MONTGOMERY FUNDS I, 485APOS, 1996-10-16

MONTGOMERY FUNDS I
485APOS, 1996-10-16

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As filed with the Securities and Exchange Commission on October 16, 1996

Registration Nos. 33-34841
811-6011

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 39

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 40

THE MONTGOMERY FUNDS
(Exact Name of Registrant as Specified in its Charter)

101 California Street
San Francisco, California 94111
(Address of Principal Executive Office)

1-800-572-3863
(Registrant's Telephone Number, Including Area Code)

JACK G. LEVIN
600 Montgomery Street
San Francisco, California 94111
(Name and Address of Agent for Service)

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

It is proposed that this filing will become effective:

__ immediately upon filing pursuant to Rule 485(b)
__ on ________________ pursuant to Rule 485(b)
__ 60 days after filing pursuant to Rule 485(a)(1)
__ 75 days after filing pursuant to Rule 485(a)(2)
X on December 31, 1996 pursuant to Rule 485(a)
--

Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has registered an indefinite number of securities under the
Securities Act of 1933. The Rule 24f-2 Notice for the Registrant's fiscal year
ended June 30, 1996 was filed on August 28, 1996.

----------

Please Send Copy of Communications to:

JULIE ALLECTA, ESQ.
DAVID A. HEARTH, ESQ.
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104
(415) 772-6000

Total number of pages _____. Exhibit Index appears at _____.

<PAGE>

THE MONTGOMERY FUNDS

CONTENTS OF POST-EFFECTIVE AMENDMENT

This post-effective amendment to the registration statement of the Registrant
contains the following documents*:

Facing Sheet

Contents of Post-Effective Amendment

Cross-Reference Sheet for shares of Montgomery Global Asset Allocation
Fund

Part A - Prospectus for Class R Shares of Montgomery Global Asset
Allocation Fund

Part A - Prospectus for Class P Shares of Montgomery Global Asset
Allocation Fund

Part A - Prospectus for Class L Shares of Montgomery Global Asset
Allocation Fund

Part B - Combined Statement of Additional Information for Class R,
Class P and Class L shares of Montgomery Global Asset
Allocation Fund

Part C - Other Information

Signature Page

Exhibit

- --------

** This Amendment does not relate to the following documents: prospectuses
for the Class R shares, Class P shares and Class L shares for
Montgomery Growth Fund, Montgomery Equity Income Fund, Montgomery Small
Cap Fund, Montgomery Small Cap Opportunities Fund, Montgomery Micro Cap
Fund, Montgomery Global Opportunities Fund, Montgomery Global
Communications Fund, Montgomery International Small Cap Fund,
Montgomery International Growth Fund, Montgomery Emerging Markets Fund,
Montgomery Emerging Asia Fund, Montgomery Select 50 Fund, Montgomery
Short Government Bond Fund, Montgomery Government Reserve Fund,
Montgomery Federal Tax-Free Money Fund, Montgomery California Tax-Free
Intermediate Bond Fund, Montgomery California Tax-Free Money Fund and
Montgomery Advisors Emerging Markets Fund; prospectuses for the Class R
shares, Class P shares and Class L shares for Montgomery Growth and
Income Fund; all prospectuses and the statement of additional
information for Montgomery Technology Fund.

<PAGE>

THE MONTGOMERY FUNDS

CROSS REFERENCE SHEET

FORM N-1A

Part A: Information Required in Prospectus
(For Each Prospectus)

Location in the
N-1A Registration Statement
Item No. Item by Heading
- -------- ---- ----------------------

1. Cover Page Cover Page

2. Synopsis "Fees and Expenses of the Fund"

3. Condensed Financial Not Applicable

4. General Description Cover Page, "The Fund's Investment
of Registrant Objective and Policies," "Portfolio
Securities," "Other Investment
Practices," "Risk Considerations"
and "General Information"

5. Management of "The Fund's Investment Objective
the Fund and Policies," "Management of the Fund"
and "How to Invest in the Fund"

5A. Management's Discussion Not Applicable (contained in the
of Fund Performance Fund's Annual Report)

6. Capital Stock and "Dividends and Distributions,"
Other Securities "Taxation" and "General Information"

7. Purchase of Securities "How to Invest in the Fund,"
Being Offered "How Net Asset Value is Determined,"
"General Information" and "Backup
Withholding Instructions"

8. Redemption or "How to Redeem an Investment in the
Repurchase Fund" and "General Information"

9. Pending Legal Not Applicable
Proceedings

<PAGE>

PART B: Information Required in
Statement of Additional Information
(Combined Statement of Additional Information)

Location in the
N-1A Registration Statement
Item No. Item by Heading
- -------- ---- ----------------------

10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information "The Trust" and "General Information"
and History

13. Investment Objectives "Investment Objective and Policies of
the Fund," "Risk Factors" and "Investment
Restrictions"

14. Management of the "Trustees and Officers"
Registrant

15. Control Persons and "Trustees and Officers" and
Principal Holders of "General Information"
Securities

16. Investment Advisory "Investment Management and Other Services"
and Other Services

17. Brokerage Allocation "Execution of Portfolio Transactions"

18. Capital Stock and "The Trust" and "General Information"
Other Securities

19. Purchase, Redemption "Additional Purchase and Redemption
and Pricing of Information" and "Determination of
Securities Being Net Asset Value"
Offered

20. Tax Status "Distributions and Tax Information"

21. Underwriters "Principal Underwriter"

22. Calculation of "Performance Information"
Performance Data

23. Financial Statements "Financial Statements"

iii
<PAGE>

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

PART A

PROSPECTUS FOR CLASS R SHARES

MONTGOMERY GLOBAL ASSET ALLOCATION FUND

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

<PAGE>

The Montgomery Funds
101 California Street
San Francisco, California 94111
(800) 572-FUND

Prospectus
December 31, 1996

Class R shares of the Montgomery Global Asset Allocation Fund (the "Fund") are
offered in this Prospectus. The Fund seeks high total return, while also seeking
to reduce risk, through a strategic or active allocation of assets among
investments in five asset classes -- domestic stocks, international developed
markets stocks, emerging markets stocks, domestic dollar-denominated debt
instruments and cash or cash equivalents. The Fund is a "fund of funds" which
means that other than U.S. Government securities, the Fund will not own any
security directly but instead will allocate its assets among a diversified group
of five funds from The Montgomery Funds family, each of which focuses on one of
the Fund's five investment disciplines. Each of those underlying funds is called
an "Underlying Fund". As is the case for all mutual funds, attainment of the
Fund's investment objective cannot be assured.

The Fund's shares are sold at net asset value with no sales load, no
commissions, no Rule 12b-1 fees and no exchange fees. In general, the minimum
initial investment in the Fund is $1,000, and subsequent investments must be at
least $100. The Manager or the Distributor, under any circumstances that either
deems appropriate, may waive these minimums. See "How to Invest in the Fund."

The Fund, which is a separate series of The Montgomery Funds, an open-end
management investment company, is managed by Montgomery Asset Management, L.P.
(the "Manager"), an affiliate of Montgomery Securities (the "Distributor").

Please read this Prospectus before investing and retain it for future reference.
A Statement of Additional Information dated December 31, 1996, as may be
revised, has been filed with the Securities and Exchange Commission, is
incorporated by this reference and is available without charge by calling (800)
572-FUND. If you are viewing the electronic version of this prospectus through
an on-line computer service, you may request a printed version free of charge by
calling (800) 572-FUND.

The Internet address for The Montgomery Funds is www.xperts.montgomery.com/1.

The Fund may offer other classes of shares to investors eligible to purchase
those shares. The other classes of shares may have different fees and expenses
than the class of shares offered in this Prospectus, and those different fees
and expenses may affect performance. To obtain information concerning the other
classes of shares not offered in this Prospectus, call The Montgomery Funds at
(800) 572-FUND or contact sales representatives or financial intermediaries who
offer those classes.

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

1
<PAGE>

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

Fees and Expenses of the Fund 3
- --------------------------------------------------------------------------------

The Fund's Investment Objective and Policies 4
- --------------------------------------------------------------------------------

Characteristics of the Underlying Funds 4
- --------------------------------------------------------------------------------

Portfolio Securities 4
- --------------------------------------------------------------------------------

Other Investment Practices 9
- --------------------------------------------------------------------------------

Risk Considerations 12
- --------------------------------------------------------------------------------

Management of the Fund 14
- --------------------------------------------------------------------------------

How To Contact the Fund 16
- --------------------------------------------------------------------------------

How To Invest in the Fund 16
- --------------------------------------------------------------------------------

How To Redeem an Investment in the Fund 19
- --------------------------------------------------------------------------------

Exchange Privileges and Restrictions 21
- --------------------------------------------------------------------------------

How Net Asset Value is Determined 22
- --------------------------------------------------------------------------------

Dividends and Distributions 23
- --------------------------------------------------------------------------------

Taxation 23
- --------------------------------------------------------------------------------

General Information 23
- --------------------------------------------------------------------------------

Backup Withholding Instructions 25
- --------------------------------------------------------------------------------

2
<PAGE>

Fees And Expenses Of The Fund

Shareholder Transaction Expenses for the Fund

<TABLE>

An investor would pay the following charges when buying or redeeming shares of
the Fund:

Maximum Sales Load Maximum Sales Load
Imposed on Purchases Imposed on Reinvested Dividends Deferred Sales Load Redemption Fees Exchange Fees
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
None None None None+ None
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>

Estimated Annual Operating Expenses (as a percentage of average net assets)

<CAPTION>
Montgomery Global Asset Allocation Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Management Fee* 0.20%
- ---------------------------------------------------------------------------------------------------------------------------------
Other Expenses of the Fund (excluding expenses related to the Underlying Funds) 0.30%
(after reimbursement)*
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses related to the Underlying Funds (after reimbursement)# 1.25%
- ---------------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses (after reimbursement)*# 1.75%
- ---------------------------------------------------------------------------------------------------------------------------------

+ Shareholders effecting redemptions via wire transfer may be required to pay
fees, including the wire fee and other fees, that will be directly deducted
from redemption proceeds. The Fund reserves the right, upon 60 days' advance
notice to shareholders, to impose a redemption fee of up to 1.00% on shares
redeemed within 90 days of purchase. See "How to Redeem an Investment in the
Fund."

