Q Shares ______%

COMPARISON TO INDICES AND RANKINGS

A Fund 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 Growth Index, the Russell 2000 Growth Index, the
Russell 1000 Index, the CS First Boston Convertible Index, the Lehman Brothers
Government 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 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.

B-51
<PAGE>

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.

PRIOR PERFORMANCE OF CERTAIN FUNDS AND THEIR PREDECESSORS

The following table sets forth historical performance information
for the Core Growth, Emerging Growth, Income & Growth and International Small
Cap Funds. It includes historical performance information for the Portfolios
which preceded the Funds prior to the Reorganization of the Trust, and the
following predecessor investment partnerships and pooled trust, and for the
corresponding Funds of the Master 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 Portfolio 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
Portfolio on December 27, 1993; Income and Growth Fund -- 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 FUND --includes performance
information for Huntington Partners, a California limited partnership the
assets of which were transferred to the International Fund on August 31, 1994.

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

The Investment Adviser has advised the Trust that such partnerships
and pooled trusts were operated in substantially the same manner as such
Portfolios, and their assets were transferred to the corresponding master
funds of the Master Trust prior to the effective date of the Portfolios'
registration statement. It has indicated that such results for the prior
partnerships and pooled trust, and for the corresponding master funds of the
Master Trust, have been adjusted to reflect the deduction of the fees and
expenses of the Portfolios (including Rule 12b-1 fees), and for the period
preceding the Reorganization of the Trust, the proportionate shares of the
operating expenses of the corresponding master funds of the Master Trust
(including advisory fees), as stated under "Summary of Expenses" in the
Funds' 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-52

<PAGE>

Core Growth Emerging Growth Income & Growth International Small Cap Growth
Performance Performance Performance Performance
-------------------- ------------------- ----------------- --------------------------

Inter-
national
Russell Russell Income CS First Small Salomon
Core S&P Midcap Emerging 2000 & Boston Cap MSCI EPAC/
Growth 500 Growth Growth Growth Growth Convertible Growth EAFE EMI
Year Fund Index(1) Index(2) Fund Index(3) Fund Index(4) Fund Index(5) Index(6)
- ---- ------ -------- -------- -------- -------- ------ ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985(7) 24.67% 17.14% 11.24% 6.97%
1986(7) 32.53 18.64 17.55% 6.09 3.58
1987 3.33 5.27 2.76 (4.10) (10.48) (3.37)% (0.22)%
1988 12.39 16.55 12.92 26.64 20.37 19.58 13.41
1989 33.60 31.61 31.98 27.19 20.17 28.08 13.76
1990(7) 0.48 (3.04) (5.13) (8.62) (17.41) 1.59 (6.89) (17.60)% (13.67)% (16.96)%
1991 55.15 30.46 47.03 55.74 51.19 38.02 29.11 11.51 12.13 6.66
1992 13.27 7.62 8.71 12.42 7.77 9.56 17.58 (12.58) (12.17) (15.42)
1993(7) 20.03 10.07 11.19 15.72 13.36 26.81 18.55 25.72 32.57 30.34
1994 (10.91) 1.32 (2.17) (3.83) (2.43) (7.82) (4.72) 8.34 7.76 9.44
1995(7) 38.24 37.60 33.99 35.53 31.06 21.98 23.72 5.72 11.02 4.79
1996(7) 16.07 17.48 22.96 19.46 11.26 20.70 13.84 18.02 6.05 6.47
1997(8)
LAST YEAR(8)
LAST 5 YEARS(8)
LAST 10 YEARS(8)
SINCE INCEPTION(8)

</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-53

<PAGE>

(2) The Russell Midcap Growth Index measures the performance of those companies
among the 800 smallest companies in the Russell 1000 Index with higher than
average price-to-book ratios and forecasted growth. The Russell 1000 Index
contains the top 1,000 securities of the Russell 3000 Index, which
comprises the 3,000 largest U.S. securities as determined by total market
capitalization. The Russell Midcap Growth Index is considered generally
representative of the U.S. market for midcap stocks. The average market
capitalization is approximately $4 billion, the median market
capitalization is approximately $2.5 billion and the largest company in the
index had an approximate market capitalization of $8.7 billion. 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. The index was not available until 1986.

(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 that
includes shares of about 2,800 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 Qualified Portfolio
(predecessor to the Class Q shares of the Core Growth Fund) - September 30,
1985 (registration statement effective June 30, 1994); Emerging Growth
Qualified Portfolio (predecessor to the Class Q shares of the Emerging
Growth Fund)- September 30, 1985 (registration statement effective August
31, 1995); Income & Growth Qualified Portfolio (predecessor series to the
Class Q shares of the Income & Growth Fund)- December 31, 1986
(registration statement effective August 31, 1995; International Growth
Qualified Portfolio (predecessor to the Class Q share of the International
Growth Fund) - June 7, 1990 (registration statement effective August 31,
1995).

