NICHOLAS APPLEGATE MUTUAL FUNDS, 485APOS, 1997-05-06

NICHOLAS APPLEGATE MUTUAL FUNDS
485APOS, 1997-05-06

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<PAGE>

As filed with the Securities and Exchange Commission
on May 6, 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. 41 [X]

AND/OR

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 43

(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
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,
1996 on May 30, 1996. This Registration Statement has been executed by the
trustees and principal officers of the Registrant and of Nicholas-Applegate
Investment Trust.

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

<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; International Core
Growth Qualified Portfolio;
Worldwide Growth Qualified
Portfolio; International
Small Cap Growth Qualified
Portfolio; Emerging
Countries Qualified
Portfolio; Large Cap Growth
Qualified Portfolio; Core
Growth Qualified Portfolio;
Emerging Growth Qualified
Portfolio; Income & Growth
Qualified Portfolio;
Balanced Growth Qualified
Portfolio; Government Income
Qualified Portfolio

Item 3. Condensed Financial Information . . . . . International Core Growth
Qualified Portfolio;
Worldwide Growth Qualified
Portfolio; International
Small Cap Growth Qualified
Portfolio; Emerging
Countries Qualified
Portfolio; Large Cap Growth
Qualified Portfolio; Core
Growth Qualified Portfolio;
Emerging Growth Qualified
Portfolio; Income & Growth
Qualified Portfolio;
Balanced Growth Qualified
Portfolio; Government Income
Qualified Portfolio

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

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

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

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

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

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

PART B

Item 10. Cover Page. . . . . . . . . . . . . . . . Cover Page
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Nicholas | Applegate-Registered Trademark-
MUTUAL FUNDS

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

PROSPECTUS

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

Please note that these Portfolios:

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

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 QUALIFIED PORTFOLIOS
INTERNATIONAL CORE GROWTH
WORLDWIDE GROWTH

INTERNATIONAL SMALL CAP GROWTH
EMERGING COUNTRIES

U.S. QUALIFIED PORTFOLIOS
LARGE CAP
CORE GROWTH
EMERGING GROWTH
INCOME & GROWTH
BALANCED GROWTH
GOVERNMENT INCOME

July___, 1997

<PAGE>

[left side: visual of marbles]

TABLE OF CONTENTS

OVERVIEW

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

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

YOUR ACCOUNT
Transaction Policies
Dividends and Account Policies
Opening an Account
Adding to an Account
Exchanging Shares
Selling or Redeeming Shares
Signature Guarantees

ORGANIZATION AND MANAGEMENT
Master/Feeder Structure
Investment Adviser Compensation
Administrator Compensation
Distribution Plan
Portfolio Teams

RISK FACTORS AND SPECIAL CONSIDERATIONS

<PAGE>

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

GOAL OF THE NICHOLAS-APPLEGATE MUTUAL FUNDS

The Portfolios of Nicholas-Applegate Mutual Funds (the "Trust") are designed to
provide investors with a well rounded investment program. Each Portfolio
invests in a corresponding fund (the "Fund") of Nicholas-Applegate Investment
Trust (the "Master Trust"). Each respective Fund in turn invests in and holds
investment securities. This structure is called a "master/feeder" structure.

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

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

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

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

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

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

THE INVESTMENT ADVISER
Nicholas-Applegate Capital Management (the "Investment Adviser") serves as
investment adviser to the Funds. Arthur E. Nicholas and 14 other partners with a
staff of approximately 350 employees currently manage approximately $30 billion
of discretionary assets for numerous clients, including employee benefit plans
of corporations, public retirement systems and unions, university endowments,
foundations, and other institutional investors and individuals.

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

- - GOAL AND STRATEGY. The Fund's particular investment goals and the strategies
it intends to use in pursuing those goals.

- - PORTFOLIO SECURITIES. 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."

- - PORTFOLIO MANAGEMENT. The individuals who manage the Fund.

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

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

<PAGE>

INTERNATIONAL CORE GROWTH QUALIFIED PORTFOLIO
- --------------------------------------------------------------------------------

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

[bullet point icon]
INVESTMENT STRATEGY: The Investment Adviser focuses on a "bottom-up" analysis
that evaluates the financial conditions and competitiveness of individual
companies worldwide. It uses both a blend of both traditional fundamental
research, calling on the expertise of many external analysts in different
countries throughout the world, 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 gathers financial
data on 20,000 companies in 52 countries, and searches for successful, growing
companies managing change advantageously and poised to exceed growth
expectations.

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

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

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

[bullet point icon]
RISK FACTORS. The value of the Fund's investments varies day to day in response
to the activities of individual companies and general market and economic
conditions. 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. For a
further explanation , see "Risk Factors and Special Considerations" starting on
page____.
- --------------------------------------------------------------------------------

[bullet point icon]
INVESTOR EXPENSES: Investors pay various expenses, either directly or
indirectly. The figures below show the expenses for the Portfolio and its
corresponding Fund for the past year. Actual expenses may be more or less than
those shown.
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses:
- --------------------------------------------------------------------------------
Maximum sales charge on purchases
(as a percentage of offering price) None
Sales charge on reinvested dividends None
Deferred sales charge
(as a percentage of original purchase
price or redemption proceeds, whichever is lower) None
Redemption fee None
Exchange fee None
- --------------------------------------------------------------------------------
Annual Portfolio Operating
Expenses as a Percentage of Average Net Assets:
(after expense deferral)
- --------------------------------------------------------------------------------
Management fees 1.00%
12b-1 expenses None
Total other expenses 0.65%
Total operating expenses (after expense deferral)(1) 1.65%

(1) The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. Total operating expenses would have been % absent the
waiver and 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 reinvested all dividends
and that the average annual return was 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
PORTFOLIO'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

[bullet point icon]
FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal year ended March 31, 1996 and 1997. Ernst &
Young L.L.P. are independent auditors whose reports were unqualified. This
information should be read in conjunction with the financial statements and the
notes thereto which appear in the Trust's 1997 Annual Report.

____TO
_____

PER SHARE DATA:

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

Total from investment operations
Less distributions:
Dividends from net
investment income
Distributions from capital gains

Net asset value, end of period

TOTAL RETURN+:

RATIOS/SUPPLEMENTAL DATA: Net
Assets ($000), end of period

Ratio of expenses to average net
assets, after expense reimbursement++

Ratio of expenses to average net
assets, before expense reimbursement++

Ratio of net investment deficit to
average net assets, after expense reimbursement++

Ratio of net investment deficit to
average net assets, before expense reimbursement++

Portfolio Turnover**

Average commission rate paid**

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

<PAGE>

WORLDWIDE GROWTH QUALIFIED PORTFOLIO
- --------------------------------------------------------------------------------

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

[bullet point icon]
INVESTMENT STRATEGY: The 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 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 gathers financial data on
20,000 countries in 52 countries, and searches for successful, growing companies
managing change advantageously and poised to exceed growth expectations.
The Fund emphasizes companies with market capitalizations generally above $100
million.

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 foreign companies and
foreign governments and their agencies and instrumentalities. The Fund may also
use options and futures contracts as hedging techniques.

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

[bullet point icon]
RISK FACTORS: The value of the Fund's investments varies from day to day in
response to the activities of individual companies, and general market and
economic conditions. The securities of small, less well-known companies may be
more volatile than those of larger companies. As with any fund investing in
foreign securities, the Fund's performance also depends on 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____.

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

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

<PAGE>

- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
- --------------------------------------------------------------------------------
Maximum sales charge on purchases (as a
percentage of offering price) None
Sales charge on reinvested dividends None
Deferred sales charge (as a percentage of
original purchase price or redemption proceeds, whichever is lower) None
Redemption fee None
Exchange fee

- --------------------------------------------------------------------------------
(AFTER EXPENSE DEFERRAL)
- --------------------------------------------------------------------------------
Management fees 1.00%
12b-1 expenses None
Total other expenses 0.60%
Total operating expenses (after expense deferral)(1) 1.60%

EXAMPLE: The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 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
PORTFOLIO'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

<PAGE>

[bullet point icon]
FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal year ended March 31, 1996 and 1997, and by
Coopers & Lybrand L.L.P. with respect to the commencement of operations through
March 31, 1995. Ernst & Young L.L.P. and Coopers & Lybrand L.L.P. are
independent auditors whose reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto which
appear in the Trust's 1997 Annual Report.

4/19/93 TO 4/1/94 TO 4/1/95 TO 4/1/96 TO
3/31/94 3/31/95 3/31/96 3/31/97
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

PER SHARE DATA: $12.50 $14.94 $14.29
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period
Income from investment operations: (0.07) (0.05) (0.07)

Net investment income (deficit)
Net realized and unrealized gains (losses) on
securities and foreign currency
2.51 (0.09) 2.86

Total from investment operations
Less distributions: 2.44 (0.14) 2.79

Dividends from net investment income -- (0.02) (0.12)
Distributions from capital gains -- (0.49) (0.39)

Net asset value, end of period $14.94 $14.29 $16.57

TOTAL RETURN+: 19.52% (0.90%) 19.79%

RATIOS/SUPPLEMENTAL DATA:
Net Assets ($000), end of period $20,194 $22,208 $23,481

Ratio of expenses to average net assets, after
expense reimbursement++ 1.85%* 1.85% 1.85%

Ratio of expenses to average net assets, before
expense reimbursement++ 2.23%* 2.18% 2.17%

Ratio of net investment deficit to average net
assets, after expense reimbursement++ (0.69%)* (0.42%) (0.35%)

Ratio of net investment deficit to average net
assets, before expense reimbursement++ (1.07%)* (0.75%) (0.61%)
Portfolio
Turnover** 95.09% 98.54% 132.20%
Average commission rate paid** N/A N/A $0.0187

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

<PAGE>

INTERNATIONAL SMALL CAP QUALIFIED PORTFOLIO
- --------------------------------------------------------------------------------
(FORMERLY INTERNATIONAL GROWTH QUALIFIED PORTFOLIO)

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

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

The Fund emphasizes companies in the bottom 75% of publicly traded companies as
measured by market capitalizations in that country. The Fund may have less U.S.
exposure (up to 35% of its assets) than the Worldwide Fund.

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

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

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

- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:Maximum sales charge on purchases (as a None
- --------------------------------------------------------------------------------

percentage of offering price)
Sales charge on reinvested dividends None
Deferred sales charge (as a percentage of None
original purchase price or redemption
proceeds, whichever is lower)
Redemption fee None
Exchange fee None

- --------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A
PERCENTAGE OF AVERAGE NET ASSETS:
- --------------------------------------------------------------------------------
(AFTER EXPENSE DEFERRAL)

Management fees 1.00%
12b-1 expenses None
Total other expenses 0.65%
Total operating expenses (after expense
deferral)(1) 1.65%

(1) The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. Total operating expenses would have been_____% absent the
waiver and 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 reinvested all dividends
and that the average annual return was 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
PORTFOLIO'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

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

8/31/94 TO 4/1/95 TO 4/1/96 TO
3/31/95 3/31/96 3/31/97

- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA: $12.50 $11.51

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

Net asset value, beginning of period / Income from investment operations:
Net investment income (deficit)
Net realized and unrealized gains (losses) on securities and -- (0.02)
foreign currency (0.98) 1.79

Total from investment operations
Less distributions: (0.98) 1.77
Dividends from net investment income (0.01) (0.13)
Distributions from capital gains -- --

Net asset value, end of period $11.51 $13.15

TOTAL RETURN+: (7.85%) 15.46%

RATIOS/SUPPLEMENTAL DATA: Net Assets ($000), end of period $610 $1,056

Ratio of expenses to average net assets, after expense reimbursement++ 1.95%* 1.95%

Ratio of expenses to average net assets, before expense reimbursement++ 9.77%* 10.06%

Ratio of net investment deficit to average net assets, after expense
reimbursement++ (0.07%)* (0.27%)

Ratio of net investment deficit to average net assets, before expense
reimbursement++ (7.89%)* (7.75%)

Portfolio Turnover** 74.85% 141.02%

Average commission rate paid** N/A $0.128

</TABLE>

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

<PAGE>

EMERGING COUNTRIES QUALIFIED PORTFOLIO
- --------------------------------------------------------------------------------

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

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

[bullet point icon]
PRINCIPAL INVESTMENTS: Under normal conditions, the Fund invests at least 65% of
its total assets in securities of issuers located in at least three different
countries. These countries include but are not limited to: Argentina, Brazil,
Chile, China, Columbia, the Czech Republic, Greece, Hungary, India, Indonesia,
Israel, Jordon, 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 bonds of
foreign companies and foreign governments and their agencies and
instrumentalities. The Fund may also use options and futures contracts as
hedging techniques.

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

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

[bullet point icon]
INVESTOR EXPENSES: Investors pay various expenses, either directly or
indirectly. The figures below show expenses for each Portfolio and its
corresponding Fund.
The actual expenses may be more or less than those shown.
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
- --------------------------------------------------------------------------------

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

Management fees 1.25%
12b-1 expenses None
Total other expenses 0.65%
Total operating expenses (after expense 1.90%
deferral)(1)

(1) The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. Total operating expenses would have been_____% absent the
waiver and deferral. See "Investment Adviser Compensation".

EXAMPLE: The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 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
PORTFOLIO'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.
- --------------------------------------------------------------------------------

[bullet point icon]
FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal year ended March 31, 1997, and by Coopers &
Lybrand L.L.P. with respect to the commencement of operations through March 31,
1995. Ernst & Young L.L.P. and Coopers & Lybrand L.L.P. are independent auditors
whose reports were unqualified. This information should be read in conjunction
with the financial statements and the notes thereto which appear in the Trust's
1997 Annual Report.