* Expenses for the Fund are estimated. The Manager will reduce its fees and
may absorb or reimburse the Fund for certain expenses to the extent
necessary to limit total annual fund operating expenses to the amount
indicated in the table. The Fund is required to reimburse the Manager for
any reductions in the Manager's fee only during the two years following that
reduction and only if such reimbursement can be achieved within the
foregoing expense limit. The Manager generally seeks reimbursement for the
oldest reductions and waivers before payment by the Fund for fees and
expenses for the current year. Absent the reduction, actual total Fund
operating expenses are estimated to be 2.50% (0.60% other expenses and 1.70%
Underlying Fund expenses). The Manager may terminate these voluntary
reductions at any time. See "Management of the Fund."

# The Manager has agreed to limit the Total Fund Operating Expenses to 1.75%.
To the extent the aggregate expenses that relate to investments in the
Underlying Funds (which shall be paid by the Fund proportionally as a
shareholder in the Underlying Funds) exceed 1.25%, the manager shall limit
the amount to be paid by the Fund to 1.25% and will reimburse the Fund for
the excess.
</FN>
</TABLE>

Example of Expenses for the Fund

Assuming, hypothetically, that the Fund's annual return is 5% and that its
operating expenses are as set forth above, an investor buying $1,000 of the
Fund's shares would have paid the following total expenses upon redeeming such
shares:

Montgomery Global Asset Allocation Fund
- --------------------------------------------------------------------------------
1 Year $18
- --------------------------------------------------------------------------------
3 Years $55
- --------------------------------------------------------------------------------
5 Years N/A
- --------------------------------------------------------------------------------
10 Years N/A
- --------------------------------------------------------------------------------

This example is to help potential investors understand the effect of expenses.
Investors should understand that this example does not represent past or future
expenses or returns and that actual expenses and returns may vary.

3
<PAGE>

The Fund's Investment Objective And Policies

The investment objective and general investment policies of the Fund are
described below. Specific portfolio securities that may be purchased by the
Underlying Funds are described in "Portfolio Securities" beginning on page 6.
Specific investment practices that may be employed by the Underlying Funds are
described in "Other Investment Practices" beginning on page 9. Certain risks
associated with investments in the Fund and the Underlying Funds are described
in those sections as well as in "Risk Considerations" beginning on page 10.

<TABLE>
The Investment objective of the Fund is to seek high total return, while also
seeking to reduce risk, through a strategic or active allocation of assets among
investments in five asset classes -- domestic stocks, international developed
markets stocks, emerging markets stocks, domestic dollar-denominated debt
instruments and cash or cash equivalents. The Fund is a "fund of funds" which
means the Fund will not invest directly in securities but will instead invest in
Underlying Funds which the Manager considers to be appropriate investments for
achieving the Fund's investment objective. The Fund adjusts the proportion of
its investments in each of these categories as needed to respond to current
market conditions, primarily by changing its allocation percentage among the
different Underlying Funds. The following table illustrates the anticipated
allocation methodology:

Global Asset Allocation Fund Allocation
- -----------------------------------------------------------------------------------------------------------------
Investment Anticipate Range of Underlying
Focus Asset Allocation Fund
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Domestic Stocks 5% to 40% Montgomery Growth Fund
- -----------------------------------------------------------------------------------------------------------------
International Developed Markets Stocks 5% to 40% Montgomery International Growth Fund
- -----------------------------------------------------------------------------------------------------------------
Emerging Markets Stocks 0% to 15% Montgomery Emerging Markets Fund
- -----------------------------------------------------------------------------------------------------------------
U.S. Dollar Denominated Debt Instruments 10% to 70% Montgomery Short Government Bond Fund and other
general investment grade bond funds advised by
the Manager
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 0% to 100% Montgomery Government Reserve Fund
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

The Manager will implement its allocation strategy with the use of a
quantitative risk model and computer optimization program. The Manager may
temporarily increase the Fund's cash allocation from its set strategy in order
to meet anticipated redemptions.

Characteristics of the Underlying Funds

<TABLE>
The following table summarizes the characteristics of each of the Underlying
Funds:

<CAPTION>
Anticipated Maximum Typical Market
Equity Debt Capitalization of
Fund Name Exposure Exposure Focus Portfolio Companies
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Montgomery Growth Fund 65-100% 35% Growth Over $1 Billion
- -----------------------------------------------------------------------------------------------------------------------------
Montgomery International Growth Fund 65-100% 35% Foreign Growth Over $1 Billion
- -----------------------------------------------------------------------------------------------------------------------------
Montgomery Emerging Markets Fund 65-100% 35% Foreign Emerging Growth Any size
- -----------------------------------------------------------------------------------------------------------------------------
Montgomery Short Government Bond Fund 0% 100% Income N/A
- -----------------------------------------------------------------------------------------------------------------------------
Montgomery Government Reserve Fund 0% 100% Income N/A
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Montgomery Growth Fund (the "Growth Fund")

The investment objective of the Growth Fund is capital appreciation which, under
normal conditions it seeks by investing at least 65% of its total assets in
equity securities of domestic companies. Although such companies may be of any
size, the Fund targets companies having total market capitalizations of $1
billion or more. The Fund emphasizes investments in common stock but also
invests in other types of equity securities and equity derivative securities.
Current income from dividends, interest and other sources is only incidental.
The Fund also may invest up to 35% of its total assets in highly rated debt
securities. See "Portfolio Securities."

4
<PAGE>

The Growth Fund seeks growth at a reasonable value, identifying companies with
sound fundamental value and potential for substantial growth. The Fund selects
its investments based on a combination of quantitative screening techniques and
fundamental analysis. The Fund initially identifies a universe of investment
candidates by screening companies based on changes in rates of growth and
valuation ratios such as price to sales, price to earnings and price to cash
flows. Through this process the Fund seeks to identify rapidly growing companies
with reasonable valuations and accelerating growth rates, or having low
valuations and initial signs of growth. The Fund then subjects these companies
to a rigorous fundamental analysis focusing on balance sheets and income
statements; company visits and discussions with management; contact with
industry specialists and industry analysts; and review of the competitive
environments.

Montgomery International Growth Fund (the "International Growth Fund")

The investment objective of the International Growth Fund is capital
appreciation which, under normal conditions it seeks by investing at least 65%
of its total assets in equity securities of companies outside the United States
having total market capitalizations over $1 billion. This Fund generally invests
the remaining 35% of its total assets in a similar manner but may invest those
assets in equity securities of U.S. companies, in lower-capitalization companies
or in debt securities, including up to 5% of its total assets in debt securities
rated below investment grade. See "Portfolio Securities" and "Risk
Considerations."

This Fund targets companies with potential for above average, long-term growth
in sales and earnings on a sustained basis with securities reasonably priced at
the time of purchase, in the Manager's opinion, compared to the potential for
capital appreciation. In evaluating investments, the Fund considers a number of
factors, including a company's per-share sales and earnings growth, return on
capital, balance sheet, financial and accounting policies, overall financial
strength, industry sector, competitive advantages and disadvantages, research,
product development and marketing, new technologies or services, pricing
flexibility, quality of management, and general operating characteristics.

This Fund may invest substantially in securities denominated in one or more
foreign currencies. Under normal conditions, it invests in at least three
different countries outside the U.S., but no country may represent more than 40%
of its total assets. The Manager uses its financial expertise and research
capabilities in markets throughout the world in attempting to identify those
countries, currencies and companies providing the greatest potential for
long-term growth. The Fund also will use a strategic allocation of assets among
countries based on fundamental and quantitative research. See "Risk
Considerations."

Montgomery Emerging Markets Fund (the "Emerging Markets Fund")

The investment objective of the Emerging Markets Fund is capital appreciation
which, under normal conditions it seeks by investing at least 65% of its total
assets in equity securities of Emerging Market Companies. The Manager currently
regards the following to be emerging market countries: Latin America (Argentina,
Brazil, Chile, Colombia, Costa Rica, Jamaica, Mexico, Peru, Trinidad and Tobago,
Uruguay, Venezuela); Asia (Bangladesh, China, India, Indonesia, Korea, Malaysia,
Pakistan, Philippines, Singapore, Sri Lanka, Taiwan, Thailand, Vietnam);
Southern and Eastern Europe (Czech Republic, Greece, Hungary, Poland, Portugal,
Russia, Turkey); Mid-East (Israel, Jordan); and Africa (Egypt, Ghana, Ivory
Coast, Kenya, Morocco, Nigeria, South Africa, Tunisia, Zimbabwe). In the future,
the Fund may invest in other emerging market countries. Under normal conditions,
the Emerging Markets Fund maintains investments in at least six emerging market
countries at all times and invests no more than 35% of its total assets in any
one emerging market country.

This Fund uses a proprietary, quantitative asset allocation model created by the
Manager. This model employs mean-variance optimization, a process used in
developed markets based on modern portfolio theory and statistics. Mean-variance
optimization helps determine the percent of assets to invest in each country to
maximize expected returns for a given risk level. The Fund's aims are to invest
in those countries that are expected to have the highest risk/reward trade-off
when incorporated into a total portfolio context. This "top-down" country
selection is combined with "bottom-up" fundamental industry analysis and stock
selection based on original research and publicly available information and
company visits.

This Fund invests primarily in common stock but also may invest in other types
of equity and equity derivative securities. It may invest up to 35% of its total
assets in debt securities, including up to 5% in debt securities rated below
investment grade. See "Portfolio Securities," "Risk Considerations" and the
Appendix in the Statement of Additional Information.

This Fund may invest in certain debt securities issued by the governments of
emerging market countries that are, or may be eligible for, conversion into
investments in Emerging Market Companies under debt conversion programs
sponsored by such governments. If such securities are convertible to equity
investments, the Fund deems them to be equity derivative securities. This Fund
may invest no more than 20% of its total assets in the equity securities of
companies constituting the EAFE Index. See "Portfolio Securities." These
companies typically have larger average market capitalizations than the Emerging
Market Companies in which this Fund generally invests. Accordingly, subject to
its investment objective, this Fund invests in EAFE Index companies for
temporary defensive strategies.