(8) Through September 30, 1997.

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 Funds. 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 Funds. Investors should not consider this performance data
as an indication of future performance of the Funds or of the Investment
Adviser.

B-54

<PAGE>

The Investment Adviser's composite performance data shown below were
calculated in accordance with recommended standards of the Association for
Investment Management and Research ("AIMR"(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 Funds.
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 Q
Class of shares of the Large Cap and Balanced Funds are subject nor to the
diversification requirements, specific tax restrictions and investment
limitations imposed on the Funds 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 Funds or an individual
investor investing in any Class of shares of such Funds. 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.

- ----------------
(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-55

<PAGE>

60% S&P 500
INVESTMENT INDEX 40%
ADVISER'S BALANCED LEHMAN BROS. LEHMAN BROS.
BALANCED GROWTH S&P 500 GOVT./CORP. LEHMAN BROS.
YEAR COMPOSITE FUND Index(1) Index(2) Index
- ---- ---------- -------- ------- ----------- -----------
<S> <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 5.69 (3.04) 8.29 1.97
1991 32.73 30.46 16.13 24.18
1992 9.40 3.62 7.57 7.51
1993 20.14 (3.80) 11.06 9.61
1994 (5.37) 1.32 (3.61) 0.08
1995(4) 29.23 25.38% 37.60 19.24 28.29
1996 11.72 18.33 22.96 2.89 15.16

1997(5)

LAST YEAR(5)

LAST 5 YEARS(5)

SINCE INCEPTION(5)

</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) Commencement of investment operations is April 1, 1988.

(4) The Balanced Growth Portfolio commenced operations on August 31, 1995.

(5) Through September 30, 1997.

B-56

<PAGE>

<TABLE>
<CAPTION>
INVESTMENT ADVISER'S
LARGE CAP GROWTH RUSSELL 1,000 S&P 500
YEAR COMPOSITE(1) GROWTH INDEX(1) INDEX(1)(3)
- ---- -------------------- --------------- -----------
<S> <C> <C> <C>
1995(4) 35.36% 25.26 25.37%
1996 25.91 23.12 13.49
1997(5)
Since inception(5)
</TABLE>

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

(1) Annualized.

(2) The Russell 1000 Growth Index contains those companies among the Russell
1000 Securities with higher than average price-to-book ratios and
forecasted growth. The Russell 1000 Index contains the top 1,000
securities of the Russell 3000 Index, which comprises the 3,000 largest
U.S. securities as determined by total market capitalization. The Russell
1000 Growth Index is considered generally representative of the U.S. market
for large cap stocks. The Index reflects the reinvestment of income
dividends and capital gains distributions, if any, but does not reflect
fees, brokerage commissions, or other expenses of investing.

(3) The 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.

(4) Commencement of investment operations was April 1, 1995.

(5) Through September 30, 1997.

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 Funds and in that capacity maintains
certain financial and accounting books and records pursuant to agreements
with the Trust. PFPC Inc., 103 Bellevue Parkway, Wilmington, Delaware, an
affiliate of the Custodian, provides additional accounting services to the
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 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.

B-57

<PAGE>

The Charles Schwab Trust Company, 101 Montgomery Street, San
Francisco, California 94104, Serves as co-transfer agent for shares of the
Funds. The following act as sub-transfer agents for the Funds: Financial Data
Services, Inc., 4800 Deer Lake Drive, 2nd Floor, Jacksonville, Florida 32246;
William M. Mercer Plan Participant Services, Inc., 1417 Lake Cook Road,
Deerfield, Illinois 60015; and Schwab Retirement Plan Services, Inc., 101
Montgomery Street, San Francisco, California 94104.

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

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

MISCELLANEOUS

SHARES OF BENEFICIAL INTEREST

The Trust is currently comprised of 23 series, each consisting of one
or more classes of shares -- A, B, C, Q or I.

On any matter submitted to a vote of shareholders of the Trust, all
shares then entitled to vote will be voted by the affected Fund(s) unless
otherwise required by the Investment Company Act, in which case all shares of
the Trust will be voted in the aggregate or by Classes, as the case may be. For
example, a change in a Fund's fundamental investment policies would be voted
upon only by shareholders of all Classes of that Fund, as would the approval of
any advisory or distribution contract for the Fund. 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 Investment Company Act provides that any
matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as the Trust shall not be deemed to
have been effectively acted upon unless approved by a majority of the
outstanding shares of the series of the Trust affected by the matter. Under
Rule 18f-2, a series is presumed to be affected by a matter, unless the
interests of each series in the matter are identical or the matter does not
affect any interest of such series. Under Rule 18f-2 the approval of an
investment advisory agreement or any change in a fundamental investment
policy would be effectively acted upon with respect to a Fund 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 Fund.