- --------------------------------------------------------------------------------------------------------------------
11/28/94 TO 4/1/95 TO 4/1/96 TO
3/31/95 3/31/96 3/31/97
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA: $12.50 $11.00
- --------------------------------------------------------------------------------------------------------------------

Net asset value, beginning of period / Income from investment operations:
Net investment income (deficit)
Net realized and unrealized gains 0.04 (0.04)
(losses) on securities and foreign currency (1.54) 3.15

Total from investment operations
Less distributions: (1.50) 3.11
Dividends from net investment income -- (0.02)
Distributions from capital gains -- (0.06)

Net asset value, end of period $11.00 $14.03

TOTAL RETURN+: (11.98%) 28.43%

RATIOS/SUPPLEMENTAL DATA: Net Assets ($000), end of period $1,197 $4,718

Ratio of expenses to average net assets, after expense reimbursement++ 2.25%* 2.25%

Ratio of expenses to average net assets, before expense reimbursement++ 6.15%* 6.72%

Ratio of net investment deficit to average net assets, after expense
reimbursement++ (1.09%)* (0.35%)

Ratio of net investment deficit to average net assets, before expense
reimbursement++ (4.99%)* (3.61%)

Portfolio Turnover** 60.79% 118.21%

Average commission rate paid** N/A $0.0022

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

<PAGE>

LARGE CAP GROWTH QUALIFIED PORTFOLIO
- --------------------------------------------------------------------------------

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

[bullet point icon]
INVESTMENT STRATEGY: The 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.

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

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

[bullet point icon]
PRINCIPAL RISKS: As with any growth fund, the value of your investment, will
fluctuate day to day with movements in the stock markets as well as in
response to the activities of individual companies. To the extent the Fund is
over- weighted 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 are based on changes in foreign currency values,
different political and regulatory environments, and the overall economic
conditions in countries where the Fund invests.For a further explanation, see
"Risk Factors and Special Considerations" on page_____.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
- --------------------------------------------------------------------------------

Management fees 0.75%
12b-1 expenses None
Total other expenses 0.50%
Total operating expenses (after expense deferral)1 1.25%

1. The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the Portfolios.
Total operating expenses would have been_____ % absent the waiver and 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 reinvested all dividends
and that the average annual return was 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
PORTFOLIO'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

[bullet point icon]
FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. for the fiscal year ended March 31, 1996.
Ernst & Young is an independent auditor whose report is unqualified. This
information should be read in conjunction with the financial statements and the
notes thereto which appear in the Trust's 1997 Annual Report.
- --------------------------------------------------------------------------------

<PAGE>

CORE GROWTH QUALIFIED PORTFOLIO
- --------------------------------------------------------------------------------

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

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

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

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

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

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

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

- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
- --------------------------------------------------------------------------------
Management fees 0.75%
12b-1 expenses None
Total other expenses 0.50%
Total operating expenses (after expense deferral)(1) 1.25%

(1) The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. Total operating expenses would have been_____ % absent the
waiver and 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 reinvested all dividends
and that the average annual return was 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
PORTFOLIO'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

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

Net asset value, beginning of period / Income from (0.07) (0.10) (0.18)
investment operations: 0.86 0.46 4.94
Net investment income (deficit)Net realized and unrealized gains
(losses) on securities and foreign currency
Total from investment operations 0.79 0.36 4.76
Less distributions: -- -- --
Dividends from net investment income (0.04) -- --
Distributions from capital gains
Net asset value, end of period $13.25 $13.61 $18.37
TOTAL RETURN+: 6.27% 2.72% 35.07%
RATIOS/SUPPLEMENTAL DATA: Net Assets ($000), end of period $70,512 $65,292 $77,275
Ratio of expenses to average net assets, after expense
reimbursement++ 1.57%* 1.59% 1.58%
Ratio of expenses to average net assets, before expense
reimbursement++ 1.71%* 1.63% 1.56%
Ratio of net investment deficit to average net assets, after expense
reimbursement++ (0.68%)* (0.66%) (0.91%)
Ratio of net investment deficit to average net assets, before
expense reimbursement++ (0.82%)* (0.70%) (0.89%)
Portfolio Turnover** 84.84% 98.09% 114.48%
Average commission rate paid** N/A N/A $0.0593
</TABLE>

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

<PAGE>

EMERGING GROWTH QUALIFIED PORTFOLIO
- --------------------------------------------------------------------------------

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

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

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

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

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

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

- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
- --------------------------------------------------------------------------------

Management fees 1.00%
12b-1 expenses None
Total other expenses 0.50%
Total operating expenses (after expense deferral)(1) 1.50%

(1) The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. Total operating expenses would have been _____% absent the
waiver and deferral. See "Investment Adviser Compensation".

EXAMPLE: The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 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
PORTFOLIO'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

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

<PAGE>

Net asset value, beginning of period / Income from investment
operations: (0.04) (0.16) (0.20)
Net investment income (deficit) (0.36) 1.12 5.09
Net realized and unrealized gains (losses) on securities
and foreign currency
Total from investment operations (0.40) 0.96 4.89
Less distributions: -- -- --
Dividends from net investment income -- -- (0.02)
Distributions from capital gains
Net asset value, end of period $12.10 $13.06 $17.93
TOTAL RETURN+: (3.20%) 7.93% 37.48%
RATIOS/SUPPLEMENTAL DATA: Net $104,838 $106,725 $138,155
Assets ($000), end of period
Ratio of expenses to average net assets,
after expense reimbursement++ 1.73%* 1.86% 1.74%
Ratio of expenses to average net assets,
before expense reimbursement++ 1.80% 1.84% 1.74%
Ratio of net investment deficit to average net assets,
after expense reimbursement++ (1.44%)* (1.27%) (1.20%)
Ratio of net investment deficit to average net assets,
before expense reimbursement++ (1.51%)* (1.25%) (1.20%)
Portfolio Turnover** 50.51% 100.46% 129.59%
Average commission rate paid** N/A N/A $0.0523

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

<PAGE>

BALANCED GROWTH QUALIFIED PORTFOLIO
- --------------------------------------------------------------------------------

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

[bullet point icon]
INVESTMENT STRATEGY: The 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.

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

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

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

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

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

SHAREHOLDER TRANSACTION EXPENSES:
- --------------------------------------------------------------------------------

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

- --------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS
A PERCENTAGE OF AVERAGE NET ASSETS:
- --------------------------------------------------------------------------------

(AFTER EXPENSE DEFERRAL)Management fees 0.75%
12b-1 expenses None
Total other expenses 0.50%
Total operating expenses (after expense deferral)(1) 1.25%

(1) The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. Total operating expenses would have been _____% absent the
waiver and deferral. See "Investment Adviser Compensation".

EXAMPLE: The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- ----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------
$13 $40 $69 $151

<PAGE>

- ------------------------------------------------------------------------------------------------------------------------------------
4/19/93 TO 4/1/94 TO 4/1/95 TO 4/1/96 TO
3/31/94 3/31/95 3/31/96 3/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA: $12.50 $13.52 $13.74
Net asset value, beginning of period / Income from investment
operations: 0.15 0.21 (0.34)
Net investment income (deficit) 1.02 0.22 2.42
Net realized and unrealized gains (losses) on securities and
foreign currency
Total from investment operations 1.17 0.43 2.76
Less distributions: (0.15) (0.21) (0.34)
Dividends from net investment income -- -- --
Distributions from capital gains
Net asset value, end of period $13.52 $13.74 $16.16
TOTAL RETURN+: (9.35%) 3.22% 20.16%
RATIOS/SUPPLEMENTAL DATA: $6,446 $4,980 $5,902
Net Assets ($000), end of period
Ratio of expenses to average net
assets, after expense reimbursement++ 1.59%* 1.60% 1.60%
Ratio of expenses to average net 3.28% 2.78%3.30%
assets, before expense reimbursement++
Ratio of net investment deficit to 1.30%* 1.44% 2.16%
average net assets, after expense reimbursement++
Ratio of net investment deficit to (0.39%)* 0.26% 0.88%
average net assets, before expense reimbursement++
Portfolio Turnover** 85.43% 110.40% 197.19%
Average commission rate paid** N/A N/A $0.0594

</TABLE>

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

<PAGE>

INCOME & GROWTH QUALIFIED PORTFOLIO
- --------------------------------------------------------------------------------

[bullet point icon]
INVESTMENT OBJECTIVE: Maximum total return, consisting of long-term capital
appreciation and current income.

[bullet point icon]
INVESTMENT STRATEGY: The Fund invests primarily in convertible securities.
The Investment Adviser evaluates 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
"changes 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.

[bullet point icon]
PRINCIPAL INVESTMENTS: Under normal
conditions, the Fund invests at least 65% of its total assets in convertible
securities of U.S. companies. It invests the remainder of the assets primarily
in common and preferred stocks, debt securities, 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 &
preferred stocks, and 25% in other income producing convertible and debt
securities. The Fund may also invest up to 35% of its assets in debt
securities rated below investment grade.

[bullet point icon]
RISK FACTORS: Convertible securities have the investment characteristics of
both equity and debt securities. Accordingly, the value of your investment
will fluctuate 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. With respect to debt
securities, an increase in interest rates will tend to reduce their value while
a decrease will tend to increase their value. In addition, the lower rated
convertible securities in which the Fund may invest are considered
predominately speculative and are subject to greater market risk and volatility
than securities issued by companies with more financial stability. The issuers
of these securities may have difficulty meeting projected goals or obtaining
additional financing during recessions or periods of high interest rates which
may lead to a weakened capacity on the part of the company to make interest and
principal payments. For a further explanation, see "Risk Factors and Special
Considerations" starting on page _____.

- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
- --------------------------------------------------------------------------------

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

Management fees 0.75%
12b-1 expenses None
Total other expenses 0.50%
Total operating expenses (after expense deferral)(1) 1.25%

(1) The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. Total operating expenses would have been ____% absent the
waiver and deferral. See "Investment Adviser Compensation".

EXAMPLE: The table shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 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
PORTFOLIO'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE.

<PAGE>

- --------------------------------------------------------------------------------
[bullet point icon]
FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal year ended March 31, 1996 and 1997, and by
Coopers & Lybrand L.L.P. with respect to the commencement of operations through
March 31, 1995. Ernst & Young L.L.P. and Coopers & Lybrand L.L.P. are
independent auditors whose reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto which
appear in the Trust' 1997 Annual Report.

PER SHARE DATA: $12.50 $14.16 $12.86
Net asset value, beginning of period / Income from 0.32 0.49 0.48
investment operations: 2.15 (0.89) 2.82
Net investment income (deficit)
Net realized and unrealized gains (losses) on securities
and foreign currency
Total from investment operations 2.47 (0.40) 3.30
Less distributions: (0.32) (0.49) (0.48)
Dividends from net investment income (0.49) (0.41) --
Distributions from capital gains
Net asset value, end of period 14.16 $12.86 $15.68
TOTAL RETURN+: 19.65% (2.64%) 26.00%
RATIOS/SUPPLEMENTAL DATA: Net Assets ($000), end of period $30,447 $31,150 $31,712
Ratio of expenses to average net assets, after expense
reimbursement++ 1.59%* 1.60% 1.60%
Ratio of expenses to average net assets, before expense
reimbursement++ 1.83% 1.76% 1.76%
Ratio of net investment deficit to average net assets, after
expense reimbursement++ 2.83%* 3.71% 3.29%
Ratio of net investment deficit to average net assets, before
expense reimbursement++ 2.59%* 3.55% 3.12%
Portfolio Turnover** 117.52% 125.51% 144.97%
Average commission rate paid** N/A $0.0022 $0.0597

</TABLE>

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

<PAGE>

GOVERNMENT INCOME QUALIFIED PORTFOLIO

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

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

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

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

[bullet point icon]
RISK FACTORS: As with any fund that invests in bonds, the value of your
investment will fluctuate in response to movements in interest rates. If
interest rates go up, the values of debt securities fall; if rates go down, the
value of debt securities go up. Debt securities with longer maturities tend to
be more sensitive to interest rate movements than those with shorter maturities.
The Fund's value and current yield are not guaranteed by the U.S. government.
In addition, obligations issued by certain governmental agencies, such as
Freddie Mac and Fannie Mae, are not guaranteed by the full faith and credit of
the U.S. government. For a further explanation, see "Risk Factors and Special
Considerations" starting on page _____.

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

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

- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
- --------------------------------------------------------------------------------
Maximum sales charge on purchases (as a percentage of offering price) 4.75%
Sales charge on reinvested dividends None
Deferred sales charge (as a percentage of original purchase price
or redemption proceeds, whichever is lower) None
Redemption fee None
Exchange fee None

- --------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET ASSETS:
(AFTER EXPENSE DEFERRAL)
- --------------------------------------------------------------------------------
Management fees 0.40%
12b-1 expenses 0.25%
Total other expenses 0.15%
Total operating expenses (after expense deferral)(1) 0.80%

(1) The Investment Adviser has agreed to waive or defer its management fees
and to absorb other operating expenses payable by the Funds and the
Portfolios. Total operating expenses would have been ____% absent the
waiver and deferral. See "Investment Adviser Compensation".

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

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------
$8 $26 $44 $99

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

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

[bullet point icon]

<PAGE>

FINANCIAL HIGHLIGHTS: The figures below have been audited by Ernst & Young
L.L.P. with respect to the fiscal year ended March 31, 1996 and 1997, and by
Coopers & Lybrand L.L.P. with respect to the commencement of operations through
March 31, 1995. Ernst & Young L.L.P. and Coopers & Lybrand L.L.P. are
independent auditors whose reports were unqualified. This information should be
read in conjunction with the financial statements and the notes thereto which
appear in the Trust's 1997 Annual Report.