5
<PAGE>

Montgomery Short Government Bond Fund (the "Short Bond Fund")

The investment objective of the Short Bond Fund is to provide maximum total
return consistent with preservation of capital and prudent investment
management. Total return consists of interest and dividends from underlying
securities, capital appreciation realized from the purchase and sale of
securities, and income from futures and options. Under normal conditions, the
Fund seeks to achieve its objective by investing at least 65% of the value of
its total assets in U.S. Government securities. The Fund seeks to maintain an
average portfolio effective duration comparable to or less than that of
three-year U.S. Treasury Notes. Because the Manager seeks to manage interest
rate risk by limiting effective duration, the Fund may invest in securities of
any maturity.

This Fund is designed primarily for investors who seek higher yields than money
market funds generally offer and are willing to accept nominal fluctuation in
the value of the Fund's shares but who are not willing to accept the greater
fluctuations that long-term bond funds might entail. This Fund is not an
appropriate investment for investors whose primary investment objective is
absolute principal stability. Because the values of the securities in which this
Fund invests generally change with interest rates, the value of its shares will
fluctuate, unlike the value of the shares of a money market fund seeking to
maintain a stable net asset value per share of $1.00.

The Fund also may invest up to 35% of its total assets in cash, commercial paper
and high-grade liquid debt securities, including corporate debt instruments and
privately issued mortgage-related and asset-backed securities that are
considered highly rated debt securities. The Fund also may invest in other
investment companies investing primarily in U.S. Government securities of
appropriate duration. See "Portfolio Securities."

Duration of the Short Bond Fund. The Short Bond Fund expects that, under normal
circumstances, the dollar-weighted average maturity (or period until the next
interest rate reset date) of their portfolio securities may be longer than three
years but the maturity of individual securities may be up to 30 years. The Short
Bond Fund also seeks to maintain an average portfolio effective duration
comparable to or less than that of three-year U.S. Treasury Notes.

THE GLOBAL ASSET ALLOCATION FUND EXPECTS TO INVEST IN OTHER GENERAL INVESTMENT
GRADE BOND FUNDS THAT ARE ADVISED BY THE MANAGER.

Montgomery Government Reserve Fund (the "Reserve Fund")

The investment objective of the Reserve Fund is current income consistent with
liquidity and preservation of capital, which under normal conditions it seeks by
investing exclusively in U.S. Government Securities, repurchase agreements for
U.S. Government Securities and other money market funds investing in U.S.
Government Securities and those repurchase agreements. This Fund seeks to
maintain a stable net asset value per share of $1.00 in compliance with Rule
2a-7 under the Investment Company Act, and pursuant to procedures adopted under
such Rule, the Reserve Fund limits its investments to those U.S. Government
securities that the Board of Trustees determines present minimal credit risks
and have remaining maturities, as determined under the Rule, of 397 calendar
days or less. The Fund also maintains a dollar-weighted average maturity of the
securities in its portfolio of 90 days or less.

Portfolio Securities

This section describes the portfolio securities that the Underlying Funds may
invest in. As noted above, the Fund does not invest directly in any securities,
other than U.S. Government securities.

Equity Securities

In seeking its investment objective, an Underlying Fund may emphasize common
stocks for its equity investments. An Underlying Fund may also invest in other
types of equity securities and equity derivative securities such as preferred
stocks and convertible securities. Certain Underlying Funds may also invest part
of its assets in warrants, units, rights and options on securities and on
securities indices.

Depositary Receipts

To the extent consistent with an Underlying Fund's investment objective and
restrictions, an Underlying Fund may invest in both sponsored and unsponsored
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") and other similar global instruments. ADRs
typically are issued by a U.S. bank or trust company and evidence ownership of
underlying securities issued by a foreign corporation. EDRs, sometimes called
Continental Depositary Receipts, are issued in Europe, typically by foreign
banks and trust companies, and evidence ownership of either

6
<PAGE>

foreign or domestic underlying securities. GDRs are issued in foreign countries,
typically by foreign banks and trust companies, and evidence ownership of either
foreign or domestic securities. Unsponsored ADR, EDR and GDR programs are
organized without the cooperation of the issuer of the underlying securities. As
a result, available information concerning the issuer may not be as current as
for sponsored ADRs, EDRs and GDRs, and the prices of unsponsored ADRs, EDRs and
GDRs may be more volatile.

Convertible Securities

To the extent consistent with an Underlying Fund's investment objective and
restrictions, an Underlying Fund may invest in convertible securities. A
convertible security is a fixed-income security (a bond or preferred stock) that
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 stock in a corporation's capital
structure but are usually subordinated to similar non-convertible securities.
Through their conversion feature, they provide an opportunity to participate in
capital appreciation resulting from a market price advance in the underlying
common stock. The price of a convertible security is influenced by the market
value of the underlying common stock and tends to increase as the common stock's
market value rises and decrease as the common stock's market value declines. For
purposes of allocating Fund investments, the Manager regards convertible
securities as a form of equity security.

Securities Warrants and Rights

To the extent consistent with an Underlying Fund's investment objective and
restrictions, an Underlying Fund may invest up to 5% of its net assets in
warrants and rights, including up to 2% of net assets for those not listed on a
securities exchange. A warrant typically is a long-term option that permits the
holder to buy a specified number of shares of the issuer's underlying common
stock at a specified exercise price by a particular expiration date. Stock index
warrants entitle the holder to receive, upon exercise, an amount in cash
determined by reference to fluctuations in the level of a specified stock index.
A right (also called a subscription right) is a privilege granted to existing
shareholders of a corporation to subscribe to shares of a new issue of common
stock before it is offered to the public, which entitles the holder to buy the
new common stock below the public offering price. A right, like a warrant, is
transferable. Also, a warrant or a right not exercised or disposed of by its
expiration date expires worthless.

Privatizations

The Fund believes that foreign government programs of selling interests in
government-owned or controlled enterprises ("privatizations") may represent
opportunities for significant capital appreciation, and certain Underlying Funds
may invest in privatizations. The ability of U.S. entities, such as an
Underlying Fund, to participate in privatizations may be limited by local law,
or the terms for participation may be less advantageous than for local
investors. There can be no assurance that privatization programs will be
successful.

Special Situations

The Fund believes that carefully selected investments in joint ventures,
cooperatives, partnerships, private placements, unlisted securities and similar
vehicles (collectively, "special situations") could enhance its capital
appreciation potential. To the extent consistent with an Underlying Fund's
investment objective and restrictions, an Underlying Fund also may invest in
certain types of vehicles or derivative securities that represent indirect
investments in foreign markets or securities in which it is impractical for an
Underlying Fund to invest directly. Investments in special situations may be
illiquid, as determined by the Manager based on criteria reviewed by the Board.
Each Underlying Fund that may invest in such investments may not invest more
than 15% of its net assets in illiquid investments, including special
situations.

Investment Companies

An Underlying Fund may invest up to 10% of its total assets in shares of other
investment companies investing exclusively in securities in which it may
otherwise invest. Because of restrictions on direct investment by U.S. entities
in certain countries, other investment companies may provide the most practical
or only way for an Underlying Fund to invest in certain markets. Such
investments may involve the payment of substantial premiums above the net asset
value of those investment companies' portfolio securities and are subject to
limitations under the Investment Company Act. An Underlying Fund also may incur
tax liability to the extent it invests in the stock of a foreign issuer that is
a "passive foreign investment company" regardless of whether such "passive
foreign investment company" makes distributions to the Underlying Fund. See the
Statement of Additional Information.

7
<PAGE>

provisions, the Manager has agreed to waive its own management fee with respect
to the portion of the Underlying Fund's assets invested in other open-end (but
not closed-end) investment companies.

Debt Securities

An Underlying Fund may purchase debt securities that complement its objective of
capital appreciation through anticipated favorable changes in relative foreign
exchange rates, in relative interest rate levels, or in the creditworthiness of
issuers. In selecting debt securities, the Manager seeks out good credits and
analyzes interest rate trends and specific developments that may affect
individual issuers. As an operating policy which may be changed by the Board,
the Underlying Fund will not invest more than 5% of its total assets in debt
securities rated lower than BBB by S&P, Baa by Moody's or BBB by Fitch, or in
unrated debt securities deemed to be of comparable quality by the Manager using
guidelines approved by the Board of Trustees. These securities are sometimes
known as "junk bonds" or "high risk/high yield" bonds. Subject to this
limitation, the Underlying Fund may invest in any debt security, including
securities in default. After its purchase by the Fund a debt security may cease
to be rated or its rating may be reduced below that required for purchase by the
Underlying Fund. Neither event would require elimination of that security from
the Underlying Fund's portfolio. However, a security downgraded below the
Underlying Fund's minimum credit levels generally would be retained only if
retention was determined by the Manager and subsequently by the Board to be in
the best interests of the Underlying Fund. See "Risk Considerations."

In addition to traditional corporate, government and supranational debt
securities, an Underlying Fund may invest in external (i.e., to foreign lenders)
debt obligations issued by the governments, governmental entities and companies
of emerging markets countries. The percentage distribution between equity and
debt will vary from country to country. The following factors, among others,
will influence the proportion of an Underlying Fund's assets to be invested in
equity securities versus debt securities: levels and anticipated trends in
inflation and interest rates; expected rate of economic growth and corporate
profits growth; changes in government policy, including regulations governing
industry, trade, financial markets, and foreign and domestic investment;
stability, solvency and expected trends of government finances; and conditions
of the balance of payments and changes in the terms of trade.

U.S. Government Securities

The Fund, and each Underlying Fund, may invest in fixed rate and floating or
variable rate U.S. Government securities. Certain of the obligations, including
U.S. Treasury Bills, Notes and Bonds, and mortgage-related securities of the
Government National Mortgage Association ("GNMA"), are issued or guaranteed by
the U.S. Government. Other securities issued by U.S. Government agencies or
instrumentalities are supported only by the credit of the agency or
instrumentality, for example those issued by the Federal Home Loan Bank, while
others, such as those issued by the Federal National Mortgage Association
("FNMA"), Farm Credit System and Student Loan Marketing Association, have an
additional line of credit with the U.S.
Treasury.