As used in the Funds' prospectus and in this Statement of Additional
Information, the term "majority," when referring to approvals to be obtained
from shareholders of a Fund, means the vote

B-58

<PAGE>

of the lesser of (i) 67% of the shares of the Fund represented at a meeting
if the holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding
shares of the Fund. 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.

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 each class of a Fund represents an equal proportional
interest in the Fund with each other share of the same Class and is entitled to
such dividends and distributions out of the income earned on the assets
allocable to the Class as are declared in the discretion of the Trustees. In
the event of the liquidation or dissolution of the Trust, shareholders of a Fund
are entitled to receive the assets attributable to the Fund that are available
for distribution, and a distribution of any general assets not attributable to a
particular Fund 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.

DECLARATION OF TRUST

The Declaration of Trust of the Trust provides that obligations of
the Trust are not binding upon its Trustees, officers, employees and agents
individually and that the Trustees, officers, employees and agents will not be
liable to the Trust or its investors for any action or failure to act, but
nothing in the Declaration of Trust protects 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 Declaration of Trust also provides that the debts,
liabilities, obligations and expenses incurred, contracted for or existing with
respect to a designated Fund shall be enforceable against the assets and
property of such Fund only, and not against the assets or property of any other
Fund or the investors therein.

B-59

<PAGE>

FINANCIAL STATEMENTS

The Trust's 1997 Annual Report and September 30, 1997 Semi-Annual
Report to Shareholders of the Portfolios (predecessors to the Class Q shares of
the Fund) accompanies this Statement of Additional Information. The financial
statements in such Annual Report 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 Funds' independent
auditors, Ernst & Young L.L.P., whose report thereon appears in such Annual
Report. Such financial statements have been incorporated herein in reliance
upon such report given upon their authority as experts in accounting and
auditing. Additional copies of the Trust's 1997 Annual Report and September 30,
1997 Semi-Annual Report 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 , including the Funds'
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 Funds' Prospectuses or the Statements of Additional
Information as to the contents of any contract or other document referred to
herein or in the Prospectus 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-60

<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.

A-1

<PAGE>

STANDARD & POOR'S CORPORATION

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

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

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

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

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

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

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.

A-2

<PAGE>

DUFF & PHELPS

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

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

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

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

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

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

DUFF 4 - Debt possesses speculative investment characteristics.

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

THOMSON BANKWATCH

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

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."

A-3

<PAGE>

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

IBCA

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

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

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

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

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

CORPORATE BONDS

MOODY'S

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

Aaa: Bonds in this category are judged to be of the highest quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

Aa: Bonds in this category are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa 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-4

<PAGE>

A: Bonds in this category possess many favorable investment
attributes and are considered to be as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.

Baa: Bonds in this category are considered medium-grade obligations,
(I.E., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

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

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

Caa: Bonds in this category are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

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

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

STANDARD & POOR'S

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

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

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

A-5

<PAGE>

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.

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.

A-6

<PAGE>

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.

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.

A-7

<PAGE>

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 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.

A-8

<PAGE>

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-9

<PAGE>

NICHOLAS-APPLEGATE MUTUAL FUNDS

FORM N-1A

PART C: OTHER INFORMATION

Item 24. FINANCIAL STATEMENTS AND EXHIBITS.

a. Financial Statements

The 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 series A,
B and C Portfolios, the predecessors to the Class A, B and C shares of
Registrant's corresponding Funds which are the subject of this
Amendment to Registration Statement, are incorporated by reference in
Part B.

The Schedules of Investments as of September 30, 1997, Statements of
Assets and Liabilities as of September 30, 1997, and related Notes
with respect to Registrant's series A, B and C Portfolios, the
predecessors to the Class A, B and C shares of Registrant's
corresponding Funds which are the subject of this Amendment to
Registration Statement, are incorporated by reference in Part B.

b. Exhibits:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

C-1
<PAGE>

(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).

(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 (m).

(1.20) Form of Amendment No. 16 to Amended and Restated Declaration
of Trust (r).

(1.21) Form of Amendment No. 17 to Amended and Restated Declaration
of Trust (r).

(1.22) Form of Amendment No. 18 to Amended and Restated Declaration
of Trust (r).

(2.1) Amended Bylaws of Registrant (f).

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

(3) None.

(4) None.

(5.1) Form of Investment Advisory Agreement between Registrant and
Nicholas-Applegate Capital Management, with respect to
Global Blue Chip Fund, Emerging Markets Bond Fund, Pacific
Rim Fund, Greater China Fund and Latin America Fund (n).

(5.2) Form of Sub-Advisory Agreement between Registrant and
Nicholas-Applegate Capital Management-Hong Kong, with
respect to the Pacific Rim Fund and Greater China Fund (n).

(5.3) Form of Sub-Advisory Agreement between Registrant and
Nicholas-Applegate Capital Management-Asia, with respect to
the Pacific Rim Fund and Greater China Fund (n).