12/27/93 TO 4/1/94 TO 4/1/95 TO 4/1/96 TO
3/31/94 3/31/95 3/31/96 3/31/97
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA: $12.50 $12.51 $12.29

Net asset value, beginning of period / Income from
investment operations: 0.29 0.63 0.75

Net investment income (deficit)

Net realized and unrealized gains (losses) on securities
and foreign currency 0.34 (0.19) 0.45

Total from investment operations 0.63 0.44 1.20

Less distributions: (0.29) (0.63) (0.75)

Dividends from net investment income
Distributions from capital gains (0.33) (0.03) --

Net asset value, end of period $12.51 $12.29 $12.74

TOTAL RETURN+: 4.97% 3.68% 9.71%

RATIOS/SUPPLEMENTAL DATA: Net Assets ($000), end of period $820 $925 $1,297

Ratio of expenses to average net assets,
after expense reimbursement++ 1.10%* 1.10% 0.93%

Ratio of expenses to average net assets,
before expense reimbursement++ 20.28%* 8.40% 9.58%

Ratio of net investment deficit to average net assets,
after expense reimbursement++ 3.07%* 5.18% 5.78%

Ratio of net investment deficit to average net assets,
before expense reimbursement++ (16.11%)* (2.12%) (0.75%)

Portfolio Turnover** 159.17% 258.72% 190.47%
Average commission rate paid** N/A N/A N/A

</TABLE>

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

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

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

PURCHASE OF SHARES. 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

<PAGE>

investment to $10,000. The Distribution may waive these minimums from time to
time.

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

BUY AND SELL PRICES When you buy shares, you pay the NAV, as described earlier.
When you sell shares, you receive the NAV.

EXECUTION OF REQUESTS Each Portfolio is open on those days when the New York
Stock Exchange is open, usually Monday - Friday. Buy and sell requests are
executed at the NAV next calculated after your request is received in good order
by the Transfer Agent. 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 or by facsimile.
Each Portfolio reserves the right to reject any purchase or to suspend or modify
the continuous offering of its shares. Your financial representative is
responsible for forwarding payment promptly to the Transfer Agent. The Trust
reserves the right to cancel any buy request if payment is not received within
three days.

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

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

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

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

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

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

DIVIDENDS AND ACCOUNT POLICIES

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

ACCOUNT STATEMENTS In general, you will receive account statements as follows:

- - After every transaction that affects your account balance.
- - After any changes of name or address of the registered owner(s).
- - In all other circumstances, every quarter.

Every year you will also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31. Participants in qualified retirement plans
will receive account information from their plan sponsor or administrator

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

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

<PAGE>

International Core Growth
Emerging Countries

Any net capital gains are distributed annually.

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

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

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

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

The Form 1099 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 Unless you are investing through a tax-exempt
retirement account, 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 $10,000, you may be asked to purchase more
shares within 60 days. If you do not take action, the Portfolio may close out
your account and mail you the proceeds. 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 Portfolio of
$250 or more on a monthly or quarterly basis if you have an account of $15,000
or more in the Portfolio. Withdrawal proceeds will normally be received prior
to the end of the month or quarter. See the account application for further
information.

AUTOMATIC INVESTMENT PLAN You may make regular monthly or quarterly investments
in each Portfolio through automatic withdrawals of specified amounts from your
bank account or through payroll deductions in accordance with the procedures of
your qualified retirement plan once an automatic investment plan is established.
See the account application or your plan administrator for further details about
this service or call the Transfer Agent at 1-800-551-8043.

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

<PAGE>

OPENING AN ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THIS TYPE PARTICIPANTS IN QUALIFIED
OF ACCOUNT REGULAR INVESTMENT RETIREMENT PLANS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
This is the minimum
initial investment $250,000
- -------------------------------------------------------------------------------- Contact your plan administration or sponsor
Use this type of New Account Form
application (Non-Retirement)
- ------------------------------------------------------------------------------------------------------------------------------------
Before completing the Each Portfolio offers a variety of features, which are described in the "Your Account" section of
application this prospectus. Please read this section before completing the application.
- ------------------------------------------------------------------------------------------------------------------------------------
Completing the If you need assistance, contact your financial representative,
application or call the Trust.
- ------------------------------------------------------------------------------------------------------------------------------------
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 check, payable to: NICHOLAS-APPLEGATE MUTUAL FUNDS,
by CHECK PO BOX 8326, BOSTON, MA 02266 8326. The Trust cannot accept third-party checks.
- ------------------------------------------------------------------------------------------------------------------------------------
If you are sending money Please read the bank wire or ACH section under the "Buying Shares" section below.
by BANK WIRE or ACH You will need an account number with the Trust by sending a completed application to:
NICHOLAS-APPLEGATE MUTUAL FUNDS, PO BOX 8326, BOSTON, MA 02266 8326.
To receive your account number, call either your financial representative or the Trust at (800)551-8043.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
BUYING SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THIS TYPE PARTICIPANTS IN QUALIFIED
OF ACCOUNT REGULAR INVESTMENT RETIREMENT PLANS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
This is the minimum $10,000 Contact your plan administrator
additional investment or sponsor
- ------------------------------------------------------------------------------------------------------------------------------------
The price you will receive The Trust is open on days that the New York Stock Exchange is open.
All transactions received in good order before the market closes receives that day's price.
- ------------------------------------------------------------------------------------------------------------------------------------
If you are a participant in Make purchases through your plan administrator or sponsor,
a qualified retirement plan who is responsible for transmitting orders.
- ------------------------------------------------------------------------------------------------------------------------------------
If you are sending money
by BANK WIRE Instruct your bank to wire the amount you wish to invest to:
STATE STREET BANK & TRUST CO. - ABA #011000028
DDA #9904-645-0
STATE STREET BOS, ATTN: MUTUAL FUNDS
CREDIT: NICHOLAS-APPLEGATE [PORTFOLIO NAME], [YOUR NAME],[ACCOUNT NAME]
- ------------------------------------------------------------------------------------------------------------------------------------
If you are sending money
by ACH Call your bank to ensure (1) that your bank supports ACH, and (2) this feature is active on
your bank account. To establish this option, either complete the appropriate sections when
opening an account, or contact your financial representative or the Trust at (800) 551-8043
for further information.
To initiate an ACH purchase, call the Trust at (800)551-8043.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>

EXCHANGING SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THIS TYPE PARTICIPANTS IN QUALIFIED
OF ACCOUNT REGULAR INVESTMENT RETIREMENT PLANS
---------------------------------------------------------------------------------------------------
<S> <C> <C>
This is the minimum $250,000 Contact your plan administrator or sponsor
exchange amount to open
a new account
- ------------------------------------------------------------------------------------------------------------------------------------
The price you The Trust is open on days that the New York Stock Exchange is open.
will receive All transactions received in good order before the market closes receives that day's price.
- ------------------------------------------------------------------------------------------------------------------------------------
Things you should The exchange must be to a Qualified Portfolio and to an account with the same registration.
know If opening an account as part of an exchange, you must obtain and read the prospectus.
If you intend to keep money in the portfolio you are exchanging from, make sure that you leave an
amount equal or greater that the portfolio's minimum account size (see the "Opening an Account" section).
To protect other investors, the Trust may limit the number of exchanges you can make.
Participants in qualified retirement plans may exchange through the plan administrator or sponsor and
only with those Portfolios that are included in the plan.
- ------------------------------------------------------------------------------------------------------------------------------------
How to request an Either contact your financial representative, or call the Trust at (800) 551-8043.
exchange by PHONE The Trust will accept a request by phone if this feature was previously established on your account.
See the "Your Account" section for further information.
- ------------------------------------------------------------------------------------------------------------------------------------
How to request an Please put your exchange request in writing, including: the name on the account, the name of the portfolio and
exchange by MAIL the account number you are exchanging from, the shares or dollar amount you wish to exchange, and the
portfolio you wish to exchange to. Mail this request to: PO BOX 8326, BOSTON, MA 02266 8326.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

- ------------------------------------------------------------------------------------------------------------------------------------
If you want to Please call the Trust at (800) 551-8043. Either contact your financial
representative or call the Trust at (800) 551-8043.
receive your monies The proceeds will be sent to the existing ACH
by ACH instructions on the account and will generally be
received at your bank two business days after your
request is received.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIGNATURE GUARANTEES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 by a broker, commercial or savings bank or credit union.
- ------------------------------------------------------------------------------------------------------------------------------------
When do you need one A signature guarantee is needed when making a written request for the following reasons:
1. When selling more than $50,000 work of shares;
2. When you want a check or bank wire sent to a name or address that is not currently listed on the account;
3. To sell shares from an account controlled by a corporation, partnership, trust or fiduciary; or
4. If your address was changed within the last 60 days.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

ORGANIZATION AND MANAGEMENT

MASTER/FEEDER STRUCTURE
- ------------------------

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

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

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

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

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

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

<PAGE>

MASTER FEEDER STRUCTURE

-----------------------------------
SHAREHOLDERS
-----------------------------------
|
|
| BUY SHARES IN
|
-----------------------------------
PORTFOLIOS
of
Nicholas-Applegate Mutual Funds
-----------------------------------
|
|
| INVEST IN
|
-----------------------------------
MASTER FUNDS
of
Nicholas-Applegate Investment Trust
-----------------------------------
|
|
| INVEST IN
|
-----------------------------------
STOCKS, BONDS &
OTHER SECURITIES
-----------------------------------
<PAGE>

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

The Investment Adviser has agreed to waive or defer its management fees payable
by the Funds, and to absorb other operating expenses of the Funds and the
Portfolios, so that the expenses for each Portfolio will not exceed the
following expense ratios on an annual basis through March 31, 1998. Worldwide
Growth Portfolio 1.60%, International Core Growth and International Small Cap
Growth Portfolios - 1.65%, Emerging Countries Portfolio - 1.90%, Income and
Growth, Balanced Growth, Large Cap and Core Growth Portfolios - 1.25%, Emerging
Growth Portfolio - 1.50%, and Government Income Portfolio - .80% Each
Portfolio will reimburse the Investment Adviser for fees deferred or other
expenses paid pursuant to this Agreement in later years in which operating
expenses for the Portfolio are less than the percentage limitation set forth
above for any such year.

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

DISTRIBUTOR:
Nicholas-Applegate Securities
600 West Broadway, 30th Floor
San Diego, California 92101

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

DIVERSIFICATION. All the Funds are diversified.

<PAGE>

PORTFOLIO TEAMS
- ----------------------------------------------------------------------------------------------------
<S> <C>
EQUITY MANAGEMENT - INTERNATIONAL/GLOBAL

NAME FUND

Catherine Somhegyi, Partner Worldwide Growth
Chief Investment Officer - Global Equity Management International Core Growth
Joined firm in 1987; prior investment International Small Cap
experience with Professional Asset Securities, Inc. Emerging Countries
and Pacific Century Advisers Emerging Growth
M.B.A. and B.S. - University of Southern California Balanced Growth
Income and Growth

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

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

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

Loretta J. Morris Worldwide Growth
Portfolio Manager - International; International Core Growth
Joined firm in 1990; 10 years prior investment experience with International Small Cap
Collins Associates
Attended California State University, Long Beach;
CFA Level II candidate

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

<PAGE>

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

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

Eswar Menon Emerging Countries
Portfolio Manager - Emerging Countries
Joined firm in 1995; 5 years prior 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.

EQUITY MANAGEMENT- U.S.

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

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

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

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

Catherine Somhegyi, Partner Emerging Growth
Chief Investment Officer
Joined firm 1987.
M.B.A. and B.S. - University of Southern
California

<PAGE>

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

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

John C. McCraw Emerging Growth
Portfolio Manager
Joined firm in 1992; prior experience with Nations Bank
M.B.A. - University of California, Irvine; B.A. - Flagler College

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

FIXED INCOME

Fred S. Robertson, III, Partner, Balanced Growth
Chief Investment Officer - Fixed Income Government Income
Joined firm in 1995; 7 years prior investment experience with
Criterion Investment Management Company; 5 years prior
investment experience with DuPont Chemical Pension Fund
M.B.A. - College of William and
Mary; B.S. - Cornell University

James E. Kellerman, Partner Government Income
Portfolio Manager
Joined firm in 1995; 4 years prior investment experience with
Criterion Investment Management Company; 8 years prior investment
experience with Brown Brothers Harriman and Equitable Life
Insurance Co.
M.B.A. - St. John's University;
B.B.A. - Susquehanna University

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

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

Douglas Forsyth, CFA Government Income
Portfolio Manager
Joined firm in 1994; 3 years prior investment
experience with AEGON USA
B.B.A. - University of Iowa
</TABLE>

<PAGE>

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

MUTUAL FUND CONSIDERATIONS IN GENERAL

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

GLOBAL INVESTING CONSIDERATIONS

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

SOCIAL, POLITICAL AND ECONOMIC FACTORS
The economies of many of the countries where the Funds may invest may be subject
to a substantially greater degree of social, political and economic instability
than the United States. Such instability may result from, among other things,
the following: (1) authoritarian governments; (2) popular unrest associated
with demands for improved political, economic and social conditions; (3)
internal insurgencies and terrorist activities; (4) hostile relations with
neighboring countries; and (5) drug trafficking. This instability might impair
the financial conditions of issuers or disrupt the financial markets in which
the Funds invest.