Short-term U.S. Government securities generally are considered to be among the
safest short-term investments. However, the U.S. Government does not guarantee
the net asset value of the Fund's shares. With respect to U.S. Government
securities supported only by the credit of the issuing agency or instrumentality
or by an additional line of credit with the U.S. Treasury, there is no guarantee
that the U.S. Government will provide support to such agencies or
instrumentalities. Accordingly, such U.S. Government securities may involve risk
of loss of principal and interest.

Mortgage-Related Securities and Derivative Securities

An Underlying Fund may invest in mortgage-related securities. A mortgage-related
security is an interest in a pool of mortgage loans and is considered a
derivative security. Most mortgage-related securities are pass-through
securities, which means that investors receive payments consisting of a pro rata
share of both principal and interest (less servicing and other fees), as well as
unscheduled prepayments, as mortgages in the underlying mortgage pool are paid
off by the borrowers. Certain mortgage-related securities are subject to high
volatility. An Underlying Fund uses these derivative securities in an effort to
enhance return and as a means to make certain investments not otherwise
available to an Underlying Fund. See "Hedging and RiskManagement Practices" for
a discussion of other reasons why an Underlying Fund invest in derivative
securities.

Agency Mortgage-Related Securities

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<PAGE>

and ultimate collection of principal of its pass-through securities. Securities
from FNMA and FHLMC are not backed by the full faith and credit of the U.S.
Government but are generally considered to offer minimal credit risks. The
yields provided by these mortgage-related securities have historically exceeded
the yields on other types of U.S. Government Securities with comparable "lives"
largely due to the risks associated with prepayment. See "Risk Considerations."

Adjustable rate mortgage securities ("ARMs") are pass-through securities
representing interests in pools of mortgage loans with adjustable interest rates
determined in accordance with a predetermined interest rate index and which may
be subject to certain limits. The adjustment feature of ARMs tends to lessen
their interest rate sensitivity.

An Underlying Fund may also invest in derivative securities known as "floaters"
and "inverse floaters," the values of which vary in response to interest rates.
These securities may be illiquid and their values may be very volatile.

Privately Issued Mortgage-Related Securities/Derivatives. An Underlying Fund may
invest in mortgage-related securities offered by private issuers, including
pass-through securities for pools of conventional residential mortgage loans;
mortgage paythrough obligations and mortgage-backed bonds, which are considered
to be obligations of the institution issuing the bonds and are collateralized by
mortgage loans; and bonds and CMOs collateralized by mortgage-related securities
issued by GNMA, FNMA, FHLMC or by pools of conventional mortgages, multi-family
or commercial mortgage loans.

Private issuer mortgage-related securities generally offer a higher rate of
interest (but greater credit and interest rate risk) than U.S. Government and
agency mortgage-related securities because they offer no direct or indirect
governmental guarantees. However, many issuers or servicers of mortgage-related
securities guarantee or provide insurance for timely payment of interest and
principal. An Underlying Fund may purchase some mortgage-related securities
through private placements that are restricted as to further sale. See "Illiquid
Securities." The value of these securities may be very volatile.

Structured Notes and Indexed Securities. An Underlying Fund may invest in
structured notes and indexed securities. Structured notes are debt securities,
the interest rate or principal of which is determined by an unrelated indicator.
Indexed securities include structured notes as well as securities other than
debt securities, the interest rate or principal of which is determined by an
unrelated indicator. Index securities may include a multiplier that multiplies
the indexed element by a specified factor and, therefore, the value of such
securities may be very volatile. To the extent an Underlying Fund invests in
these securities, however, the Manager analyzes these securities in its overall
assessment of the effective duration of the Underlying Fund's portfolio in an
effort to monitor the Fund's interest rate risk. See "The Funds' Investment
Objectives and Policies."

Zero Coupon Bonds

An Underlying Fund may invest in zero coupon bonds. Zero coupon bond prices are
highly sensitive to changes in market interest rates. The original issue
discount on the zero coupon bonds must be included ratably in the income of the
Underlying Fund as the income accrues even though payment has not been received.
The Underlying Fund nevertheless intends to distribute an amount of cash equal
to the currently accrued original issue discount, and this may require
liquidating securities at times they might not otherwise do so and may result in
capital loss. See "Tax Information" in the Statement of Additional Information.

Asset-Backed Securities, Custodial Receipts, Participation Interests and Tender
Option Bonds

An Underlying Fund may invest up to 25% of its total assets in asset-backed
securities. Like mortgage-related securities, these securities are subject to
the risk of prepayment. See "Risk Considerations."

Other Investment Practices

The Underlying Funds also may engage in the investment practices described
below, each of which may involve certain special risks. The Statement of
Additional Information, under the heading "Investment Objective and Policies of
the Fund," contains more detailed information about certain of these practices,
including limitations designed to reduce risks.

Repurchase Agreements

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<PAGE>

Government securities or other high-grade liquid debt or equity securities that
the Underlying Fund's custodian, or a designated sub-custodian separately
identifies and renders unavailable for investment ("collateral assets"). If the
seller defaults on its obligation to repurchase the underlying security, the
Underlying Fund may experience delay or difficulty in exercising its rights to
realize upon the security, may incur a loss if the value of the security
declines and may incur disposition costs in liquidating the security.

Borrowing

An Underlying Fund may borrow money from banks and engage in reverse repurchase
transactions, in an amount not to exceed one-third of the value of its total
assets (10% for the Emerging Markets Fund and Government Reserve Fund) to meet
temporary or emergency purposes, and an Underlying Fund may pledge its assets in
connection with such borrowings. An Underlying Fund may not purchase securities
if such borrowings exceed 10% of its total assets.

Reverse Repurchase Agreements

An Underlying Fund may enter into reverse repurchase agreements. In a reverse
repurchase agreement, an Underlying Fund sells to a financial institution a
security that it holds and agrees to repurchase the same security at an
agreed-upon price and date.

Leverage

An Underlying Fund may leverage its portfolio to increase total return. Although
leverage creates an opportunity for increased income and gain, it also creates
special risk considerations. For example, leveraging may magnify changes in the
net asset values of an Underlying Fund's shares and in the yield on its
portfolio. Although the principal of such borrowings will be fixed, the
Underlying Fund's assets may change in value while the borrowing is outstanding.
Leveraging creates interest expenses that can exceed the income from the assets
retained.

Securities Lending

An Underlying Fund may lend securities to brokers, dealers and other financial
organizations. These loans may not exceed 30% of the Underlying Fund's total
assets. Each securities loan is collateralized with collateral assets in an
amount at least equal to the current market value of the loaned securities, plus
accrued interest. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially.

When-Issued and Forward Commitment Securities

An Underlying Fund may purchase U.S. Government or other securities on a
"when-issued" basis and may purchase or sell securities on a "forward
commitment" or "delayed delivery" basis. The price is fixed at the time the
commitment is made, but delivery and payment for the securities take place at a
later date. When-issued securities and forward commitments may be sold prior to
the settlement date, but the Underlying Fund will enter into when-issued and
forward commitments only with the intention of actually receiving or delivering
the securities, as the case may be. No income accrues on securities that have
been purchased pursuant to a forward commitment or on a when-issued basis prior
to delivery to the Underlying Fund. If the Underlying Fund disposes of the right
to acquire a when-issued security prior to its acquisition or disposes of its
right to deliver or receive against a forward commitment, it may incur a gain or
loss.

At the time an Underlying Fund enters into a transaction on a when-issued or
forward commitment basis, it supports its obligation with collateral assets
equal to the value of the when-issued or forward commitment securities and
causes the collateral assets to be marked to market daily. There is a risk that
the securities may not be delivered and that the Underlying Fund may incur a
loss.

Hedging and Risk Management Practices

In seeking to protect against the effect of adverse changes in financial markets
or against currency exchange rate or interest rate changes that are adverse to
the present or prospective positions of the Underlying Fund, the Underlying Fund
may employ certain risk management practices using the following derivative
securities and techniques (known as "derivatives"): forward currency exchange
contracts, stock options, currency options, and stock and stock index options,
futures contracts and options on futures contracts on foreign government
securities and currencies. The Board of the Trust has adopted derivative
guidelines that require the Board to review each new type of derivative that may
be used by the Underlying Fund. Markets in some countries currently do not have
instruments available for hedging transactions relating to currencies or to
securities denominated in such currencies or to securities of issuers domiciled
or principally engaged in business in such countries. To the extent that such
markets do not exist, the Manager may not be able to hedge its investment
effectively in such countries. Furthermore,

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<PAGE>

the Underlying Fund engages in hedging activities only when the Manager deems it
to be appropriate and does not necessarily engage in hedging transactions with
respect to each investment.

Forward Currency Contracts

A forward currency contract is individually negotiated and privately traded by
currency traders and their customers and creates an obligation to purchase or
sell a specific currency for an agreed-upon price at a future date. The
Underlying Fund normally conducts its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate in the foreign currency
exchange market at the time of the transaction, or through entering into forward
contracts to purchase or sell foreign currencies at a future date. The
Underlying Fund generally does not enter into forward contracts with terms
greater than one year.

An Underlying Fund generally enters into forward contracts only under two
circumstances. First, if an Underlying Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the U.S. dollar price of the security by entering into a forward
contract to buy the amount of a foreign currency needed to settle the
transaction. Second, if the Manager believes that the currency of a particular
foreign country will substantially rise or fall against the U.S. dollar, it may
enter into a forward contract to buy or sell the currency approximating the
value of some or all of the Underlying Fund's portfolio securities denominated
in such currency. An Underlying Fund will not enter into a forward contract if,
as a result, it would have more than one-third of total assets committed to such
contracts (unless it owns the currency that it is obligated to deliver or has
caused its custodian to support its obligation with collateral assets having a
value sufficient to cover its obligations). Although forward contracts are used
primarily to protect the Underlying Fund from adverse currency movements, they
involve the risk that currency movements will not be accurately predicted.