(5.4) Amended form of letter agreement between Registrant and
Nicholas-Applegate Capital Management adding the Class A, B,
C, Q and I shares of Registrant's additional Funds to the
Investment Advisory Agreement.

(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).

C-2
<PAGE>

(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).

(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,
Emerging Markets Bond Fund, Pacific Rim Fund, Greater China
Fund and Latin America Fund to Distribution Agreement (n).

(6.14) Amended form of letter agreement between Registrant and
Nicholas-Applegate Securities adding the Class A, B, C, Q
and I shares of Registrant's additional Funds to the
Distribution Agreement.

(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).

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<PAGE>

(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).

(8.15) Form of letter agreement between Registrant and PNC Bank
with respect to custodian services fees related to the
Global Blue Chip Fund and the Emerging Markets Bond Fund
(m).

(8.16) Form of letter agreement between Registrant and PNC Bank,
adding Pacific Rim Fund, Greater China Fund and Latin
America Fund to Custodian Services Agreement (n).

(8.17) Form of letter agreement between Registrant and PNC Bank,
adding the Class A, B, C, Q and I shares of Registrant's
additional Funds to Custodian Services Agreement (o).

(8.18) Form of Sub-Custodian Agreement among Registrant, PNC Bank
and Chase Manhattan Bank, with respect to Global Blue Chip
Fund, Emerging Markets Bond Fund, Greater China Fund,
Pacific Rim Fund and Latin America Fund.

(8.19) Amended form of letter agreement among Registrant, PNC Bank
and Chase Manhattan Bank, adding the Class A, B, C, Q and I
shares of Registrant's additional Funds to Sub-Custodian
Agreement.

(9.1) Form of amended Administration Agreement between Registrant
and Investment Company Administration Corporation (o).

(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).

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<PAGE>

(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).

(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) Form of letter agreement between Registrant and State Street
Bank and Trust Company, adding Pacific Rim Fund, Greater
China Fund and Latin America Fund to Transfer Agency and
Service Agreement (n).

(9.18) Amended form of letter agreement between Registrant and
State Street Bank and Trust Company, adding the Class A, B,
C, Q and I shares of Registrant's additional Funds to
Transfer Agency and Service Agreement.

(9.19) Form of amended Shareholder Service Plan between Registrant
and Nicholas-Applegate Securities (o).

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

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

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

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

C-5
<PAGE>

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

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

(9.26) 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).

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

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

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

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

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

(9.32) Form of letter agreement between Registrant and PFPC Inc.
adding Core Growth International Portfolio C series to
Accounting Services Agreement (i).

(9.33) 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).

(9.34) Form of letter agreement between Registrant and PFPC Inc.,
adding Global Blue Chip Fund and Emerging Markets Bond Fund
to Accounting Services Agreement (l).

(9.35) Form of letter agreement between Registrant and PFPC Inc.
with respect to accounting services fees related to the
Global Blue Chip Fund and the Emerging Markets Bond Fund
(m).

(9.36) Form of letter agreement between Registrant and PFPC Inc.
adding the Pacific Rim Fund, Greater China Fund and Latin
America Fund (n).

(9.37) Form of letter agreement between Registrant and PFPC Inc.
regarding fees for additional Funds under Accounting
Services Agreement (o).

(9.38) Amended form of letter agreement between Registrant and PFPC
Inc., adding the Class A, B, C, Q and I shares of
Registrant's additional Funds to Accounting Service
Agreement.

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

(9.40) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding Global Blue
Chip Fund, Emerging Markets Bond Fund, Pacific Rim Fund,
Greater China Fund and Latin America Fund to agreement
regarding expense reimbursement (n).

(9.41) Amended form of letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding the Class A,
B, C, Q and I shares of Registrant's additional Funds to
agreement regarding expense reimbursement.

C-6
<PAGE>

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

(9.43) First Amendment Agreement to Credit Agreement dated as of
April 9, 1997 among Registrant, The Chase Manhattan Bank,
and certain other banks (l).

(9.44) Form of Second Amendment Agreement to Credit Agreement among
Registrant, The Chase Manhattan Bank, and certain other
banks (n).

(10) Opinion of Counsel (c).

(11) Not Applicable.

(12) Not Applicable.

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

(14.1) IRA Plan Materials (d).

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

(15.1) Amended Distribution Plan of Registrant (f)

(15.2) Form of further Amendment to Distribution Plan of Registrant
(o).

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

(17.1) Financial Data Schedule as of March 31, 1997 (p).

(17.2) Financial Data Schedule as of September 30, 1997 (q).

(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).
- ------------------

(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.

C-7
<PAGE>

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

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

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

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

(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.

(m) Filed as an Exhibit to Amendment No. 47 to Registrant's Form N-1A
Registration Statement on July 28, 1997 and incorporated herein by
reference.

(n) Filed as an Exhibit to Amendment No. 49 to Registrant's Form N-1A
Registration Statement on September 2, 1997 and incorporated herein by
reference.