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

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

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

MARKET CHARACTERISTICS

DIFFERENCES IN SECURITIES MARKETS. The securities markets in foreign countries
have substantially less trading volume than the markets in the United States and
debt and equity securities of many companies listed on such markets may be less
liquid and more volatile than comparable securities in the United States. Some
of the stock exchanges in foreign countries, to the extent that established
markets exist, are in the earlier stages of their development. The limited
liquidity of certain securities markets may affect the ability of 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

<PAGE>

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 it could result in the Fund being
unable to sell a security in a falling market.

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

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

THE FUNDS' INVESTMENTS

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

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

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

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

<PAGE>

LOWER RATED SECURITIES CONSIDERATIONS.
The Balanced Growth Fund and the Income & Growth Fund may invest in debt and
convertible securities that are not in the four highest rating categories but
will in no event purchase securities rated below "C" or equivalent. A
description of these rating categories is contained in this Prospectus.

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

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

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

As of the fiscal year ended March 31, 1997, the Balanced Growth Fund owned as
a percentage of total value lower rated securities in the following amounts: BB
- - 11.68%; B - 10.37%; CCC - 1.83%.

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

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

GNMA certificates are mortgage-backed securities representing part ownership of
a pool of mortgage loans, which are issued by lenders such as mortgage bankers,
commerical banks and savings associations, and are either insured by the Federal
Housing Administration or the Veterans Administration. Payment of interest and
principal on each mortgage is guaranteed by GNMA and backed by the full faith
and credit of the U.S. Government.

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

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

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

<PAGE>

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, cannot be offered for public
sale in the U.S. without first being registered under U.S. securities laws, or
cannot be disposed of within seven days in the normal course of business at
approximately the amount at which the Fund values it. Limitations on resale may
adversely affect the marketability of illiquid securities and the Fund may not
be able to dispose of these securities at the desired time and price. A Fund
may bear additional expenses if it has to register these securities under U.S.
securities laws before being resold.

TEMPORARY INVESTMENTS.
The Funds may from time to time on a temporary basis to maintain liquidity or
when the Investment Adviser determines that 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. 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 of the Master Trust.

SHORT SALES.
The Worldwide, International Growth, Core Growth and Emerging Growth Funds may
maintain short positions in securities. A "short sale" is the sale by the
Fund of a security which has been borrowed from a third party on the expectation
that the market price will drop. If the price of the security drops, the Fund
will make a profit by purchasing the security in the open market at 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.

As a consequence of borrowing, a Fund will incur obligations to pay interest,
resulting in an increase in expenses.

<PAGE>

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

OPTIONS
The Funds 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
The 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.

<PAGE>

NEW ACCOUNT FORM (NON-RETIREMENT)
QUALIFIED PORTFOLIOS

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

1. YOUR ACCOUNT REGISTRATION

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

/ / INDIVIDUAL OR JOINT ACCOUNT

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

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

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

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

/ / GIFT OR TRANSFER TO MINOR

- --------------------------------------------------------------------------------
Name of Custodian (one only)

As Custodian For
----------------------------------------------------------------
Minor's Name (only one)

Under Uniform Gifts/Transfers to Minors Act
(select one)

- --------------------------------------------------------------------------------
(Minor's State of Residence) Minor's S.S.# Birth Date

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

- --------------------------------------------------------------------------------
Registration

- --------------------------------------------------------------------------------
Officers, Trustees or Partners if Part of Registration

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

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

Citizenship:
/ /U.S. / /Resident Alien / /Non-resident Alien
----------------------------------
specify country

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

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

( )
- --------------------------------------------------------------------------------
Area Code Daytime Phone

- --------------------------------------------------------------------------------
Area Code Evening Phone

1234

3. YOUR INVESTMENT
- Please select your fund choices.
- See prospectus for investment minimums.

CLASS AMOUNT

Emerging Growth Q(375)/ / $

Core Growth Q(171)/ / $

Income & Growth Q(172)/ / $

Balanced Growth Q(173)/ / $

Government Income Q(175)/ / $

Worldwide Growth Q(174)/ / $

International Small Cap Q(176)/ / $

International Core Grth Q(676)/ / $

Emerging Countries Q(376)/ / $

Total $

4. YOUR METHOD OF PAYMENT

/ / By Check: Payable to Nicholas|Applegate Mutual Funds

/ / By Wire: Please call 1-800-551-8043 for your account number

/ / By Exchange: Portfolio from which you are exchanging
- ---------------------------------------------------------

/ / By Confirm Trade Order: Trade Order #_______________________

5. YOUR DIVIDEND AND CAPITAL GAIN PAYMENT OPTIONS

All dividends and capital gains will be reinvested unless you indicate
otherwise.

/ / ALL CASH OPTION: Pay all dividends and capital gains to me by check.

/ / CASH DIVIDEND OPTION: Pay all dividends by check and reinvest all capital
gains.

/ / CASH CAPITAL GAINS OPTION: Reinvest all dividends and pay all capital
gains by check.

/ / *CROSS REINVESTMENT: Cross Reinvest all Dividends and capital gains into an
existing account in another Nicholas|Applegate Portfolio.

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

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

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

<PAGE>

SERVICE OPTIONS
6. TELEPHONE REDEMPTIONS AND EXCHANGES

/ / I authorize redemption of Portfolio shares upon telephone instructions.
Please see prospectus for more information.

If box is not checked, the telephone redemption privilege WILL NOT be provided.

/ / I authorize Nicholas|Applegate Mutual Funds to allow exchanges between or
among the Portfolios upon telephone instructions from me (must be same series
and same registration on account).

If box is not checked, the telephone exchange privilege will not be provided.

CHECKING/SAVINGS ACCOUNT INFORMATION
Please complete section below or attach a voided check or deposit ticket for
telephone redemption privileges.

/ / Telephone Redemption By Wire

Institution Name (please print)_____________________________________
Institution Address______________________________________________
City___________________State_______ ZIP Code____________________
Account Type: Checking___________ Savings_______________________
ABA Routing Number___________________________________________
Account Number________________________________________________
Name(s) on Account_____________________________________________

7. DEALER INFORMATION

HOME OFFICE INFORMATION
(TO BE COMPLETED BY INVESTMENT REPRESENTATIVE)

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

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

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

BRANCH OFFICE INFORMATION

( )
- --------------------------------------------------------------------------------
Branch Office Number Phone

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

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

REPRESENTATIVE INFORMATION

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

8. SIGNATURES

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

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

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

/ / I am currently subject to IRS Backup Withholding.

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

- --------------------------------------------------------------------------------
Shareowner, custodian, trustee or authorized officer
Date

- --------------------------------------------------------------------------------
Joint owner, custodian, trustee or authorized officer
Date

123Securities
<PAGE>

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 Portfolios.

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

To request a free copy of the current annual/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
<PAGE>

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

STATEMENT OF ADDITIONAL INFORMATION

________, 1997

Nicholas-Applegate Mutual Funds (the "Trust") is an open-end management
investment company currently offering a number of separate diversified
portfolios. This Statement of Additional Information contains information
regarding ten of these portfolios (each a "Portfolio" and collectively the
"Portfolios"): Nicholas-Applegate Large Cap Qualified Portfolio (the "Large Cap
Portfolio"); Nicholas-Applegate Core Growth Qualified Portfolio (the "Core
Growth Portfolio"); Nicholas-Applegate Emerging Growth Qualified Portfolio (the
"Emerging Growth Portfolio"); Nicholas-Applegate Income & Growth Qualified
Portfolio (the "Income & Growth Portfolio"); Nicholas-Applegate Balanced Growth
Qualified Portfolio (the "Balanced Portfolio"); Nicholas-Applegate Government
Income Qualified Portfolio (the "Government Portfolio"); Nicholas-Applegate
International Core Growth Qualified Portfolio (the "International Core Growth
Portfolio"); Nicholas-Applegate Worldwide Growth Qualified Portfolio (the
"Worldwide Portfolio"); Nicholas-Applegate International Small Cap Growth
Qualified Portfolio (the "International Small Cap Growth Portfolio"); and
Nicholas-Applegate Emerging Countries Qualified Portfolio (the "Emerging
Countries Portfolio").

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

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

TABLE OF CONTENTS

PAGE

General Information. . . . . . . . . . . . . . . . . . . . . . . . B-2
Investment Objectives, Policies and Risks. . . . . . . . . . . . . B-2
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . B-22
Principal Holders of Securities. . . . . . . . . . . . . . . . . . B-25
Trustees and Principal Officers. . . . . . . . . . . . . . . . . . B-25
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . B-28
Administrator.. . . . . . . . . . . . . . . . . . . . . . . . . . B-30
Distributor. . . . . . . . . . . . . . . . . . . . . . . . . . . . B-31
Portfolio Transactions and Brokerage . . . . . . . . . . . . . . . B-32
Purchase and Redemption of Portfolio Shares. . . . . . . . . . . . B-33
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . B-34
Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . B-36
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . B-37
Performance Information. . . . . . . . . . . . . . . . . . . . . . B-41
Custodian, Transfer and Dividend Disbursing Agent,
Independent Auditors and Legal Counsel . . . . . . . . . . . . . B-46
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . B-47
Appendix A - Description of Securities Ratings . . . . . . . . . . A-1

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GENERAL INFORMATION

The Trust and the Master Trust were organized in December 1992 as business
trusts under the laws of Delaware. The Trust offers shares of numerous
portfolios with differing sales load, shareholder service plan and distribution
plan arrangements, including Series A portfolios, Series B portfolios, Series C
portfolios, Institutional portfolios and Qualified portfolios. This Statement
of Additional Information contains information regarding the ten Portfolios
identified on the cover page.

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

INVESTMENT OBJECTIVES, POLICIES AND RISKS

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

EQUITY SECURITIES OF GROWTH COMPANIES

Each Fund (except the Government Fund) may invest in equity securities of
domestic and foreign companies, the earnings and stock prices of which are
expected by the Master Trust's Investment Adviser to grow at an above-average
rate. Such investments will be diversified over a cross-section of industries
and individual companies. For Funds other than the Large Cap Fund, some of
these companies will be organizations with market capitalizations of $500
million or less or companies that have limited product lines, markets and
financial resources and are dependent upon a limited management group. Examples
of possible investments include emerging growth companies employing new
technology, cyclical 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 rate rise, the fixed dividend on
preferred stocks may be less attractive, causing the price of preferred stocks
to decline. Preferred stock may have mandatory sinking fund provisions, as well
as call/redemption provisions prior to maturity, a negative feature when
interest rates decline. Dividends on some preferred stock may be "cumulative,"
requiring all or a portion of prior unpaid dividends to be paid before dividends

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are paid on the issuer's common stock. Preferred stock also generally has a
preference over common stock on the distribution of a corporation's assets in
the event of liquidation of the corporation, and may be "participating," which
means that it may be entitled to a dividend exceeding the stated dividend in
certain cases. The rights of preferred stocks on the distribution of a
corporation's assets in the event of a liquidation are generally subordinate to
the rights associated with a corporation's debt securities.

CONVERTIBLE SECURITIES AND WARRANTS

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

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

Like other debt securities, the market value of convertible debt securities
tends to vary inversely with the level of interest rates. The value of the
security declines as interest rates increase and increases as interest rates
decline. Although under normal market conditions longer term debt securities
have greater yields than do shorter term debt securities of similar quality,
they are subject to greater price fluctuations. 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 will be required to permit the
issuer to redeem the security, convert it into the underlying common stock or
sell it to a third party. Convertible debt securities purchased by the Funds,
which are acquired in whole or substantial part for their equity
characteristics, are not subject to rating requirements.

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

SYNTHETIC CONVERTIBLE SECURITIES

The Income & Growth Fund may invest in "synthetic" convertible securities,
which are derivative positions composed of two or more different securities
whose investment characteristics, taken together, resemble those of convertible
securities. For example, the Fund may purchase a non-convertible debt security
and a warrant or option, which enables the Fund to have a convertible-like
position with respect to a company, group of companies or stock index.
Synthetic convertible securities are typically offered by financial institutions
and investment banks in private placement transactions. Upon conversion, the
Fund generally receives an amount in cash equal to the difference between the
conversion price and the then current value of the underlying security. Unlike
a true convertible security, a synthetic convertible comprises two or more
separate securities, each with its own market value. Therefore, the market
value of a synthetic convertible is the sum of the values of its fixed-income
component and its convertible component. For this

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reason, the values of a synthetic convertible and a true convertible security
may respond differently to market fluctuations. The Fund only invests in
synthetic convertibles with respect to companies whose corporate debt securities
are rated "A" or higher by Moody's or "A" or higher by S&P and will not invest
more than 15% of its net assets in such synthetic securities and other illiquid
securities.

EURODOLLAR CONVERTIBLE SECURITIES

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

OTHER CORPORATE DEBT SECURITIES

Each Fund may invest in non-convertible debt securities of foreign and
domestic companies over a cross-section of industries. The debt securities in
which such Funds may invest will be of varying maturities and may include
corporate bonds, debentures, notes and other similar corporate debt instruments.
The value of a longer-term debt security fluctuates more widely in response to
changes in interest rates than do shorter-term debt securities.

RISKS OF INVESTING IN DEBT SECURITIES

There are a number of risks generally associated with an investment in debt
securities (including convertible securities). Yields on short, intermediate,
and long-term securities depend on a variety of factors, including the general
condition of the money and bond markets, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. Debt securities with
longer maturities tend to produce higher yields and are generally subject to
potentially greater capital appreciation and depreciation than obligations with
short maturities and lower yields. The market prices of debt securities usually
vary, depending upon available yields. An increase in interest rates will
generally reduce the value of such portfolio investments, and a decline in
interest rates will generally increase the value of such portfolio investments.
In addition, a Fund's return on the debt securities in which it invests depends
on the continuing ability of the issuers of such debt securities to meet their
obligations for the payment of interest and principal when due.