Options on Securities, Securities Indices and Currencies

An Underlying Fund may purchase put and call options on securities and
currencies traded on U.S. exchanges and, to the extent permitted by law, foreign
exchanges, as well as in the over-the-counter market. The Underlying Fund may
purchase call options on securities which it intends to purchase (or on
currencies in which those securities are denominated) in order to limit the risk
of a substantial increase in the market price of such security (or an adverse
movement in the applicable currency). The Underlying Fund may purchase put
options on particular securities (or on currencies in which those securities are
denominated) in order to protect against a decline in the market value of the
underlying security below the exercise price less the premium paid for the
option (or an adverse movement in the applicable currency relative to the U.S.
dollar). Put options allow the Underlying Fund to protect unrealized gain in an
appreciated security that it owns without selling that security. Prior to
expiration, most options are expected to be sold in a closing sale transaction.
Profit or loss from the sale depends upon whether the amount received is more or
less than the premium paid plus transaction costs.

The Underlying Fund also may purchase put and call options on stock indices in
order to hedge against risks of stock market or industry-wide stock price
fluctuations. The Underlying Fund may purchase options on currencies in order to
hedge its positions in a manner similar to its use of forward foreign exchange
contracts and futures contracts on currencies.

Futures and Options on Futures

To protect against the effect of adverse changes in interest rates, the
Underlying Fund may purchase and sell interest rate futures contracts. An
interest rate futures contract is an agreement to purchase or sell debt
securities, usually U.S. Government securities, at a specified date and price.
In addition, an Underlying Fund may purchase and sell put and call options on
interest rate futures contracts in lieu of entering into the underlying interest
rate futures contracts. The Underlying Fund supports its obligation with
collateral assets equal to the purchase price of the portfolio securities
represented by the underlying interest rate futures contracts it has an
obligation to purchase.

An Underlying Fund does not enter into any futures contracts or related options
if the sum of initial margin deposits on futures contracts, related options
(including options on securities, securities indices and currencies) and
premiums paid for any such related options would exceed 5% of its total assets.
An Underlying Fund does not purchase futures contracts or related options if, as
a result, more than one-third of its total assets would be so invested.

Hedging Considerations

Hedging transactions involve certain risks. While an Underlying Fund may benefit
from the use of hedging transactions, unanticipated changes in interest rates or
securities prices may result in poorer overall performance for the Underlying
Fund than if it had not entered into a hedging position. If the correlation
between a hedging position and a portfolio position is not properly protected,
the desired protection may not be obtained and the Underlying Fund may be
exposed to risk of financial loss. In addition, the Underlying Fund pays
commissions and other costs in connection with such investments.

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Illiquid Securities

An Underlying Fund may not invest more than 15% of its net assets (10% for the
Government Reserve Fund) in illiquid securities. The Fund treats any securities
subject to restrictions on repatriation for more than seven days and securities
issued in connection with foreign debt conversion programs that are restricted
as to remittance of invested capital or profit as illiquid. An Underlying Fund
also treats repurchase agreements with maturities in excess of seven days as
illiquid. Illiquid securities do not include securities that meet the
requirements of Rule 144A under the Securities Act of 1933 and that, subject to
the review by the Board and guidelines adopted by the Board, the Manager has
determined to be liquid. State securities laws may impose further limitations on
the amount of illiquid or restricted securities the Underlying Fund may
purchase.

Defensive Investments and Portfolio Turnover

Notwithstanding its investment objective, an Underlying Fund may adopt up to a
100% cash or cash equivalent position for temporary defensive purposes to
protect against erosion of its capital base. Depending upon the Manager's
analysis of the various markets and other considerations, all or part of the
assets of the Underlying Fund may be held in cash and cash equivalents
(denominated in U.S. dollars or foreign currencies), such as U.S. Government
securities or obligations issued or guaranteed by the government of a foreign
country or by an international organization designed or supported by multiple
foreign governmental entities to promote economic reconstruction or development,
high-quality commercial paper, time deposits, savings accounts, certificates of
deposit, bankers' acceptances and repurchase agreements with respect to all of
the foregoing. Such investments also may be made for temporary purposes pending
investment in other securities and following substantial new investment in the
Underlying Fund.

Portfolio securities are sold whenever the Manager believes it appropriate,
regardless of how long the securities have been held. The Manager of the
Underlying Fund therefore changes the Underlying Fund's investments whenever it
believes doing so will further the Underlying Fund's investment objective or
when it appears that a position of the desired size cannot be accumulated.
Portfolio turnover generally involves some expense to the Underlying Fund,
including brokerage commissions, dealer mark-ups and other transaction costs,
and may result in the recognition of capital gains that may be distributed to
shareholders. Portfolio turnover in excess of 100% is considered high and
increases such costs. The annual portfolio turnover for the Underlying Fund is
expected to be approximately 125%. Even if the portfolio turnover for an
Underlying Fund is in excess of 125%, the Underlying Fund would not consider
portfolio turnover as a limiting factor.

Investment Restrictions

The investment objective of the Fund is fundamental and may not be changed
without shareholder approval, but unless otherwise stated, the Fund's other
investment policies may be changed by the Board. If there is a change in the
investment objective or policies of the Fund, shareholders should consider
whether the Fund remains an appropriate investment in light of their
then-current financial positions and needs. The Fund is subject to additional
investment policies and restrictions described in the Statement of Additional
Information, some of which are fundamental.

The Fund has reserved the right, if approved by the Board, to convert in the
future to a "feeder" fund that would invest all of its assets in a "master" fund
having substantially the same investment objective, policies and restrictions.
At least 30 days' prior written notice of any such action would be given to all
shareholders if and when such a proposal is approved.

Risk Considerations

Small Companies

The Underlying Funds may make investments in smaller companies that may benefit
from the development of new products and services. Such smaller companies may
present greater opportunities for capital appreciation but may involve greater
risk than larger, more mature issuers. Such smaller companies may have limited
product lines, markets or financial resources, and their securities may trade
less frequently and in more limited volume than those of larger, more mature
companies. As a result, the prices of their securities may fluctuate more than
those of larger issuers.

Foreign Securities

Certain Underlying Funds have the right to purchase securities in foreign
countries. Accordingly, shareholders should consider carefully the substantial
risks involved in investing in securities issued by companies and governments of
foreign nations, which are in addition to the usual risks of loss inherent in
domestic investments. An Underlying Fund may invest in securities of companies
domiciled in, and in markets of, so-called "emerging market countries." These
investments may be subject to higher risks than investments in more developed
countries.

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<PAGE>

Foreign investments involve the possibility of expropriation, nationalization or
confiscatory taxation, taxation of income earned in foreign nations (including,
for example, withholding taxes on interest and dividends) or other taxes imposed
with respect to investments in foreign nations, foreign exchange controls (which
may include suspension of the ability to transfer currency from a given country
and repatriation of investments), default in foreign government securities, and
political or social instability or diplomatic developments that could adversely
affect investments. In addition, there is often less publicly available
information about foreign issuers than those in the U.S. Foreign companies are
often not subject to uniform accounting, auditing and financial reporting
standards. Further, an Underlying Fund may encounter difficulties in pursuing
legal remedies or in obtaining judgments in foreign courts. Additional risk
factors, including use of domestic and foreign custodian banks and depositories,
are described elsewhere in the Prospectus and in the Statement of Additional
Information.

Brokerage commissions, fees for custodial services and other costs relating to
investments by an Underlying Fund in other countries are generally greater than
in the U.S. Foreign markets, have different clearance and settlement procedures
from those in the U.S., and certain markets have experienced times when
settlements did not keep pace with the volume of securities transactions and
resulted in settlement difficulty. The inability of an Underlying Fund to make
intended security purchases due to settlement difficulties could cause it to
miss attractive investment opportunities. Inability to sell a portfolio security
due to settlement problems could result in loss to the Underlying Fund if the
value of the portfolio security declined or result in claims against an
Underlying Fund if it had entered into a contract to sell the security. In
certain countries, there is less government supervision and regulation of
business and industry practices, stock exchanges, brokers, and listed companies
than in the U.S. The securities markets of many of the countries in which an
Underlying Fund may invest may also be smaller, less liquid, and subject to
greater price volatility than those in the U.S.

Because the securities owned by an Underlying Fund may be denominated in foreign
currencies, the value of such securities will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of a
foreign currency against the U.S. dollar results in a corresponding change in
the U.S. dollar value of an Underlying Fund's securities denominated in the
currency. Such changes also affect the Underlying Fund's income and
distributions to shareholders. The Underlying Fund may be affected either
favorably or unfavorably by changes in the relative rates of exchange between
the currencies of different nations, and the Underlying Fund may therefore
engage in foreign currency hedging strategies. Such strategies, however, involve
certain transaction costs and investment risks, including dependence upon the
Manager's ability to predict movements in exchange rates.

Some countries in which an Underlying Fund may invest may also have fixed or
managed currencies that are not freely convertible at market rates into the U.S.
dollar. Certain currencies may not be internationally traded. A number of these
currencies have experienced steady devaluation relative to the U.S. dollar, and
such devaluations in the currencies may have a detrimental impact on the
Underlying Fund.

Many countries in which an Underlying Fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuation in inflation rates may have negative
effects on certain economies and securities markets. Moreover, the economies of
some countries may differ favorably or unfavorably from the U.S. economy in such
respects as the rate of growth of gross domestic product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments.

Certain countries also limit the amount of foreign capital that can be invested
in their markets and local companies, creating a "foreign premium" on capital
investments available to foreign investors such as the Underlying Fund. An
Underlying Fund may pay a "foreign premium" to establish an investment position
which it cannot later recoup because of changes in that country's foreign
investment laws.

Interest Rates

The market value of debt securities sensitive to prevailing interest rates is
inversely related to actual changes in interest rates. That is, a decline in
interest rates produces an increase in the market value of these securities
while an increase in interest rates produces a decrease. Moreover, the longer
the remaining maturity of a security, the greater the effect of interest rate
change. Changes in the ability of an issuer to make payments of interest and
principal and in the market's perception of its creditworthiness also affect the
market value of that issuer's debt securities.

13
<PAGE>

those of their previous investments. If this occurs, an Underlying Fund's yield
will correspondingly decline. Thus, mortgage-related securities may have less
potential for capital appreciation in periods of falling interest rates than
other fixed-income securities of comparable duration, although they may have a
comparable risk of decline in market value in periods of rising interest rates.
To the extent that an Underlying Fund purchases mortgage-related securities at a
premium, unscheduled prepayments, which are made at par, result in a loss equal
to any unamortized premium.