(o) Filed as an Exhibit to Registrant's Form N-14 Registration Statement on
December 5, 1997 and incorporated herein by reference.

(p) Filed as an Exhibit to Registrant's Form N-SAR on June 9, 1997 and
incorporated herein by reference.

(q) Filed as an Exhibit to Registrant's Form N-SAR on December 12, 1997 and
incorporated herein by reference.

(r) Filed as an Exhibit to Amendment No. 50 to Registrant's Form N-1A
Registration Statement on December 15, 1997 and incorporated herein by
reference.

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

None.

Item 26. NUMBER OF HOLDERS OF SECURITIES.

As of November 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 58
Core Growth Portfolio A 6,438
Emerging Growth Portfolio A 10,733
Income & Growth Portfolio A 2,496
Balanced Growth Portfolio A 930
Government Income Portfolio A 492

C-8
<PAGE>

Money Market Portfolio 853
International Core Growth Portfolio A 315
Worldwide Growth Portfolio A 2,044
International Small Cap Growth Portfolio A 799
Emerging Countries Portfolio A 4,598
Large Cap Growth Portfolio B 116
Core Growth Portfolio B 3,351
Emerging Growth Portfolio B 4,273
Income & Growth Portfolio B 1,521
Balanced Growth Portfolio B 347
Government Income Portfolio B 240
International Core Growth Portfolio B 465
Worldwide Growth Portfolio B 810
International Small Cap Growth Portfolio B 688
Emerging Countries Portfolio B 3,713
Large Cap Growth Portfolio C 31
Core Growth Portfolio C 12,653
Emerging Growth Portfolio C 16,227
Income & Growth Portfolio C 5,208
Balanced Growth Portfolio C 1,278
Government Income Portfolio C 475
International Core Growth Portfolio C 186
Worldwide Growth Portfolio C 5,531
International Small Cap Growth Portfolio C 866
Emerging Countries Portfolio C 3,069
Large Cap Growth Institutional Portfolio 39
Core Growth Institutional Portfolio 183
Emerging Growth Institutional Portfolio 185
Income & Growth Institutional Portfolio 121
Balanced Growth Institutional Portfolio 28
International Core Growth Institutional Portfolio 71
Worldwide Growth Institutional Portfolio 79
International Small Cap Growth Institutional Portfolio 81
Emerging Countries Institutional Portfolio 204
Mini Cap Growth Institutional Portfolio 317
Fully Discretionary Institutional Fixed Income Portfolio 13
Short-Intermediate Institutional Fixed Income Portfolio 15
Value Institutional Portfolio 49
High Yield Bond Institutional Portfolio 25
Strategic Income Institutional Portfolio 20
Global Growth & Income Institutional Portfolio 50
Large Cap Growth Qualified Portfolio 12
Core Growth Qualified Portfolio 193
Emerging Growth Qualified Portfolio 75
Income & Growth Qualified Portfolio 10
Balanced Growth Qualified Portfolio 9
Government Income Qualified Portfolio 9
International Core Growth Qualified Portfolio 25
Worldwide Growth Qualified Portfolio 9
International Small Cap Growth Qualified Portfolio 12
Emerging Countries Qualified Portfolio 1,678
Emerging Markets Bond Institutional Portfolio 16
Global Blue Chip Fund 80

Item 27. INDEMNIFICATION.

C-9
<PAGE>

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

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

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

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

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

C-10
<PAGE>

and Nicholas-Applegate Securities. The principal business address of such
persons is 600 West Broadway, 30th Floor, San Diego, California 92101, except as
otherwise indicated below.

Positions and 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 undertakes to file a Post-Effective amendment containing
reasonably current financial statements with respect to its Global Technology
Fund, which need not be certified, within four to six months from the effective
date of this Amendment.

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

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

C-11
<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 10th day
of December, 1997.

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 December 19, 1997
- ------------------------- Officer
John D. Wylie

Principal Financial and
Thomas Pindelski* Accounting Officer December 19, 1997
- -------------------------
Thomas Pindelski

Fred C. Applegate* Trustee December 19, 1997
- -------------------------
Fred C. Applegate

Arthur B. Laffer* Trustee December 19, 1997
- -------------------------
Arthur B. Laffer

Charles E. Young* Trustee December 19, 1997
- -------------------------
Charles E. Young

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

C-12
<PAGE>

EXHIBIT INDEX

NICHOLAS-APPLEGATE MUTUAL FUNDS
AMENDMENT NO. 52 TO
FORM N-1A REGISTRATION STATEMENT
FILE NO. 811-7428

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

(5.4) Amended form of letter agreement between Registrant and
Nicholas-Applegate Capital Management adding the Class
A, B, C, Q and I shares of Registrant's additional
Funds to the Investment Advisory Agreement.