RISKS OF INVESTING IN LOWER-RATED DEBT SECURITIES

The Income & Growth and Balanced Funds may invest a portion of their net
assets in debt securities rated below "Baa" by Moody's or "BBB" by S&P or below
investment grade by other recognized rating agencies, or in unrated securities
of comparable quality under certain circumstances. However, the Income & Growth
and Balanced Funds will in no event purchase securities rated below "C" or
equivalent by Moody's, S&P or another rating agency, or determined by the
Investment Adviser to be of comparable quality. Debt securities with such
ratings are predominantly speculative with respect to the capacity of the issuer
to pay interest and repay principal. Non-rated securities will also be
considered for investment when the Investment Adviser believes that the
financial condition of the issuers of such securities, or the protection
afforded by the terms of the securities themselves, limit the risk to a Fund to
a degree comparable to that of rated securities which are consistent with the
Fund's investment objective and policies. See "Appendix A: Description of
Securities Ratings" for a description of credit ratings.

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

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

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

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

CREDIT RATINGS. Credit ratings evaluate the safety of principal and
interest payments, not the market value risk of high yield bonds. 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 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 short-term investments to maintain liquidity for
redemptions or during periods when, in the opinion of the Investment Adviser,
attractive investments are not available. 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. Such risks include future
political and economic developments, the possible imposition of withholding
taxes by the particular country in which the issuer is located on interest
income payable on the securities, the possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on these securities.

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

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

In addition to purchasing certificates of deposit and bankers' acceptances,
to the extent permitted under their respective investment objectives and
policies stated above and in their Prospectuses, 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.

MONEY MARKET FUNDS

Each Fund may under certain circumstances invest a portion of its assets
in money market funds. The Investment Company Act of 1940 (the "Investment
Company Act") prohibits a Fund from investing more than 5% of the value of its
total assets in any one investment company, or more than 10% of the value of
its total assets in investment companies as a group, and also restricts a
Fund's investment in any investment company to 3% of the voting securities of
such investment company. In addition to the advisory and other fees paid by a
Fund , investment in a money market mutual fund will involve payment by a Fund
of its pro rata share of advisory and administrative fees charged by such fund.

GOVERNMENT OBLIGATIONS

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

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Some of these obligations, such as those of the GNMA, are supported by the
full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of United States, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the FNMA, are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. 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
and Emerging Countries Funds may invest in sovereign debt obligations of foreign
countries. A sovereign debtor's willingness or ability to repay principal and
interest in a timely manner may be affected by a number of factors, including
its cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which it
may be subject. Emerging market governments could default on their sovereign
debt. Such sovereign debtors also may be dependent on expected disbursements
from foreign governments, multilateral agencies and other entities abroad to
reduce principal and interest arrearages on their debt. The commitments on the
part of these governments, agencies and others to make such disbursements may be
conditioned on a sovereign debtor's implementation of economic reforms and/or
economic performance and the timely service of such debtor's obligations.
Failure to meet such conditions could result in the cancellation of such third
parties' commitments to lend funds to the sovereign debtor, which may further
impair such debtor's ability or willingness to service its debt in a timely
manner.

ZERO COUPON SECURITIES

The Income & Growth, Balanced, and Government Funds may each invest 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 related Portfolios to make income
distributions .

VARIABLE AND FLOATING RATE INSTRUMENTS

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

MORTGAGE-RELATED SECURITIES

Each Fund (other than the International Core Growth, International Small
Cap 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 Government Fund may also invest in

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debt securities which are secured with collateral consisting of U.S.
mortgage-related securities, and in other types of U.S. mortgage-related
securities.

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

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

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

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

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

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

FOREIGN MORTGAGE-RELATED SECURITIES. Foreign mortgage-related securities
are interests in pools of mortgage loans made to residential home buyers
domiciled in a foreign country. These include mortgage loans made by trust and
mortgage loan companies, credit unions, chartered banks, and others. Pools of
mortgage loans are assembled as securities for

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sale to investors by various governmental, government-related and private
organizations (e.g., Canada Mortgage and Housing Corporation and First
Australian National Mortgage Acceptance Corporation Limited). The mechanics of
these mortgage-related securities are generally the same as those issued in the
United States. However, foreign mortgage markets may differ materially from the
U.S. mortgage market with respect to matters such as the sizes of loan pools,
pre-payment experience, and maturities of loans.

"ROLL" TRANSACTIONS

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

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

FOREIGN INVESTMENTS

Each Fund may invest in securities of foreign issuers that are not
publicly traded in the United States. Each Fund (other than the Government
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 Portfolios'
investment objectives and policies, investment of all of the Portfolios' assets
in another investment company with different investment objectives and policies
than the Funds, or hiring an investment adviser to manage the Portfolios'
assets. However, a Portfolio would adopt any revised investment objective and
fundamental policies only after approval by the shareholders holding a majority
(as defined in the Investment Company Act) of the shares of the Portfolio.

DEPOSITORY RECEIPTS. Each of the Funds (other than the Government Fund)
may invest in American Depository Receipts ("ADRs"), which are receipts issued
by an American bank or trust company evidencing ownership of underlying
securities issued by a foreign issuers. ADRs, in registered form, are designed
for use in U.S. securities markets. Such depository receipts may be sponsored
by the foreign issuer or may be unsponsored. The International Core Growth,
Worldwide, International Small Cap 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.

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Risks of Investing in Foreign Securities. Investments in foreign securities
involve certain inherent risks, including the following:

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

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

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

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

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

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

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

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

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OPTIONS ON SECURITIES AND SECURITIES INDICES

PURCHASING PUT AND CALL OPTIONS. Each Fund (other than the Government
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.
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 is holding a stock which it feels has strong
fundamentals, but for some reason may be weak in the near term, the Fund may
purchase a put option on such security, thereby giving itself the right to sell
such security at a certain strike price throughout the term of the option.
Consequently, the Fund will exercise the put only if the price of such security
falls below the strike price of the put. The difference between the put's
strike price and the market price of the underlying security on the date the
Fund exercises the put, less transaction costs, will be the amount by which the
Fund will be able to hedge against a decline in the underlying security. If
during the period of the option the market price for the underlying security
remains at or above the put's strike price, the put will expire worthless,
representing a loss of the price the Fund paid for the put, plus transaction
costs. If the price of the underlying security increases, the profit the Fund
realizes on the sale of the security will be reduced by the premium paid for the
put option less any amount for which the put may be sold.

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

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

WRITING CALL OPTIONS. Each Fund (other than the Balanced and Government
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 will permit the cash or proceeds from the concurrent sale of
any securities subject to the option to be used for other investments of the
Fund. If the Fund desires to sell a particular security from its portfolio on
which it has written a call option, it will effect a closing transaction prior
to or concurrent with the sale of the security.

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<PAGE>

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

STOCK INDEX OPTIONS. Each Fund (other than the Balanced and Government
Funds) may also purchase put and call options with respect to the S&P 500 and
other stock indices. Such options may be purchased as a hedge against changes
resulting from market conditions in the values of securities which are held in a
Fund's portfolio or which it intends to purchase or sell, or when they are
economically appropriate for the reduction of risks inherent in the ongoing
management of the Fund.

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

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

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

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

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

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<PAGE>

DEALER OPTIONS. Each Fund (other than the Income & Growth, Balanced and
Government 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 were to purchase a dealer option it would need to rely on the
dealer from which it purchased the option to perform if the option were
exercised. Failure by the dealer to do so would result in the loss of the
premium paid by the Fund as well as loss of the expected benefit of the
transaction.

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

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

FOREIGN CURRENCY OPTIONS

The International and 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 will 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, the writing of an option on
foreign currency will constitute only a partial hedge, up to the amount of the
premium received. The Funds could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
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 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

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<PAGE>

purchase a particular currency or enter into a forward currency contract to
preserve the U.S. dollar price of securities it intends to or has contracted to
purchase. Alternatively, it might sell a particular currency on either a spot
or forward basis to hedge against an anticipated decline in the dollar value of
securities it intends to or has contracted to sell. Although this strategy
could minimize the risk of loss due to a decline in the value of the hedged
currency, it could also limit any potential gain from an increase in the value
of the currency.

FUTURES CONTRACTS AND RELATED OPTIONS

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

No price is paid or received by a Fund upon the purchase or sale of a
futures contract. When it enters into a domestic futures contract, the Fund
will be required to deposit in a segregated account with its Custodian 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 is different from that
of margin in securities transactions. Futures contract margin does not involve
the borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Subsequent
payments (called variation margin) to and from the broker will be made on a
daily basis as the price of the underlying stock index fluctuates, to reflect
movements in the price of the contract making the long and short positions in
the futures contract more or less valuable. For example, when the Fund has
purchased a stock index futures contract and the price of the underlying stock
index has risen, that position will have increased in value and the Fund will
receive from the broker a variation margin payment equal to that increase in
value. Conversely, when the Fund has purchased a stock index futures contract
and the price of the underlying stock index has declined, the position will be
less valuable and the Fund will be required to make a variation margin payment
to the broker.

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

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

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<PAGE>

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.

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

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

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

FOREIGN CURRENCY FUTURES CONTRACTS. The International Core Growth,
Worldwide, International Small Cap 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 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.

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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.

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

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

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

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

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

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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 can be expected to be more volatile than the market
prices on the underlying futures contracts. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Funds because the
maximum amount at risk is limited to the premium paid for the options (plus
transaction costs).

RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND RELATED OPTIONS. A Fund
will not engage in transactions in futures contracts or related options for
speculation, but only as a hedge against changes resulting from market
conditions in the values of securities held in the Fund's portfolio or which it
intends to purchase and where the transactions are economically appropriate to
the reduction of risks inherent in the ongoing management of the Funds. A Fund
may not purchase or sell futures or purchase related options if, immediately
thereafter, more than 25% of its net assets would be hedged. A Fund also may
not purchase or sell futures or purchase related options if, immediately
thereafter, the sum of the amount of margin deposits on the Fund's existing
futures positions and premiums paid for such options would exceed 5% of the
market value of the Fund's net assets.

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

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

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

REPURCHASE AGREEMENTS

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

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a sale of the underlying securities is less than the repurchase price under the
agreement. Bankruptcy or insolvency of such a defaulting seller may cause the
Fund's rights with respect to such securities to be delayed or limited.
Repurchase agreements are considered to be loans under the Investment Company
Act.

WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS

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

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

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

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

BORROWING

Each Fund is authorized to borrow money from time to time for temporary,
extraordinary or emergency purposes or for clearance of transactions in amounts
up to 20% of the value of its total assets at the time of such borrowings. All
borrowings by a Fund will be made only to the extent that the value of the
Fund's total assets, less its liabilities other than borrowings, is equal to at
least 300% of all borrowings. If such asset coverage of 300% is not maintained,
the Fund will take prompt action to reduce its borrowings as required by
applicable law. Short sales "not against the box" 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 will be fixed by the terms of the
Fund's agreement with its lender, the asset value per share of the Fund will
tend to increase more when its portfolio securities increase in value and to
decrease more when its portfolio assets decrease in value than would otherwise
be the case if the Fund did not borrow funds. In addition, interest costs on
borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds. Under adverse
market conditions, the Fund might have to sell portfolio securities to meet
interest or principal payments at a time when fundamental investment
considerations would not favor such sales.

The Trust has entered into a Credit Agreement on behalf of its various
Portfolios with several banks and Chemical Bank, as administrative agent for the
lenders, to borrow up to $75,000,000 from time to time for purposes of meeting
shareholder redemption requests without the necessity of requiring the Funds to
sell portfolio securities, at times when the Investment Adviser believes such
sales are not in the best interests of the Portfolios' shareholders, in order to
provide the

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Portfolios with cash to meet such redemption requests. The Credit Agreement
expires on April 10, 1998, unless renewed by the parties.

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

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

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

LENDING PORTFOLIO SECURITIES

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

SHORT SALES

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

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

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

Short sales by a Fund that are not made "against the box" create
opportunities to increase the Fund's return but, at the same time, involve
specific risk considerations and may be considered a speculative technique.
Since the Fund in effect profits from a decline in the price of the securities
sold short without the need to invest the full purchase price of the securities
on the date of the short sale, the Fund's net asset value per share will tend to
increase more when the securities it has sold short decrease in value, and to
decrease more when the securities it has sold short increase in value, than
would otherwise be the case if it had not engaged in such short sales. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of any premium, dividends or interest the Fund may be required to pay
in connection with the short sale. 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 of policy, the Master Trust's Board of Trustees has determined that no
Fund will make short sales of securities or maintain a short position if to do
so could create liabilities or require collateral deposits and segregation of
assets aggregating more than 25% of the Fund's total assets, taken at market
value.

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

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ILLIQUID SECURITIES

No Fund 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. The Investment Adviser will monitor the
amount of illiquid securities in the Fund's portfolio, under the supervision of
the Master Trust's Board of Trustees, to ensure compliance with the Fund's
investment restrictions.

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

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

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

INVESTMENT TECHNIQUES AND PROCESSES

The Investment Adviser's investment techniques and processes, which it has
used in managing institutional portfolios for many years, are described
generally in the Portfolios' prospectus. In making decisions with respect to
equity securities for the Funds, growth over time 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. 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 Portfolios' 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

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

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

The investment objective of each Fund and Portfolio is a fundamental
policy. In addition, no Portfolio or Fund:

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

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

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

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

B-22

<PAGE>

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

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

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

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

9. May invest more than 15% of the value of its net assets in securities
that at the time of purchase have legal or contractual restrictions on resale or
are otherwise illiquid.