Management Of The Fund

The Montgomery Funds has a Board of Trustees that establishes the Fund's
policies and supervises and reviews its management. Day-to-day operations of the
Fund are administered by the officers of the Trust and by the Manager pursuant
to the terms of an investment management agreement with the Fund.

Montgomery Asset Management, L.P., is the Fund's Manager. The Manager, a
California limited partnership, was formed in 1990 as an investment adviser
registered as such with the SEC under the Investment Advisers Act of 1940, as
amended, and since then has advised other mutual funds and private accounts as
well as the Fund. Its general partner is Montgomery Asset Management, Inc., and
its sole limited partner is Montgomery Securities, the Fund's Distributor. Under
the Investment Company Act, both Montgomery Asset Management, Inc. and
Montgomery Securities may be deemed control persons of the Manager. Although the
operations and management of the Manager are independent from those of
Montgomery Securities, the Manager may draw upon the research and administrative
resources of Montgomery Securities in its discretion and consistent with
applicable regulations.

Portfolio Managers

John D. Boich is a Managing Director and Senior Portfolio Manager. From 1990 to
1993, he was vice president and portfolio manager at The Boston Company
Institutional Investors Inc. From 1989 to 1990, he was the founder and
co-manager of The Common Goal World Fund, a global equity partnership. From 1987
to 1989, Mr. Boich worked as a financial adviser with Prudential-Bache
Securities and E.F. Hutton & Company. Mr. Boich, together with Mr. Castro,
manages the International Growth Fund.

Michael Carmen, CFA, is a Vice President and Portfolio Manager. From 1993 until
joining the Manager in 1996, he was a Vice President and Associate Portfolio
Manager with State Street Research and Management Company in Boston where he
assisted with the management of capital appreciation and growth portfolios.
Before then, he was a Senior Equity Analyst with State Street and, from 1991 to
1992, with Cigna Investments in Hartford. Mr. Carmen, as a key member of the
growth equity team (which includes also Mr. Honour and Mr. Pratt), manages the
Growth Fund.

Oscar A. Castro is a Managing Director and Senior Portfolio Manager. Before
joining the Manager, he was vice president/portfolio manager at G.T. Capital
Management, Inc. from 1991 to 1993. From 1989 to 1990, he was co-founder and
co-manager of The Common Goal World Fund, a global equity partnership. From 1987
to 1989, he was deputy portfolio manager/analyst at Templeton International. Mr.
Castro, together with Mr. Boich, manages the International Growth Fund.

Angeline Ee is a Vice President and Portfolio Manager. From 1990 until joining
the Manager in July 1994, Ms. Ee was an Investment Manager with AIG Investment
Corp. in Hong Kong. From June 1989 until September 1990, Ms. Ee was a co-
manager of a portfolio of Asian equities and bonds at Chase Manhattan Bank in
Singapore. Ms. Ee, together with Ms. Jimenez, Mr. Sudweeks and Mr. Haslett,
manages the Emerging Markets Fund.

Kevin T. Hamilton, Chairman of the Manager's Investment Oversight Committee and
a Managing Director, is responsible for making investment decisions relating to
the allocation of assets among the different Underlying Funds. From 1985 until
joining the Manager in February 1991, Mr. Hamilton was a Senior Vice President
responsible for investment oversight at Analytic Investment Management in
Irvine, California.

Thomas R. Haslett, CFA, is a Managing Director and Senior Portfolio Manager.
From 1987 until joining the Manager in April 1992, Mr. Haslett was a Portfolio
Manager at Gannett, Welsh and Kotler in Boston, Massachusetts. Mr. Haslett,
together with Ms. Jimenez, Mr. Sudweeks and Ms. Ee, manages the Emerging Markets
Fund.

Roger W. Honour is a Managing Director and Senior Portfolio Manager. Prior to
joining Montgomery Asset Management in June 1993, Mr. Honour spent one year as
Vice President and Portfolio Manager at Twentieth Century Investors in Kansas
City, Missouri. From 1990 to 1992, he served as Vice President and Portfolio
Manager at Alliance Capital Management. From 1978 to 1990, Mr. Honour was a Vice
President with Merrill Lynch Capital Markets. Mr. Honour, as a key member of the
growth equity team (which includes also Mr. Pratt and Mr. Carmen), manages the
Growth Fund.

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<PAGE>

Josephine S. Jimenez, CFA, is a Managing Director and Senior Portfolio Manager.
From 1988 through 1991, Ms. Jimenez worked at Emerging Markets Investors
Corporation/Emerging Markets Management in Washington, D.C. as senior analyst
and portfolio manager. Ms. Jimenez, together with Mr. Sudweeks, Mr. Haslett and
Ms. Ee, manages the Emerging Markets Fund.

Andrew Pratt, CFA, is a Vice President and Portfolio Manager. He joined
Montgomery Asset Management from HewlettPackard Company, where he was an equity
analyst, managed a portfolio of small capitalization technology companies, and
researched private placement and venture capital investments. From 1983 through
1988, he worked in the Capital Markets Group at Fidelity Investments in Boston,
Massachusetts. Mr. Pratt, as a key member of the growth equity team (which
includes also Mr. Honour and Mr. Carmen), manages the Growth Fund.

Bryan L. Sudweeks, Ph.D., CFA, is a Managing Director and Senior Portfolio
Manager. Before joining the Manager, he was a senior analyst and portfolio
manager at Emerging Markets Investors Corporation/Emerging Markets Management in
Washington, D.C. Previously, he was a Professor of International Finance and
Investments at George Washington University and served as Adjunct Professor of
International Investments from 1988 until May 1991. Mr. Sudweeks, together with
Ms. Jimenez, Mr. Haslett and Ms. Ee, manages the Emerging Markets Fund. Mr.
Sudweeks is also a Portfolio Strategist for the International Growth Fund.

William C. Stevens is a Managing Director and a Senior Portfolio Manager. At
Barclays de Zoete Wedd Securities from 1991 to 1992, he started its CMO and
asset-backed securities trading. Mr. Stevens traded stripped mortgage securities
and mortgage-related interest rate swaps for the First Boston Corporation from
1990 to 1991, and while with Drexel Burnham Lambert from 1984 to 1990 was
responsible for the origination and trading of all derivative mortgage-related
securities. Mr. Stevens manages the Short Government Bond Fund and the
Government Reserve Fund.

Management Fees and Other Expenses

The Manager provides the Fund with advice on selecting and allocating Underlying
Funds, manages the Fund's investments, including the placement of orders for
portfolio transactions, furnishes the Fund with office space and certain
administrative services, and provides personnel needed by the Fund with respect
to the Manager's responsibilities under the Manager's Investment Management
Agreement with the Fund. The Manager also compensates the members of the Board
who are interested persons of the Manager, and assumes the cost of printing
prospectuses and shareholder reports for dissemination to prospective investors.
As compensation, the Fund pays the Manager a monthly management fee (accrued
daily but paid when requested by the Manager) based upon the value of its
average daily net assets, according to the following table. The management fee
for the Fund is higher than for most mutual funds.

Annual Rate
- --------------------------------------------------------------------------------
Montgomery Global Asset Allocation Fund 0.20%
- --------------------------------------------------------------------------------

The Manager also serves as the Fund's Administrator (the "Administrator"). The
Administrator performs services with regard to various aspects of the Fund's
administrative operations. The Administrator does not charge a fee for
performing administrative operations for the Fund although it charges a fee for
such services performed for the Underlying Funds, which ultimately are borne
indirectly by shareholders of the Fund.

The Fund is responsible for its own operating expenses including, but not
limited to: the Manager's fees; taxes, if any; brokerage and commission
expenses, if any; interest charges on any borrowings; transfer agent,
administrator, custodian, legal and auditing fees; shareholder servicing fees
including fees to third party servicing agents; fees and expenses of Trustees
who are not interested persons of the Manager; salaries of certain personnel;
costs and expenses of calculating its daily net asset value; costs and expenses
of accounting, bookkeeping and recordkeeping required under the Investment
Company Act; insurance premiums; trade association dues; fees and expenses of
registering and maintaining registration of its shares for sale under federal
and applicable state securities laws; all costs associated with shareholders
meetings and the preparation and dissemination of proxy materials, except for
meetings called solely for the benefit of the Manager or its affiliates;
printing and mailing prospectuses, statements of additional information and
reports to shareholders; and other expenses relating to the Fund's operations,
plus any extraordinary and nonrecurring expenses that are not expressly assumed
by the Manager.

The Manager has agreed to reduce its management fee if necessary to keep total
annual operating expenses at or below fivetenths of one percent (0.50%) of the
Fund's average net assets or one and seventy-five one-hundredth of one percent
(1.75%) including the total expenses of the Underlying Funds. The Manager also
may voluntarily reduce additional amounts to increase the return to the Fund's
investors. The Manager may terminate these voluntary reductions at any time. Any
reductions made by the Manager in its fees are subject to reimbursement by the
Fund within the following two years, provided that the Fund is able to effect
such reimbursement and remain in compliance with the applicable expense
limitation. The Manager generally

15
<PAGE>

seeks reimbursement for the oldest reductions and waivers before payment by the
Fund for fees and expenses for the current year.

In addition, the Manager may elect to absorb operating expenses that the Fund is
obligated to pay in order to increase the return to the Fund's investors. To the
extent the Manager performs a service or assumes an operating expense for which
the Fund is obligated to pay and the performance of such service or payment of
such expense is not an obligation of the Manager under the Investment Management
Agreement, the Manager is entitled to seek reimbursement from the Fund for the
Manager's costs incurred in rendering such service or assuming such expense. The
Manager, out of its own funds, also may compensate broker-dealers who distribute
the Fund's shares as well as other service providers of shareholder and
administrative services. In addition, the Manager, out of its own funds, may
sponsor seminars and educational programs on the Fund for financial
intermediaries and shareholders.