(6.14) Amended form of letter agreement between Registrant and
Nicholas-Applegate Securities adding the Class A, B, C,
Q and I shares of Registrant's additional Funds to the
Distribution Agreement.

(8.19) Amended form of letter agreement among Registrant, PNC
bank and Chase Manhattan Bank, adding the Class A, B,
C, Q and I shares of Registrant's additional Funds to
Sub-Custodian Agreement.

(9.18) Amended form of letter agreement between Registrant and
State Street Bank and Trust Company, adding the Class
A, B, C, Q and I shares of Registrant's additional
Funds to Transfer Agency and Service Agreement.

(9.38) Amended form of Letter agreement between Registrant and
PFPC INC., adding the Class A, B, C, Q and I shares of
Registrant's additional Funds to Accounting Service
Agreement.

(9.41) Amended form of letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding the Class
A, B, C, Q and I shares of Registrant's additional
funds to Agreement regarding expense reimbursement.

C-13

<PAGE>

Exhibit 5.4

_____________, 199_

Nicholas-Applegate Mutual Funds
600 West Broadway
San Diego, California 92101

Nicholas-Applegate Capital Management
600 West Broadway
San Diego, California 92101

Ladies and Gentlemen:

This will confirm our agreement that the Investment Advisory Agreement
between us dated ___________, 1997 is hereby amended by adding thereto the
series set forth on Exhibit A as Funds thereunder. The annual advisory fee with
respect to each such Fund shall be as set forth on Exhibit A.

In all other respects, the Investment Advisory Agreement will remain
in full force and effect. Please sign this letter below to confirm your
agreement with this amendment.

Very truly yours,

-------------------
E. Blake Moore, Jr.
Secretary

AGREED:

Nicholas-Applegate Capital Management
By: Nicholas-Applegate Capital Management
Holdings, L.P., its General Partner
By: Nicholas-Applegate Capital Management
Holdings, Inc., its General Partner

By:
--------------------------
E. Blake Moore, Jr.
Secretary
<PAGE>

EXHIBIT A

NICHOLAS-APPLEGATE CORE GROWTH FUND: 0.75% of the first $500 million of the
Fund's average net assets, 0.675% of the next $500 million of net assets, and
0.65% of net assets in excess of $1 billion.

NICHOLAS-APPLEGATE LARGE CAP GROWTH FUND: 0.75% of the first $500 million of the
Fund's average net assets, 0.675% of the next $500 million of net assets, and
0.65% of net assets in excess of $1 billion.

NICHOLAS-APPLEGATE MINI CAP GROWTH FUND: 1.25% of the Fund's average net assets.

NICHOLAS-APPLEGATE EMERGING GROWTH FUND: 1.00% of the Fund's average net assets.

NICHOLAS-APPLEGATE INCOME & GROWTH FUND: 0.75% of the first $500 million of the
Fund's average net assets, 0.675% of the next $500 million of net assets, and
0.65% of net assets in excess of $1 billion.

NICHOLAS-APPLEGATE BALANCED GROWTH FUND: 0.75% of the first $500 million of the
Fund's average net assets, 0.675% of the next $500 million of net assets, and
0.65% of net assets in excess of $1 billion.

NICHOLAS-APPLEGATE WORLDWIDE GROWTH FUND: 1.00% of the first $500 million of the
Fund's average net assets, .90% of the next $500 million of net assets, and .85%
of net assets in excess of $1 billion.

NICHOLAS-APPLEGATE INTERNATIONAL GROWTH FUND: 1.00% of the first $500 million of
the Fund's average net assets, 0.90% of the next $500 million of net assets, and
0.80% of net assets in excess of $1 billion.

NICHOLAS-APPLEGATE EMERGING COUNTRIES FUND: 1.25% of the Fund's average net
assets.

NICHOLAS-APPLEGATE GLOBAL GROWTH & INCOME FUND: .85% of the Fund's average net
assets.

NICHOLAS-APPLEGATE INTERNATIONAL SMALL CAP GROWTH FUND: 1.00% of the first $500
million of the Fund's average net assets, .90% of the next $500 million of net
assets, and .85% of net assets in excess of $1 billion.

NICHOLAS-APPLEGATE MONEY MARKET FUND: .25% of the first $500 million of the
Fund's average net assets, and .2275% of net assets in excess of $500 million.

NICHOLAS-APPLEGATE VALUE FUND: 0.75% of the first $500 million of the Fund's
average net assets, 0.675% of the next $500 million of net assets, and 0.65% of
net assets in excess of $1 billion.

NICHOLAS-APPLEGATE HIGH YIELD BOND FUND: 0.60% of the Fund's average net assets.

NICHOLAS-APPLEGATE STRATEGIC INCOME FUND: 0.60% of the Fund's average net
assets.

NICHOLAS-APPLEGATE SHORT-INTERMEDIATE FIXED INCOME FUND: 0.30% of the first $250
million of the Fund's average net assets and 0.25% of the net assets in excess
of $250 million.