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

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

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

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

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

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

OPERATING RESTRICTIONS

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

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

B-23

<PAGE>

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

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

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

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

PRINCIPAL HOLDERS OF SECURITIES

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

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

TRUSTEES AND PRINCIPAL OFFICERS

TRUST

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

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

ARTHUR B. LAFFER, Trustee.*/ 5405 Morehouse Drive, Suite 340, San Diego,
California. Chairman, A.B. Laffer, V.A. Canto & Associates, an economic
consulting firm (since 1979); Chairman, Laffer 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 $100,000 in 1994
from the Investment Adviser as compensation for consulting services provided
from time to time to the Investment Adviser, and because his son is an employee
of the Investment Adviser.

B-24

<PAGE>

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

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

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

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

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

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

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

PENSION OR RETIREMENT
AGGREGATE COMPENSATION BENEFITS ACCRUED AS ESTIMATED ANNUAL TOTAL COMPENSATION FROM
FROM TRUST PART OF TRUST BENEFITS UPON TRUST AND TRUST COMPLEX
NAME EXPENSES RETIREMENT PAID TO TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fred C.
Applegate None N/A

Arthur B. Laffer None N/A
Charles E. Young None N/A

</TABLE>

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

MASTER TRUST

The names and addresses of the Trustees and principal officers of the
Master Trust, including their positions and principal occupations during the
past five years, are shown below. The positions and principal occupations of
the officers

B-25

<PAGE>

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

ARTHUR E. NICHOLAS, Trustee and Chairman of the Board of Trustees.*/
Managing Partner and Chief Investment Officer, Nicholas-Applegate Capital
Management, since 1984, and Chairman/President, Nicholas-Applegate Securities.
Director and Chairman of the Board of Directors of Nicholas-Applegate Fund,
Inc., a registered open-end investment company, since 1987.

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

WALTER E. AUCH, Trustee.* 6001 North 62nd Place, Paradise Valley, Arizona.
Director, Geotech Communications, Inc., a mobile radio communications company
(since 1987); Fort Dearborn Fund (since 1987); Brinson Funds (since 1994),
Smith Barney Trak Fund (since 1992), registered investment companies; Pimco
Advisors L.P., an investment manager (since 1994); and Banyan Realty Fund (since
1987), Banyan Strategic Land Fund (since 1987), Banyan Strategic Land Fund II
(since 1988), and Banyan Mortgage Fund (since 1988), real estate investment
trusts. Formerly Chairman and Chief Executive Officer, Chicago Board Options
Exchange (1979 to 1986) and Senior Executive Vice President, Director and Member
of the Executive Committee, PaineWebber, Inc. (until 1979). Mr. Auch is
considered to be an "interested person" of the trust under the Investment
Company 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
research associate, Harvard Graduate School of Education (since 1996);
Director, Nicholas-Applegate Fund, Inc. (since 1987), Emerging Germany Fund
(since 1991), Moovies, Inc. (since 1995). Formerly Managing Director of Global
Equity Transactions Group, and member of Board of Directors, Prudential
Securities (from 1986 to June 1991).

DARLENE DEREMER, Trustee.*/ 155 South Street, Wrentham, Massachusetts.
President and Founder, DeRemer Associates, a marketing consultant for the
financial services industry (since 1987); Vice President, PBNG Funds, Inc.
(since 1995); formerly Vice President and Director, Asset Management Division,
State Street Bank and Trust Company (from 1982 to 1987), and Vice President, T.
Rowe Price & Associates (1979 to 1982); Director, Jurika & Voyles Fund Group
(since 1994), Nicholas-Applegate Strategic Opportunities Ltd. (since 1994),
Nicholas-Applegate Securities International (since 1994), and King's Wood
Montessori School (since 1995); Member of Advisory Board, Financial Women's
Association (since 1995). Ms. DeRemer is considered to be an "interested
person" of the Master Trust under the Investment Company Act because DeRemer
Associates received $_______ in 1996 and $100,736 in 1995 from the Investment
Adviser as compensation for consulting services provided in connection with its
institutional business.

GEORGE F. KEANE, Trustee. 450 Post Road East, Westport, Connecticut.
President Emeritus and Senior Investment Adviser, The Common Fund, a non-profit
investment management organization representing educational institutions (since
1993), after serving as its President (from 1971 to 1992); Member of Investment
Advisory Committee, New York State Common Retirement Fund (since 1982); Director
and Chairman of the Investment Committee, United Negro College Fund (since
1987); Director, Investor Responsibility Research Center (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).

B-26

<PAGE>

JOHN D. WYLIE, President.

THOMAS PINDELSKI, Chief Financial Officer.

PETER J. JOHNSON, Vice President.

E. BLAKE MOORE, JR., Secretary.

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

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

PENSION OR RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED AS ESTIMATED ANNUAL FROM MASTER TRUST AND
COMPENSATION FROM PART OF MASTER TRUST BENEFITS UPON MASTER TRUST COMPLEX
NAME MASTER TRUST EXPENSES RETIREMENT PAID TO TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dann V. Angeloff None N/A

Walter E. Auch None N/A

Theodore J. Coburn None N/A

Darlene DeRemer None N/A

George K. Keane None N/A

</TABLE>

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

INVESTMENT ADVISER

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

The Investment Adviser was organized in 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. The Investment Adviser currently has fourteen partners
(including Mr. Nicholas) who manage a staff of approximately 350 employees,
including 28 portfolio managers.

Personnel of the Investment Adviser may invest in securities for their
own accounts pursuant to a Code of Ethics that sets forth all partners' and
employees' fiduciary responsibilities regarding the Funds, establishes
procedures for personal investing, and restricts certain transactions. For
example, all personal trades in most securities require pre-clearance, and

B-27

<PAGE>

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

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

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

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 as
a result of the expense limitations and fee waivers described below under
"Expense Limitation" were as follows:

FUND ADVISORY FEES FEE REDUCTIONS
- --------------------------------------------------------------------------------

Large Cap Growth Fund

Core Growth Fund

Emerging Growth Fund

Income & Growth Fund

Balanced Growth Fund

Government Fund

International Core Growth Fund

Worldwide Growth Fund

International Small Cap Growth Fund

Emerging Countries Fund

The Investment Advisory Agreement provides that it will terminate in the
event of its assignment (as defined in the Investment Company Act). The
Investment Advisory Agreement may be terminated with respect to any Fund by the
Master Trust (by the Board of Trustees of the Master Trust or vote of a majority
of the outstanding voting securities of the Fund, as defined in the Investment
Company Act) or the Investment Adviser upon not more than 60 days' written
notice, without payment of any penalty. The Investment Advisory Agreement
provides that it will continue in effect with respect to each Fund for a period
of more than two years from its execution only so long as such continuance is
specifically approved at least annually in conformity with the Investment
Company Act.
B-28

<PAGE>

EXPENSE LIMITATION

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

For its services, ICAC receives under the Administration Agreement
$35,000 for each grouping of five similar portfolios (e.g., Core Growth
Portfolio A, Portfolio B, Portfolio C, Institutional and Qualified Portfolios),
$30,000 for each group of four similar portfolios, $25,000 for each grouping of
three similar portfolios, $20,000 for a grouping of two similar portfolios and
$5,000 for one portfolio, except as follows: ICAC receives $15,000 for its
services with respect to the Emerging Growth Portfolio. As a result, ICAC
currently receives aggregate compensation at the rate of $_________ per year
for all of the series of the Trust. Such fees will be allocated among the
series in each grouping based on relative net asset values. For its services to
the Master Trust, ICAC receives, pursuant to an Administration Agreement, a
monthly fee at the following annual rates: 0.05% on the first $100 million of
aggregate net assets of the Funds, 0.04% on the next $150 million, 0.03% on the
next $300 million, 0.02% on the next $300 million, and 0.01% on the portion of
aggregate net assets of the Funds in excess of $850 million. ICAC will receive
a minimum of $150,000 per year allocated among the Funds based on average net
assets.

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

Under the terms of the Administration Agreement, the Trust is
responsible for the payment of the following expenses: (a) the fees and
expenses incurred by the Trust in connection with the management of the
investment and reinvestment of their assets, (b) the fees and expenses of
Trustees and officers of the Trust who are not affiliated with ICAC or the
Investment Adviser, (c) out-of-pocket travel expenses for the officers and
Trustees of the Trust and other expenses of Board of Trustees' meetings, (d) the
fees and certain expenses of the Custodian, (e) the fees and expenses of the
Transfer and Dividend Disbursing Agent that relate to the maintenance of each
shareholder account, (f) the charges and expenses of the Trust's legal counsel
and independent accountants, (g) brokerage commissions and any issue or transfer
taxes chargeable to Trustees and officers of the Trust in connection with
securities transactions, (h) all taxes and corporate fees payable by the Trust
to federal, state and other governmental agencies, (i) the fees of any trade
association of which the Trust may be a member, (j) the cost of maintaining the
Trust's existence, taxes and interest, (k) the cost of fidelity and liability
insurance, (l) the fees and expenses involved in registering and maintaining the
registration of the Trust and of its shares with the Commission and registering
the Trust as a broker or dealer and qualifying their shares under state
securities laws, including the preparation and printing of the Trust's
registration statement, prospectuses and statements of additional information,
(m) allocable communication expenses with respect to investor services and all
expenses of shareholders' and Board of Trustees' meetings and of preparing,
printing and mailing prospectuses and reports to shareholders, (n) litigation
and indemnification expenses

B-29
<PAGE>

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, providing various reports to
the Board of Trustees, and assistance in preparing reports, prospectuses, proxy
statements and other shareholder communications. The Agreement contains
provisions regarding liability and termination similar to those of the
Administration Agreement.

DISTRIBUTOR

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

DISTRIBUTION AGREEMENT

Pursuant to its Distribution Agreement with the Trust, the Distributor
has agreed to use its best efforts to effect sales of shares of the Portfolios,
but is not obligated to sell any specified number of shares. The Distribution
Agreement contains provisions with respect to renewal and termination similar to
those in the Investment Advisory Agreement discussed above. The minimum assets
for investors in the Qualified Portfolio 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 Qualified Portfolios. Under the Shareholder Service Plan, the Distributor
is compensated at the annual rate of 0.25% of the Qualified Portfolios' average
daily net assets 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
Portfolios.

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

The Shareholder Service Plan continues in effect from year to year,
provided that each such continuance is approved at least annually by a vote of
the Board of Trustees of the Trust, including a majority of the Trustees who
have no

B-30
<PAGE>

direct or indirect financial interest in the operation of the Shareholder
Service Plan or in any agreement related to the Shareholder Service Plan (the
"Independent Trustees"), cast in person at a meeting called for the purpose of
voting on such continuance. The Shareholder Service Plan may be amended at any
time by the Board, provided that any material amendments of the terms of the
Plan will become effective only upon the approval by a majority of the Board and
a majority of the Independent Trustees pursuant to a vote cast in person at a
meeting called for the purpose of voting on the Plan. The Shareholder Service
Plan may be terminated with respect to any Portfolio at any time, without
penalty, by the Board.

Under the Shareholder Service Plan, the Distributor pays plan sponsors
and others an account servicing fee of up to 0.25% annually of the average daily
net assets of the Qualified Portfolios attributable to shares 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 Portfolios 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 portfolios (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 Master Trust's Board of
Trustees, the Investment Adviser is primarily responsible for the execution of
the Funds' portfolio transactions and the allocation of the brokerage business.
In executing such transactions, the Investment Adviser will seek to obtain the
best price and execution for the Funds, taking into account such factors as
price, size of order, difficulty and risk of execution and operational
facilities of the firm involved. Securities in which the Funds invest may be
traded in the over-the-counter markets, and the Funds deal directly with the
dealers who make markets in such securities except in those circumstances where
better prices and execution are available elsewhere. Commission rates are
established pursuant to negotiation with brokers or dealers based on the quality
or quantity of services provided in light of generally prevailing rates, and
while the Investment Adviser generally seeks reasonably competitive commission
rates, the Funds do not necessarily pay the lowest commissions available. The
allocation of orders among brokers and the commission rates paid are reviewed
periodically by the Board of Trustees of the Master Trust.

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

Although investment decisions for the Master Trust are made
independently from those of the other accounts managed by the Investment
Adviser, investments of the kind made by the Funds may often also be made by
such other accounts. When a purchase or sale of the same security is made at
substantially the same time on behalf of the Funds and one or more other
accounts managed by the Investment Adviser, available investments are allocated
in the discretion of the

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<PAGE>

Investment Adviser by such means as, in its judgment, result in fair treatment.
The Investment Adviser aggregates orders for purchases and sales of securities
of the same issuer on the same day among the Funds and its other managed
accounts, and the price paid to or received by the Funds and those accounts is
the average obtained in those orders. In some cases, such aggregation and
allocation procedures may affect adversely the price paid or received by the
Funds or the size of the position purchased or sold by the Funds.

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

During the fiscal year ended March 31, 1997, the following Funds
acquired securities of their regular brokers or dealers (as defined in Rule 10b-
1 under the Investment Company Act) or their parents:
___________________________. The holdings of securities of such regular brokers
or dealers were as follows as of March 31, 1997: ____________________.