The Manager considers a number of factors in determining which brokers or
dealers to use for the Fund's portfolio transactions. While these factors are
more fully discussed in the Statement of Additional Information, they include,
but are not limited to, reasonableness of commissions, quality of services and
execution and availability of research that the Manager may lawfully and
appropriately use in its investment management and advisory capacities. Provided
the Fund receives prompt execution at competitive prices, the Manager also may
consider sale of the Fund's shares as a factor in selecting broker-dealers for
the Fund's portfolio transactions. It is anticipated that Montgomery Securities
may act as one of the Fund's brokers in the purchase and sale of portfolio
securities and, in that capacity, will receive brokerage commissions from the
Fund. The Fund will use Montgomery Securities as its broker only when, in the
judgment of the Manager and pursuant to review by the Board, Montgomery
Securities will obtain a price and execution at least as favorable as that
available from other qualified brokers. See "Execution of Portfolio
Transactions" in the Statement of Additional Information for further information
regarding Fund policies concerning execution of portfolio transactions.

Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, serves as the master transfer agent for the Fund (the "Master Transfer
Agent") and performs certain recordkeeping and accounting functions. The Master
Transfer Agent delegates certain transfer agent functions to DST Systems, Inc.,
P.O. Box 419073, Kansas City, Missouri 64141-6073, the Fund's transfer agent
(the "Transfer Agent"). Morgan Stanley Trust Company, located at One Pierrepont
Plaza, Brooklyn, New York 11201, serves as the Fund's principal custodian (the
"Custodian").

How To Contact The Fund

For information on the Fund or your account, call a Montgomery Shareholder
Service Representative at:

(800) 572-3863

Mail your completed application, any checks, investment or redemption
instructions and correspondence to:

Regular Mail Express Mail or Overnight Service
------------ ---------------------------------
The Montgomery Funds The Montgomery Funds
c/o DST Systems, Inc. c/o DST Systems, Inc.
P.O. Box 419073 1004 Baltimore St.
Kansas City, MO 64141-6073 Kansas City, MO 64105

Visit the Montgomery World Wide Web Site at:

www.xperts.montgomery.com/1

How To Invest In The Fund

The Fund's shares are offered directly to the public, with no sales load, at
their next-determined net asset value after receipt of an order with payment.
The Fund's shares are offered for sale by Montgomery Securities, the Fund's
Distributor, 600 Montgomery Street, San Francisco, California 94111, (800)
572-3863, and through selected securities brokers and dealers.

If an order, together with payment in proper form, is received by the Transfer
Agent, Montgomery Securities or certain administrators of 401(k) and other
retirement plans by 4:00 p.m., New York time, on any day that the New York Stock
Exchange ("NYSE") is open for trading, Fund shares will be purchased at the
Fund's next-determined net asset value. Orders for Fund shares received after
the Fund's cutoff times will be purchased at the next-determined net asset value
after receipt of the order.

16
<PAGE>

The minimum initial investment in the Fund is $1,000 (including IRAs) and $100
for subsequent investments. The Manager or the Distributor, in its discretion,
may waive these minimums. Purchases may also be made in certain circumstances by
payment of securities. See the Statement of Additional Information for further
details.

Initial Investments

Minimum Initial Investment (including IRAs): $1,000

- --------------------------------------------------------------------------------
Initial Investments by Check
- --------------------------------------------------------------------------------

o Complete the Account Application. Tell us in which Fund(s)
you want to invest and make your check payable to The
Montgomery Funds.

o We do not accept third party checks or cash investments.
Checks must be in U.S. dollars and, to avoid fees and
delays, drawn only on banks located in the U.S.

o A charge may be imposed on checks that do not clear.

- --------------------------------------------------------------------------------
Initial Investments by Wire
- --------------------------------------------------------------------------------

o Call the Transfer Agent to tell them you intend to make
your initial investment by wire. Provide the Transfer Agent
with your name, dollar amount to be invested and Fund(s) in
which you want to invest. They will provide you with
further instructions to complete your purchase. Complete
information regarding your account must be included in all
wire instructions to ensure accurate handling of your
investment.

o Request your bank to transmit immediately available funds
by wire for purchase of shares in your name to the
following:

Investors Fiduciary Trust Company
ABA #101003621
For: DST Systems, Inc.
Account #7526601
Attention: The Montgomery Funds
For Credit to: (shareholder(s) name)
Shareholder Account Number: (shareholder(s)
account number)
Name of Fund: The Montgomery Global Asset
Allocation Fund

o Your bank may charge a fee for any wire transfers.

o The Fund and the Distributor each reserve the right to
reject any purchase order in whole or in part.

Subsequent Investments

Minimum Subsequent Investment (including IRAs): $100

- --------------------------------------------------------------------------------
Subsequent Investments by Check
- --------------------------------------------------------------------------------

o Make your check payable to The Montgomery Funds.
Enclose an investment stub or Flexible Account
Builder stub with your check. If you do not have an
investment stub, mail your check with written
instructions indicating the Fund name and account
number to which your investment should be credited.

17
<PAGE>

o We do not accept third party checks or cash
investments. Checks must be made in U.S. dollars and,
to avoid fees and delays, drawn only on banks located
in the U.S.

o A charge may be imposed on checks that do not clear.

- --------------------------------------------------------------------------------
Subsequent Investments by Wire
- --------------------------------------------------------------------------------

o You do not need to contact the Transfer Agent prior
to making subsequent investments by wire. Instruct
your bank to wire funds to the Transfer Agent's
affiliated bank by using the bank wire information
under "Initial Investments by Wire."

- --------------------------------------------------------------------------------
Subsequent Investments by Telephone
- --------------------------------------------------------------------------------

o Shareholders are automatically eligible to make
telephone purchases. To make a purchase, call the
Transfer Agent at (800) 572-3863 before the Fund
cutoff time.

o Shares for IRAs may not be purchased by phone.

o The maximum telephone purchase is an amount up to
five times your account value on the previous day.

o Payments for shares purchased must be received by the
Transfer Agent within three business days after the
purchase request. Write your confirmed purchase
number on your check or include it in your wire
instructions.

o You should do one of the following to ensure payment
is received in time:

o Transfer funds directly from your bank
account by sending a letter and a voided
check or deposit slip (for a savings
account) to the Transfer Agent.

o Send a check by overnight or 2nd day
courier service.

o Instruct your bank to wire funds to the
Transfer Agent's affiliated bank by using
the bank wire information under the
section titled "Initial Investments by
Wire."

- --------------------------------------------------------------------------------
Automatic Account Builder ("AAB")
- --------------------------------------------------------------------------------

o AAB will be established on existing accounts only.
You may not use an AAB investment to open a new
account. The minimum automatic investment amount is
the Fund's subsequent investment minimum.

o Your bank must be a member of the Automated Clearing
House.

o To establish AAB, attach a voided check (checking
account) or preprinted deposit slip (savings account)
from your bank account to your Montgomery account
application or your letter of instruction.
Investments will automatically be transferred into
your Montgomery account from your checking or savings
account.

18
<PAGE>

o Investments may be transferred either monthly or
quarterly on or up to two business days before the
5th or 20th day of the month. If no day is specified
on your account application or your letter of
instruction, the 20th of each month will be selected.

o You should allow 20 business days for this service to
become effective.

o You may cancel your AAB at any time by sending a
letter to the Transfer Agent. Your request will be
processed upon receipt.

Telephone Transactions

You agree to reimburse the Fund for any expenses or losses incurred in
connection with transfers from your accounts, including any caused by your
bank's failure to act in accordance with your request or its failure to honor
your debit. If your bank makes erroneous payments or fails to make payment after
shares are purchased on your behalf, any such purchase may be canceled and this
privilege terminated immediately. This privilege may be discontinued at any time
by the Fund upon 30-days' written notice or at any time by you by written notice
to the Fund. Your request will be processed upon receipt.

Although Fund shares are priced at the net asset value next-determined after
receipt of a purchase request, shares are not purchased until payment is
received. Should payment not be received when required, the Transfer Agent will
cancel the telephone purchase request and you may be responsible for any losses
incurred by the Fund. The Fund and the Transfer Agent will not be liable for
following instructions communicated by telephone reasonably believed to be
genuine. The Fund employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. These procedures include recording
certain telephone calls, sending a confirmation and requiring the caller to give
a special authorization number or other personal information not likely to be
known by others. The Fund and Transfer Agent may be liable for any losses due to
unauthorized or fraudulent telephone transactions only if such reasonable
procedures are not followed.

Retirement Plans

Shares of the Fund are available for purchase by any retirement plan, including
Keogh plans, 401(k) plans, 403(b) plans and IRAs. The Fund may be available for
purchase through administrators for retirement plans. Investors who purchase
shares as part of a retirement plan should address inquiries and seek investment
servicing from their plan administrators. Plan administrators may receive
compensation from the Fund for performing shareholder services.

Share Certificates

Share certificates will not be issued by the Fund. All shares are held in
non-certificated form registered on the books of the Fund and the Transfer Agent
for the account of the shareholder.

How To Redeem An Investment In The Fund

The Fund will redeem all or any portion of an investor's outstanding shares upon
request. Redemptions can be made on any day that the NYSE is open for trading.
The redemption price is the net asset value per share next determined after the
shares are validly tendered for redemption and such request is received by the
Transfer Agent or, in the case of repurchase orders, Montgomery Securities or
other securities dealers. Payment of redemption proceeds is made promptly
regardless of when redemption occurs and normally within three days after
receipt of all documents in proper form, including a written redemption order
with appropriate signature guarantee. Redemption proceeds will be mailed or
wired in accordance with the shareholder's instructions. The Fund may suspend
the right of redemption under certain extraordinary circumstances in accordance
with the rules of the SEC. In the case of shares purchased by check and redeemed
shortly after the purchase, the Transfer Agent will not mail redemption proceeds
until it has been notified that the monies used for the purchase have been
collected, which may take up to 15 days from the purchase date. Shares tendered
for redemptions through brokers or dealers (other than the

19
<PAGE>

Distributor) may be subject to a service charge by such brokers or dealers.
Procedures for requesting a redemption are set forth below.