-2-
<PAGE>

NICHOLAS-APPLEGATE FULLY DISCRETIONARY FIXED INCOME FUND: 0.45% of the first
$500 million of the Fund's average net assets, 0.40% of the next $250 million of
net assets, and 0.35% of net assets in excess of $750 million.

NICHOLAS-APPLEGATE GLOBAL TECHNOLOGY FUND: 1.00% of the Fund's average net
assets.

<PAGE>

Exhibit 6.14
Nicholas-Applegate Mutual Funds
600 West Broadway
San Diego, California 92101

_____________, 199_

Nicholas-Applegate Securities
600 West Broadway
San Diego, California 92101

Ladies and Gentlemen:

This will confirm that the Distribution Agreement between us dated
April 19, 1993, as previously amended, is hereby further amended to delete all
series A, B, C and Qualified Portfolios therefrom. This will further confirm
that all Institutional Portfolio series have been renamed to substitute the
phrase "Fund" for the phrase "Institutional Portfolio", and that such series now
have Class A, B, C, Q and I shares, all of which are covered by the Distribution
Agreement.

In addition, this will confirm that the Nicholas-Applegate Global
Technology Fund has been added as a portfolio under the Agreement.

In all other respect, the Distribution Agreement, as previously
amended, will remain in full force and effect. Please sign this letter below to
confirm your agreement with this amendment.

Very truly yours,

E. Blake Moore, Jr.
Secretary

AGREED:

Nicholas-Applegate Securities
By: Nicholas-Applegate Capital Management
Holdings, L.P., its General Partner
By: Nicholas-Applegate Capital Management
Holdings, Inc., its General Partner

By:
-----------------------
E. Blake Moore, Jr.
Secretary

<PAGE>

Exhibit 8.19
___________, 199_

Nicholas-Applegate Mutual Funds
600 West Broadway, 30th Floor
San Diego, California 92101

The Chase Manhattan Bank, N.A.
1211 Avenue of the Americas, 32nd Floor
New York, New York 10036
Attention: Global Custody Division

PNC Bank, National Association
Airport Business Center
International Court 2
200 Stevens Drive
Lester, Pennsylvania 19113

Ladies and Gentlemen:

Reference is made to the Sub-Custodian Agreement dated as of September
26, 1997 among Nicholas-Applegate Mutual Funds and you (the "Agreement").

Pursuant to Appendix A to the Agreement, we wish to add the Funds
listed on attachment 1 to the Agreement. Please indicate your acceptance of
this addition by signing two copies of this letter below and returning them to
us. Thank you for your assistance regarding this matter.

Very truly yours,

E. Blake Moore, Jr.
Secretary

AGREED:

PNC BANK, NATIONAL ASSOCIATION

By:
------------------------------
Title:
---------------------------

THE CHASE MANHATTAN BANK, N.A.

By:
------------------------------
Title:
---------------------------
<PAGE>

ATTACHMENT 1

Nicholas-Applegate Core Growth Fund
Nicholas-Applegate Large Cap Growth Fund
Nicholas-Applegate Mini Cap Growth Fund
Nicholas-Applegate Emerging Growth Fund
Nicholas-Applegate Income & Growth Fund
Nicholas-Applegate Balanced Growth Fund
Nicholas-Applegate Worldwide Growth Fund
Nicholas-Applegate International Growth Fund
Nicholas-Applegate Emerging Countries Fund
Nicholas-Applegate Global Growth & Income Fund
Nicholas-Applegate International Small Cap Growth Fund
Nicholas-Applegate Value Fund
Nicholas-Applegate Fully Discretionary Fixed Income Fund
Nicholas-Applegate Strategic Income Fund
Nicholas-Applegate Short-Intermediate Fixed Income Fund
Nicholas-Applegate High Yield Bond Fund
Nicholas-Applegate Money Market Fund
Nicholas-Applegate Global Technology Fund

<PAGE>

Exhibit 9.18

Nicholas-Applegate Mutual Funds
600 West Broadway
30th Floor
San Diego, California 92101

_________________, 199_

State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110

Ladies and Gentlemen:

Reference is made to the Transfer Agency and Service Agreement between
us dated as of April 1, 1993 (the "Agreement").

This is to inform you that we have completed our reorganization from a
"master-feeder" structure to a "multi-class" structure. As a result of this
reorganization, each of our various Institutional Portfolio series has been
renamed to replace the phrase "Institutional Portfolio" with the phrase "Fund,"
and the former shareholders of each Institutional Portfolio now hold Class I
shares of the Fund. The Funds will continue as Portfolios under the Agreement.

In addition, the A, B, C and Qualified Portfolio series which
previously corresponded to each Institutional Portfolio series have been
dissolved, and the shareholders of such Portfolios now hold Class A, B, C and Q
shares of the corresponding Fund. Accordingly, the previous A, B, C and
Qualified Portfolio series are hereby deleted as Portfolios under the Agreement.