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

Year Ended
March 31, 1997 March 31, 1996 March 31, 1995

International Core Growth Fund
Worldwide Fund $ 484,310 344,167
International Small Cap Growth Fund 116,735 69,187
Emerging Countries Fund 169,728 20,701
Large Cap Growth Fund
Core Growth Fund 862,396 728,347
Emerging Growth Fund 1,038,140 649,053
Income & Growth Fund 83,459 174,247
Balanced Fund 51,038 44,386
Government Fund 3 -0-

Of the total commissions paid during the fiscal year ended March 31, 1997,
$_________ (____%) 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 PORTFOLIO SHARES

Shares of the Qualified Portfolios 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
Qualified Portfolios 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,
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 Portfolios' shares and to reject purchase orders in whole or in
part when such rejection is in the best interests of the Trust and the affected

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Portfolios. 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 Qualified
Portfolio can vary, depending on the needs of the qualified 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 Qualified Portfolio, 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 Qualified Portfolios.

AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS

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

AUTOMATIC INVESTMENT PLAN

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

CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS

A shareholder in one Qualified Portfolio may elect to cross-reinvest
dividends or dividends and capital gain distributions paid by that Portfolio
(the "paying Portfolio") into any other Qualified Portfolio (the "receiving
Portfolio") subject to the following conditions: (i) the aggregate value of the
shareholder's account(s) in the paying Portfolio(s) must equal or exceed $5,000
(this condition is waived if the value of the account in the receiving Portfolio
equals or exceeds that Portfolio's minimum initial investment requirement), (ii)
as long as the value of the account in the receiving Portfolio is below that
Portfolio's minimum initial investment requirement, dividends and capital gain
distributions paid by the receiving Portfolio must be automatically reinvested
in the receiving Portfolio, (iii) if this privilege is discontinued with respect
to a particular receiving Portfolio, the value of the account in that Portfolio
must equal or exceed the Fund's minimum initial investment requirement or the
Portfolio will have the right, if the shareholder fails to increase the value of
the account to such minimum within 90 days

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<PAGE>

after being notified of the deficiency, automatically to redeem the account and
send the proceeds to the shareholder. These cross-reinvestments of dividends
and capital gain distributions will be at net asset value (without a sales
charge).

AUTOMATIC WITHDRAWAL

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

REDEMPTION IN KIND

The Trust intends to pay in cash for all shares of a Portfolio
redeemed, but when the Master Trust makes payment to a Portfolio in readily
marketable investment securities, the Trust reserves the right to make payment
wholly or partly in shares of such securities. In such cases, a shareholder may
incur brokerage costs in converting such securities to cash. However, the Trust
has elected to be governed by the provisions of Rule 18f-1 under the Investment
Company Act, pursuant to which it is obligated to pay in cash all requests for
redemptions by any shareholder of record, limited in amount with respect to each
shareholder during any 90-day period to the lesser of $250,000 or 1% of the net
asset value of the Trust at the beginning of such period.

EXCHANGE PRIVILEGE

Shares of a Portfolio may be exchanged into shares of any other
Qualified Portfolio or Series A Portfolio 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 Portfolio 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 Portfolio or its agents will be liable for any loss,
liability or cost which results from acting upon instructions of a person
reasonably believed to be an investor with respect to the telephone privilege.

REPORTS TO INVESTORS

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

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<PAGE>

NET ASSET VALUE

The net asset value of a share of a Qualified Portfolio is calculated
by dividing (i) the value of the securities held by the Portfolio (I.E., the
value of its investments in a Fund), plus any cash or other assets, minus all
liabilities (including accrued estimated expenses on an annual basis), by (ii)
the total number of shares of the Portfolio outstanding. The net asset value of
an interest in a Fund is calculated in the same manner. The value of the
investments and assets of the Portfolio or a Fund is determined each business
day. Investment securities, including ADRs and EDRs, that are traded on a stock
exchange or on the NASDAQ National Market System are valued at the last sale
price as of the close of business on the New York Stock Exchange (normally 4:00
P.M. New York time) on the day the securities are being valued, or lacking any
sales, at the mean between the closing bid and asked prices. Securities listed
or traded on certain foreign exchanges whose operations are similar to the
United States over-the-counter market are valued at the price within the limits
of the latest available current bid and asked prices deemed by the Investment
Adviser best to reflect fair value. A security which is listed or traded on
more than one exchange is valued at the quotation on the exchange determined to
be the primary market for such security by the Investment Adviser. Listed
securities that are not traded on a particular day and other over-the-counter
securities are valued at the mean between the closing bid and asked prices.

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

Long-term debt obligations are valued at the quoted bid prices for
such securities or, if such prices are not available, at prices for securities
of comparable maturity, quality and type; however, when the Investment Adviser
deems it appropriate, prices obtained for the day of valuation from a bond
pricing service will be used, as discussed below. Debt securities with
maturities of 60 days or less are valued at amortized cost if their term to
maturity from date of purchase is less than 60 days, or by amortizing, from the
sixty-first day prior to maturity, their value on the sixty-first day prior to
maturity if their term to maturity from date of purchase by the Portfolio or the
Fund is more than 60 days, unless this is determined by the Board of Trustees of
the Master Trust not to represent fair value. Repurchase agreements are valued
at cost plus accrued interest.

U.S. Government securities are traded in the over-the-counter market
and are valued at the 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.

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

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

Securities and assets for which market quotations are not readily
available, or for which the Master Trust's Board of Trustees or persons
designated by the Board determine that the foregoing methods do not accurately
reflect current market

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<PAGE>

value, are valued at fair value as determined in good faith by or under the
direction of the Master Trust's Board of Trustees. Such valuations and
procedures will be reviewed periodically by the Board of Trustees.

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

DIVIDENDS, DISTRIBUTIONS AND TAXES

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

MASTER TRUST'S TAX STATUS

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

REGULATED INVESTMENT COMPANY

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

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

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<PAGE>

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

Dividends paid by a Portfolio from ordinary income, and distributions
of the Portfolio's net realized short-term capital gains, are taxable to its
shareholders as ordinary income. Distributions to corporate shareholders will
be eligible for the 70% dividends received deduction to the extent that the
income of the Portfolios is derived from dividends on common or preferred stock
of domestic corporations. Dividend income earned by a Portfolio will be
eligible for the dividends received deduction only if the Portfolio and
corresponding Fund have satisfied a 46-day holding period requirement with
respect to the underlying portfolio security (91 days in the case of dividends
derived from preferred stock). In addition, a corporate shareholder must have
held its shares in the Portfolio for not less than 46 days (91 days in the case
of dividends derived from preferred stock) in order to claim the dividend
received deduction. Not later than 60 days after the end of its taxable year,
the Portfolio will send to its shareholders a written notice designating the
amount of any distributions made during such year which may be taken into
account by its shareholders for purposes of such deduction provisions of the
Code. Net capital gain distributions are not eligible for the dividends
received deduction.

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

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

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

SPECIAL TAX CONSIDERATIONS

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

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

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<PAGE>

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

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

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

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

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

SECTION 988 GAINS AND LOSSES. Under the Code, gains or losses
attributable to fluctuations in exchange rates which occur between the time a
Fund accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or loss. Similarly, gains or losses on disposition of debt
securities denominated in a foreign currency and on disposition of certain
futures attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains and losses,
referred to under the Code as "section 988" gains or losses, may increase or
decrease the amount of the Portfolio's investment company taxable income to be
distributed to the shareholders.

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

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

B-38
<PAGE>

to offset only 90% of the alternative minimum tax imposed on corporations and
individuals and foreign taxes generally are not deductible in computing
alternative minimum taxable income.

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

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

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

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

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

OTHER TAX INFORMATION

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

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

B-39
<PAGE>

PERFORMANCE INFORMATION

The Trust may from time to time advertise total returns and yields for
the Portfolios, compare Portfolio performance to various indices, and publish
rankings of the Portfolios prepared by various ranking services. Any
performance information should be considered in light of the Portfolio's and
Fund's investment objectives and policies, characteristics and quality of the
its portfolio, and the market conditions during the given period, and should
not be considered to be representative of what may be achieved in the future.

TOTAL RETURN

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

Total return is computed according to the following formula:

n
P(1 + T) = ERV

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

YIELD

The yield for a Portfolio is calculated based on a 30-day or one-month
period, according to the following formula:

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

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

Yields for the following Portfolios for the 30-day period ended March
31, 1997 were as follows:

Income & Growth Qualified Portfolio %

Balanced Growth Qualified Portfolio %

Government Income Qualified Portfolio %

COMPARISON TO INDICES AND RANKINGS

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

B-40
<PAGE>

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

PRIOR PERFORMANCE OF CERTAIN PORTFOLIOS AND THEIR PREDECESSORS

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

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

The Investment Adviser has advised the Trust that such partnerships
and pooled trusts were operated in substantially the same manner as such
Portfolios, and their assets were transferred to the corresponding 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 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 their proportionate shares of the operating
expenses of the corresponding Funds (including advisory fees), as stated under
"Summary of Expenses" in the Portfolios' Prospectus, and give effect to
transaction costs (such as sales loads) as well as reinvestment of income and
gains. However, the prior investment partnerships and pooled trust were not
registered under the 1940 act and were not subject to certain investment
restrictions imposed by such Act; if they had been so registered, their
performance might have been adversely affected.

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

B-41
<PAGE>

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

Russell Income & CS First Inter-
Core S&P Emerging 2000 & Boston national MSCI
Growth 500 Growth Growth Growth Convertible Growth EAFA
Year Portfolio Index(1) Portfolio Index(2) Portfolio Index(3) Portfolio Index(4)
- ---- --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

1985(5) 24.67 17.14 11.24 6.97

1986(5) 32.53 18.64 6.09 3.58

1987 3.33 5.27 (4.10) (10.48) (3.37) (0.22)

1988 12.39 16.55 26.64 20.37 19.58 13.41

1989 33.60 31.61 27.19 20.17 28.08 13.76

1990(5) 0.48 (3.04) (8.62) (17.41) 1.59 (6.89) (17.60) (13.67)

1991 55.15 30.46 55.74 51.19 38.02 29.11 11.51 12.13

1992 13.27 7.62 12.42 7.77 9.56 17.58 (12.58) (12.17)

1993(5) 20.03 10.07 15.72 13.36 26.81 18.55 25.72 32.57

1994 (10.91) 1.32 (3.83) (2.43) (7.82) (4.72) 8.34 7.76

1995(5) 38.24 37.60 35.53 31.06 21.98 23.72 5.72 11.02

1996(5) 13.49 10.09 18.88 11.92 10.98 8.10 13.51 4.52

1997(6)

Last
year(6)

Last 5
years(6)

Last
10
years(6)

Since in-
ception(6)

</TABLE>

<PAGE>

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

2 The Russell 2000 Growth Stock Index contains those securities in the
Russell 2000 Index with a greater-than-average growth orientation.
Companies in the Growth Stock Index generally have higher price-to-
book and price-to-earnings ratios than the average for all 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.

B-42
<PAGE>

B-43
<PAGE>

3 The CS First Boston Convertible Index is an unmanaged market weighted
index representing the universe of convertible securities, whether
they are convertible preferred stocks or convertible bonds. The Index
reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage
commissions or markups, or other expenses of investing.

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

5 Inception dates are as follows: Core Growth Portfolio - September 30,
1985 (registration statement effective June 30, 1994); Emerging Growth
Portfolio - September 30, 1985 (registration statement effective
August 31, 1995); Income & Growth Portfolio - December 31, 1986
(registration statement effective August 31, 1995; International
Growth Portfolio - June 7, 1990 (registration statement effective
August 31, 1995).

6 Through March 31, 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 Portfolios. The data is provided to
illustrate the past performance of the Investment Adviser in managing
substantially similar accounts as measured against specified market indices and
does not represent the performance of the Portfolios. Investors should not
consider this performance data as an indication of future performance of the
Portfolios or of the Investment Adviser.

The Investment Adviser's composite performance data shown below were
calculated in accordance with recommended standards of the Association for
Investment Management and Research ("AIMR"(1)), retroactively applied to all
time periods. All returns presented were calculated on a total return basis and
include all dividends and interest, accrued income and realized and unrealized
gains and loses. All returns reflect the deduction of investment advisory fees,
brokerage commissions and execution costs paid by the Investment Adviser's
institutional private accounts, without provision for federal or state income
taxes. Custodial fees, if any, were not included in the calculation. The
Investment Adviser's composites include all actual, fee-paying, discretionary
institutional private accounts managed by the Investment Adviser that have
investment objectives, policies, strategies and risks substantially similar to
those of the Large Cap and Balanced Portfolios. Securities transactions are
accounted for on the trade date and accrual accounting is utilized. Cash and
equivalents are included in performance returns. The monthly returns of the
Investment Adviser's composites combine the individual accounts' returns
(calculated on a time-weighted rate of return that is revalued whenever cash
flows exceed $500) by asset-weighing each individual account's asset value as of
the beginning of the month. Quarterly and yearly returns are calculated by
geometrically linking the monthly and quarterly returns, respectively. The
yearly returns are computed by geometrically linking the returns of each quarter
within the calendar year.

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

- ---------------
(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-44
<PAGE>

The investment results of the Investment Adviser's composites
presented below are unaudited and are not intended to predict or suggest the
returns that might be experienced by the Large Cap or Balanced Portfolios or an
individual investor investing in such Portfolios. Investors should also be
aware that the uses of a methodology different form that used below to
calculated performance could result in different performance data.

60% S&P 500
Investment Index 40%
Adviser's Lehman Bros. Lehman Bros.
Balanced S&P 500 Govt./Corp. Lehman Bros.
Year Composite Index(1) Index(2) Index
- ---- --------- -------- -------- -----

1988(3). . . . . . . 4.98% 10.25% 3.80% 7.76%

1989 . . . . . . . . 17.61 31.61 14.23 24.59

1990 . . . . . . . . 5.69 (3.04) 8.29 1.58

1991 . . . . . . . . 32.73 30.46 16.13 24.61

1992 . . . . . . . . 9.40 3.62 7.57 7.67

1993 . . . . . . . . 20.14 (3.80) 11.06 10.52

1994 . . . . . . . . (5.37) 1.32 (3.61) (0.67)

1995 . . . . . . . . 29.23 37.60 19.24 30.02

1996 . . . . . . . .

1997(4). . . . . . .

Last Year(4) . . . .

Last 5 years(4). . .

Since
inception(4). . . .

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

(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) Through March 31, 1997.

B-45
<PAGE>

Investment Adviser's
Large Cap Growth S&P 500
Year Composite(1) Index(1)(2)
---- ----------- -----------

1995(3) . . . . . . . 35.36% 25.37%

1996. . . . . . . . . 25.91 13.49

1997(4) Since
inception(4) . . . . 42.75 26.56

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

(1) Annualized.

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

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

(4) Through March 31, 1997.

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

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

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

The Charles Schwab Trust Company, 101 Montgomery Street, San Francisco,
California 94104, serves as co-transfer agent for shares of the Portfolios. The
following act as sub-transfer agents for the Portfolios: 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 Master Trust, and in
that capacity examines the annual financial statements of the Trust and Master
Trust.

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

B-46
<PAGE>

MISCELLANEOUS

SHARES OF BENEFICIAL INTEREST

The Trust is currently comprised of 57 series of shares -- 10 A Portfolios,
10 B Portfolios, 10 C Portfolios, 16 Institutional Portfolios, one Money Market
Portfolio and 10 Qualified Portfolios.

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

Rule 18f-2 under the 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 Portfolio only if approved by a majority of its outstanding
shares. However, the rule also provides that the ratification of independent
public accountants, the approval of principal underwriting contracts and the
election of directors may be effectively acted upon by the shareholders of the
Trust voting without regard to Portfolio.

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

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

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

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

B-47
<PAGE>

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

Declarations of Trust

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

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

FINANCIAL STATEMENTS

The Trust's 1997 Annual Report to Shareholders of the Portfolios
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. Such
financial statements for periods prior to 1996 have been audited by another
firm, whose report thereon appear in the Trust's 1997 Annual Report to
Shareholders of the Portfolios. Additional copies of the Trust's 1996 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 and the Master Trust, including the
Portfolios' Prospectuses, the Statements of Additional Information and the
exhibits filed therewith, may be examined at the office of the Commission in
Washington, D.C. Statements contained in the Portfolios' Prospectuses or the
Statements of Additional Information as to the contents of any contract or other
document referred to herein or in the Prospectuses are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to these Registration Statements, each such
statement being qualified in all respects by such reference.

B-48

<PAGE>
APPENDIX A

DESCRIPTION OF SECURITIES RATINGS

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

COMMERCIAL PAPER

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

MOODY'S INVESTORS SERVICE, INC.

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

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

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

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

STANDARD & POOR'S CORPORATION

Standard & Poor's ratings are a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
The ratings are based on current information furnished to Standard & Poor's by
the issuer and obtained by Standard & Poor's 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.

A-1

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

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

FITCH INVESTORS SERVICE, INC.

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

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

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

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

DUFF & PHELPS

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

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

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.

A-2

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

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

IBCA

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

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

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

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

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

CORPORATE BONDS

MOODY'S

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

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

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

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

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

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

A-3

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

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

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

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

STANDARD & POOR'S

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

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

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

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

BBB: Bonds in this category have an adequate capacity to pay interest
and repay principal. Whereas such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.

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

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

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.

A-4

<PAGE>
DUFF & PHELPS

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

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

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

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

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

BB, B, CCC, DD, AND DP - Debt that possesses one of these ratings is
considered to be below investment grade. Although below investment grade, debt
rated "BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses the risk that obligations will not be met when due. Debt rated "CCC"
is well below investment grade and has considerable uncertainty as to timely
payment of principal, interest or preferred dividends. Debt rated "DD" is a
defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.

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

FITCH INVESTORS SERVICE, INC.

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

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

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

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

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

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

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

A-5

<PAGE>
ICBA

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

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

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

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

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

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

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

THOMSON BANKWATCH

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

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

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

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

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.

A-6

<PAGE>
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-7
<PAGE>

NICHOLAS-APPLEGATE MUTUAL FUNDS

FORM N-1A

PART C: OTHER INFORMATION

Item 24. FINANCIAL STATEMENTS AND EXHIBITS.

a. Registrant's Schedules of Investments as of March 31, 1997, Statements
of Assets and Liabilities as of March 31, 1997, Statements of Changes
in Net Assets for the period ended March 31, 1997, and related Notes
and Report of Independent Auditors are incorporated by reference in
Part B and filed as Exhibit 19.

b. Exhibits:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(1.16) Form of Amendment No. 12 to Amended and Restated Declaration
of Trust (i).

(1.17) Amendment No. 13 to Amended and Restated Declaration of
Trust (j).

(1.18) Form of Amendment No. 14 to Amended and Restated Declaration
of Trust (j).

(2.1) Amended Bylaws of Registrant (f).

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

C-1

<PAGE>

(3) None.

(4) None.

(5) None.

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

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

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

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

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

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

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

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

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

(6.10) Form of letter agreement between Registrant and
Nicholas-Applegate Securities adding Large Cap Growth and
Core Growth International 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).

(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).

C-2

<PAGE>

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

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

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

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

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

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

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

(8.12) Form of letter agreement between Registrant and PNC Bank
adding Core Growth International Portfolio C series to
Custodian Services Agreement (i).

(8.13) Form of letter agreement between Registrant and PNC Bank
adding Large Cap Growth Portfolio A, B, C and Q series to
Custodian Services Agreement (j).

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

(9.2) Administration Services Agreement between Registrant and
Nicholas-Applegate Capital Management dated as of November
18, 1996 (i).

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

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

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

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

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

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

C-3

<PAGE>

(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 Agent and Service Agreement
(j).

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

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

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

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

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

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

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

(9.23) 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).

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

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

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

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<PAGE>

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

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

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

(9.30) 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).

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

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

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

(9.34) Letter agreement between Registrant and Nicholas-Applegate
Capital Management, adding Emerging Growth Institutional
Portfolio series, Global Growth & Income Portfolio series
and Mini-Cap Growth Portfolio series to agreement regarding
expense reimbursements (f).

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

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

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

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

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

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

(9.41) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding Core Growth
International Portfolio C series to agreement regarding
expense reimbursement (i).

(9.42) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management, adding Large Cap
Growth Portfolio A, B, C and Q series to agreement regarding
expense reimbursement (j).

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

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<PAGE>

(9.44) First Amendment Agreement to Credit Agreement dated as of
April 9, 1997 among Registrant, The Chase Manhattan Bank,
and certain other banks -- to be filed by amendment.

(10) Opinion of Counsel (c).

(11) Consent of independent auditors -- to be filed by amendment.

(12) Not applicable.

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

(14.1) IRA Plan Materials (d).

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

(15) Amended Distribution Plan of Registrant (f)

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

(17) Not applicable.

(18) Financial Data Schedules -- to be filed by amendment.

(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) 1997 Annual Report of Registrant (filed pursuant to Rule 303
of Regulation S-T) -- to be filed by amendment.

______________________________

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

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

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

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

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

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

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

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<PAGE>

(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 2, 1997 and incorporated herein by
reference.

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

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

Item 26. NUMBER OF HOLDERS OF SECURITIES.

As of March 31, 1997, the number of record holders of each series of
Registrant was as follows:

TITLE OF SERIES NUMBER OF RECORD HOLDERS
--------------- ------------------------

Large Cap Growth Portfolio A
Core Growth Portfolio A
Emerging Growth Portfolio A
Income & Growth Portfolio A
Balanced Growth Portfolio A
Government Income Portfolio A
Money Market Portfolio
International Core Growth Portfolio A
Worldwide Growth Portfolio A
International Small Cap Growth Portfolio A
Emerging Countries Portfolio A
Large Cap Growth Portfolio B
Core Growth Portfolio B
Emerging Growth Portfolio B
Income & Growth Portfolio B
Balanced Growth Portfolio B
Government Income Portfolio B
International Core Growth Portfolio B
Worldwide Growth Portfolio B
International Small Cap Growth Portfolio B
Emerging Countries Portfolio B
Large Cap Growth Portfolio C
Core Growth Portfolio C
Emerging Growth Portfolio C
Income & Growth Portfolio C
Balanced Growth Portfolio C
Government Income Portfolio C
International Core Growth Portfolio C
Worldwide Growth Portfolio C
International Small Cap Growth Portfolio C
Emerging Countries Portfolio C
Large Cap Growth Institutional Portfolio
Core Growth Institutional Portfolio
Emerging Growth Institutional Portfolio
Income & Growth Institutional Portfolio

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<PAGE>

Balanced Growth Institutional Portfolio
International Core Growth Institutional Portfolio
Worldwide Growth Institutional Portfolio
International Small Cap Growth Institutional Portfolio
Emerging Countries Institutional Portfolio
Mini Cap Growth Institutional Portfolio
Fully Discretionary Institutional Fixed Income Portfolio
Short-Intermediate Institutional Fixed Income Portfolio
Value Institutional Portfolio
High Yield Bond Institutional Portfolio
Strategic Income Institutional Portfolio
Global Growth & Income Institutional Portfolio
Large Cap Growth Qualified Portfolio
Core Growth Qualified Portfolio
Emerging Growth Qualified Portfolio
Income & Growth Qualified Portfolio
Balanced Growth Qualified Portfolio
Government Income Qualified Portfolio
International Core Growth Qualified Portfolio
Worldwide Growth Qualified Portfolio
International Small Cap Growth Qualified Portfolio
Emerging Countries Qualified Portfolio

Item 27. INDEMNIFICATION.

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

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

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

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

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<PAGE>

Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

Nicholas-Applegate Capital Management, the investment adviser to the
Master Trust, is a California limited partnership, the general partner of which
is Nicholas-Applegate Capital Management, Inc. (the "General Partner"). During
the two fiscal years ended December 31, 1996, Nicholas-Applegate Capital
Management has engaged principally in the business of providing investment
services to institutional and other clients. All of the additional information
required by this Item 28 with respect to the Investment Adviser is set forth in
the Form ADV, as amended, of Nicholas-Applegate Capital Management (File No.
801-21442), which is incorporated herein by reference.

Item 29. PRINCIPAL UNDERWRITERS.

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

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

POSITIONS AND
OFFICES WITH PRINCIPAL POSITIONS AND
NAME AND PRINCIPAL UNDERWRITER OFFICES WITH
BUSINESS ADDRESS ----------- REGISTRANT
- ------------------ ------------

Arthur E. Nicholas Chairman and President None

Peter J. Johnson Vice President Vice President

Thomas Pindelski Chief Financial Officer Chief Financial
Officer

E. Blake Moore, Jr. Secretary Secretary

Todd Spillane Director of Compliance None

Item 30. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder will be maintained either at the offices of the Registrant (600 West
Broadway, 30th Floor, San Diego, California 92101); the Investment Adviser to
the Trust and Master Trust, Nicholas-Applegate Capital Management (600 West
Broadway, 30th Floor, San Diego, California 92101); the 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.

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<PAGE>

Item 32. UNDERTAKINGS.

Registrant hereby undertakes to file a Post-Effective amendment
containing reasonably current financial statements with respect to its Large Cap
Growth Portfolio A, B, C and Q Portfolio series, 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.

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<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Diego, State of California, on the 5th day
of May, 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 Officer May 5, 1997
- -------------------
John D. Wylie

Principal Financial and
s/Thomas Pindelski Accounting Officer May 5, 1997
- -------------------
Thomas Pindelski

Fred C. Applegate* Trustee May 5, 1997
- -------------------
Fred C. Applegate

Arthur B. Laffer* Trustee May 5, 1997
- -------------------
Arthur B. Laffer

Charles E. Young* Trustee May 5, 1997
- -------------------
Charles E. Young

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

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<PAGE>

SIGNATURES

Nicholas-Applegate Investment Trust has duly caused this Amendment to
Registration Statement on Form N-1A of Nicholas-Applegate Mutual Funds to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Diego, State of California, on the 5th day of May, 1997.

NICHOLAS-APPLEGATE INVESTMENT TRUST

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

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

John D. Wylie* Principal Executive Officer May 5, 1997
- -------------------
John D. Wylie

Principal Financial and
s/Thomas Pindelski Accounting Officer May 5, 1997
- -------------------
Thomas Pindelski

George F. Keane* Trustee May 5, 1997
- -------------------
George F. Keane

Dann V. Angeloff* Trustee May 5, 1997
- -------------------
Dann V. Angeloff

Walter E. Auch* Trustee April 30, 1997
- -------------------
Walter E. Auch

Theodore J. Coburn* Trustee May 5, 1997
- -------------------
Theodore J. Coburn

Darlene DeRemer* Trustee May 5, 1997
- -------------------
Darlene DeRemer

Arthur F. Nicholas* Trustee April 30, 1997
- -------------------
Arthur F. Nicholas

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

C-12

<PAGE>

EXHIBIT INDEX
NICHOLAS-APPLEGATE MUTUAL FUNDS
AMENDMENT NO. 43 TO
FORM N-1A REGISTRATION STATEMENT
FILE NO. 811-7428

EXHIBIT NO. TITLE OF EXHIBIT
---------- ----------------

None

C-13