This will further confirm that the Nicholas-Applegate Global
Technology Fund has been added as a Portfolio under the Agreement.

Please indicate your acceptance of this amendment by signing the
letter below and returning a copy to us. Thank you for your assistance
regarding this matter.

Sincerely,

E. Blake Moore, Jr.
Secretary
<PAGE>

AGREED:

STATE STREET BANK AND TRUST COMPANY

By:
------------------------------------------
Title:
---------------------------------------

-5-

<PAGE>

Exhibit 9.38

Nicholas-Applegate Mutual Funds
600 West Broadway
30th Floor
San Diego, CA 92101

____________, 199_

PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809

Ladies and Gentlemen:

Reference is made to the Accounting Services Agreement between us
dated as of April 1, 1993 (the "Agreement").

This is to inform you that we have completed our reorganization
from a "master-feeder" structure to a "multi-class" structure. As a result
of this reorganization, each of our various Institutional Portfolio series
has been renamed to replace the phrase "Institutional Portfolio" with the
phrase "Fund," and the former shareholders of each Institutional Portfolio
now hold Class I shares of the Fund. The Funds will continue as Portfolios
under the Agreement.

In addition, the A, B, C and Qualified Portfolio series which
previously corresponded to each Institutional Portfolio series have been
dissolved, and the shareholders of such Portfolios now hold Class A, B, C and
Q shares of the corresponding Fund. Accordingly, the previous A, B, C and
Qualified Portfolio series are hereby deleted as Portfolios under the
Agreement.

This will further confirm that the Global Technology Fund has been
added as a Portfolio under the Agreement.

Please indicate your acceptance of this addition by signing the
letter below and returning a copy to us. Thank you for your assistance
regarding this matter.

Sincerely,

E. Blake Moore, Jr.
Secretary
<PAGE>

AGREED:

PFPC INC.

By:
--------------------------
Title:
------------------------

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Exhibit 9.41
Nicholas-Applegate Mutual Funds
600 West Broadway
San Diego, California 92101

______________, 199_

Nicholas-Applegate Capital Management
600 West Broadway
San Diego, California 92101

Ladies and Gentlemen:

This will confirm that as a result of our recent reorganization, the
expense limitation letter agreement between us dated September 27, 1993, as
previously amended, is hereby further amended to change the references to
"Portfolios" therein to "Funds" and to add to Appendix A thereof the Percentage
Limitations attached hereto as Exhibit A with respect to the various Classes of
the Funds.

The Percentage Limitations will continue until March 31, 1999, unless
voluntarily extended by you, and will be subject to the reimbursement provisions
in the Funds' prospectuses.

In all other respects, the expense limitation letter agreement, as
previously amended, will remain in full force and effect. Please sign this
letter below to confirm your agreement with these amendments.

Very truly yours,

E. Blake Moore, Jr.
Secretary
AGREED:

Nicholas-Applegate Capital Management
By: Nicholas-Applegate Capital Management
Holdings, L.P., its General Partner
By: Nicholas-Applegate Capital Management
Holdings, Inc., its General Partner

By:
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E. Blake Moore, Jr.
Secretary

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EXHIBIT A

Name of Fund and Class Percentage Limitation
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Core Growth Fund, Class A 1.60
Class B 2.25
Class C 2.25
Class Q 1.25
Class I 1.00

Large Cap Growth Fund, Class A 1.60
Class B 2.25
Class C 2.25
Class Q 1.25
Class I 1.00

Mini Cap Growth Fund, Class I 1.56

Emerging Growth Fund, Class A 1.95
Class B 2.60
Class C 2.60
Class Q 1.50
Class I 1.17

Income & Growth Fund, Class A 1.60
Class B 2.25
Class C 2.25
Class Q 1.25
Class I 1.00

Balanced Growth Fund, Class A 1.60
Class B 2.25
Class C 2.25
Class Q 1.25
Class I 1.00

Worldwide Growth Fund, Class A 1.85
Class B 2.50
Class C 2.50
Class Q 1.60
Class I 1.35

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Name of Fund and Class Percentage Limitation
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International Growth Fund, Class A 1.95
Class B 2.60
Class C 2.60
Class Q 1.65
Class I 1.40

Emerging Countries Fund, Class A 2.25
Class B 2.90
Class C 2.90
Class Q 1.90
Class I 1.65

Global Growth & Income Fund, Class I 1.35

International Small Cap Growth Fund, Class A 1.95
Class B 2.60
Class C 2.60
Class Q 1.65
Class I 1.40

Money Market Fund 1.10

Value Fund, Class I 1.00

High Yield Bond Fund, Class I 0.75

Strategic Income Fund, Class I 0.75

Short-Intermediate Fixed Income Fund, Class I 0.35

Fully Discretionary Fixed Income Fund, Class A 0.45

Global Technology Fund, Class I 1.40

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