- --------------------------------------------------------------------------------
Redeeming by Written Instruction
- --------------------------------------------------------------------------------

o Write a letter giving your name, account number, the name
of the Fund from which you wish to redeem and the dollar
amount or number of shares you wish to redeem.

o Signature guarantee your letter if you want the redemption
proceeds to go to a party other than the account owner(s),
your predesignated bank account or if the dollar amount of
the redemption exceeds $50,000. Signature guarantees may be
provided by an eligible guarantor institution such as a
commercial bank, an NASD member firm such as a stock
broker, a savings association or national securities
exchange. Contact the Transfer Agent for more information.

o If you do not have a predesignated bank account and want to
wire your redemption proceeds, include a voided check or
deposit slip with your letter. The minimum amount that may
be wired is $500 (wire charges, if any, will be deducted
from redemption proceeds). The Fund reserves the right to
permit lesser wire amounts or fees in the Manager's
discretion.

- --------------------------------------------------------------------------------
Redeeming By Telephone
- --------------------------------------------------------------------------------

o Unless you have declined telephone redemption privileges on
your account application, you may redeem shares up to
$50,000 by calling the Transfer Agent before the Fund
cutoff time.

o If you included bank wire information on your account
application or made subsequent arrangements to accommodate
bank wire redemptions, you may request that the Transfer
Agent wire your redemption proceeds to your bank account.
Allow at least two business days for redemption proceeds to
be credited to your bank account. If you want to wire your
redemption proceeds to arrive at your bank on the same
business day (subject to bank cutoff times), there is a $10
fee.

o Telephone redemption privileges will be suspended 30 days
after an address change. All redemption requests during
this period must be in writing with a guaranteed signature.

o Telephone redemption privileges may be cancelled after an
account is opened by instructing the Transfer Agent in
writing. Your request will be processed upon receipt. This
service is not available for IRA accounts.

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

By establishing telephone redemption privileges, a shareholder authorizes the
Fund and the Transfer Agent to act upon the instruction of the shareholder or
his or her designee by telephone to redeem from the account for which such
service has been authorized and transfer the proceeds to a bank or other account
designated in the Authorization. When a shareholder appoints a designee on the
Account Application or by other written authorization, the shareholder agrees to
be bound by the telephone redemption instructions given by the shareholder's
designee. The Fund may change, modify or terminate these privileges at any time
upon 60-days' notice to shareholders. The Fund will not be responsible for any
loss, damage, cost or expense arising out of any transaction that appears on the
shareholder's confirmation after 30 days following mailing of such confirmation.
See discussion of Fund telephone procedures and liability under "Telephone
Transactions."

20
<PAGE>

Shareholders may experience delays in exercising telephone redemption privileges
during periods of abnormal market activity. During periods of volatile economic
or market conditions, shareholders may wish to consider transmitting redemption
orders by telegram (not available for IRAs) or overnight courier.

Systematic Withdrawal Plan

Under a Systematic Withdrawal Plan, a shareholder with an account value of
$1,000 or more in the Fund may receive (or have sent to a third party) periodic
payments (by check or wire). The minimum payment amount is $100 from each Fund
account. Payments may be made either monthly or quarterly on the 1st of each
month. Depending on the form of payment requested, shares will be redeemed up to
five business days before the redemption proceeds are scheduled to be received
by the shareholder. The redemption may result in the recognition of gain or loss
for income tax purposes.

Small Accounts

Due to the relatively high cost of maintaining smaller accounts, the Fund will
redeem shares from any account if at any time, because of redemptions by the
shareholder, the total value of a shareholder's account is less than $1,000. If
the Fund decides to make an involuntary redemption, the shareholder will first
be notified that the value of the shareholder's account is less than the minimum
level and will be allowed 30 days to make an additional investment to bring the
value of that account at least to the minimum investment required to open an
account before the Fund takes any action.

Exchange Privileges And Restrictions

Shares of the Fund may be exchanged for shares of the other series of the Trust
and The Montgomery Funds II (together with the Fund, the "Montgomery Funds"),
with restrictions noted below, on the basis of their relative net asset values
(with no sales charge or exchange fee) next determined after the time of the
exchange request and provided that you have the current prospectus for the fund
into which you are exchanging shares of the Fund. You are automatically eligible
to make telephone exchanges with your Montgomery account. See discussion of Fund
telephone procedures and limitations of liability under "Telephone
Transactions." Shareholders should note that an exchange may result in
recognition of a gain or loss for income tax purposes.

Exchange Restrictions

A shareholder's privilege of exchanging shares of the Fund has the following
restrictions:

o Shareholders may exchange for shares of a Montgomery fund only in states
where that fund's shares are qualified for sale.

o A shareholder may not exchange for shares of a Montgomery fund that is not
open to new shareholders unless the shareholder has an existing account with
that Montgomery fund.

o Shares of the Fund may not be exchanged for shares of another Montgomery
fund unless the amount to be received in the exchange satisfies that fund's
minimum investment requirement.

o Because excessive exchanges can harm the Fund's performance, the Trust
reserves the right to terminate, either temporarily or permanently, exchange
privileges of any shareholder who makes more than four exchanges out of the
Fund during a twelve-month period and to refuse an exchange into a
Montgomery fund from which the shareholder has redeemed shares within the
previous 90 days (accounts under common ownership or control and accounts
with the same taxpayer identification number will be counted together). This
limit may be modified for accounts in certain institutional retirement plans
to conform to plan exchange limits and U.S. Department of Labor regulations
(for those limits, see plan materials). The Trust reserves the right to
refuse exchanges by any person or group if, in the Manager's judgment, the
Fund would be unable effectively to invest the money in accordance with its
investment objective and policies, or would otherwise be potentially
adversely affected. A shareholder's exchanges may be restricted or refused
if the Fund receives, or the Manager anticipates, simultaneous orders
affecting

21
<PAGE>

significant portions of the Fund's assets and, in particular, a pattern of
exchanges coinciding with a "market timing" strategy. Although the Trust
attempts to provide prior notice to affected shareholders when it is
reasonable to do so, it may impose these restrictions at any time. The Trust
reserves the right to terminate or modify the exchange privileges of Fund
shareholders in the future.

Brokers and Other Intermediaries

Investing through Securities Brokers, Dealers and Financial Intermediaries

Investors may purchase shares of the Fund from other selected securities
brokers, dealers or through financial intermediaries such as benefit plan
administrators. Investors should contact these agents directly for appropriate
instructions, as well as information pertaining to accounts and any service or
transaction fees that may be charged by these agents. Purchase orders through
securities brokers, dealers and other financial intermediaries are effected at
the next-determined net asset value after receipt of the order by such agent,
provided the agent transmits such order on a timely basis to the Transfer Agent
so that it is received by 4:00 p.m., New York time, on days that the Fund issues
shares. Orders received after that time will be purchased at the next-determined
net asset value. To the extent that these agents perform shareholder servicing
activities for the Fund, they may receive fees from the Fund for such services.

Redemption Orders Through Brokerage Accounts

Shareholders also may sell shares back to the Fund by wire or telephone through
Montgomery Securities or selected securities brokers or dealers. Shareholders
should contact their securities broker or dealer for appropriate instructions
and for information concerning any transaction or service fee that may be
imposed by the broker or dealer. Shareholders are entitled to the net asset
value next determined after receipt of a redemption order by such broker-dealer,
provided the broker-dealer transmits such order on a timely basis to the
Transfer Agent so that it is received by 4:00 p.m., New York time, on a day that
the Fund redeems shares. Orders received after that time are entitled to the net
asset value next determined after receipt.

How Net Asset Value Is Determined

The net asset value of the Fund is determined once daily as of 4:00 p.m., New
York time, on each day that the NYSE is open for trading. Per-share net asset
value is calculated by dividing the value of the Fund's total net assets by the
total number of the Fund's shares then outstanding.

As more fully described in the Statement of Additional Information, portfolio
securities are valued using current market valuations: either the last reported
sales price or, in the case of securities for which there is no reported last
sale and fixed income securities, the mean between the closing bid and asked
price. Securities for which market quotations are not readily available or which
are illiquid are valued at their fair values as determined in good faith under
the supervision of the Trusts' officers, and by the Manager and the Pricing
Committee of the Boards, respectively, in accordance with methods that are
specifically authorized by the Board. Short-term obligations with maturities of
60 days or less are valued at amortized cost as reflecting fair value.

The value of securities denominated in foreign currencies and traded on foreign
exchanges or in foreign markets will be translated into U.S. dollars at the last
price of their respective currency denomination against U.S. dollars quoted by a
major bank or, if no such quotation is available, at the rate of exchange
determined in accordance with policies established in good faith by the Board.
Because the value of securities denominated in foreign currencies must be
translated into U.S. dollars, fluctuations in the value of such currencies in
relation to the U.S. dollar may affect the net asset value of Fund shares even
without any change in the foreign-currency denominated values of such
securities.

Because foreign securities markets may close before the Fund determine their net
asset values, events affecting the value of portfolio securities occurring
between the time prices are determined and the time the Fund calculate their net
asset values may not be reflected unless the Manager, under supervision of the
Board, determines that a particular event would materially affect the Fund's net
asset value.

22
<PAGE>

Dividends And Distributions

The Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. The Fund currently intends to make one
or, if necessary to avoid the imposition of tax on the Fund, more distributions
during each calendar year. A distribution may be made between November 1 and
December 31 of each year with respect to any undistributed capital gains earned
during the one-year period ended October 31 of such calendar year. Another
distribution of any undistributed capital gains may also be made following the
Fund's fiscal year end (June 30). The amount and frequency of Fund distributions
are not guaranteed and are at the discretion of the Board.

Unless investors request cash distributions in writing at least seven business
days prior to the distribution, or on the Account Application, all dividends and
other distributions will be reinvested automatically in additional shares of the
Fund and credited to the shareholder's account at the closing net asset value on
the reinvestment date.

Taxation

The Fund intends to qualify and elect as soon as possible to be treated as a
regulated investment company under Subchapter M of the Code, by distributing
substantially all of its net investment income and net capital gains to its
shareholders and meeting other requirements of the Code relating to the sources
of its income and diversification of assets. Accordingly, the Fund generally
will not be liable for federal income tax or excise tax based on net income
except to the extent its earnings are not distributed or are distributed in a
manner that does not satisfy the requirements of the Code pertaining to the
timing of distributions. If the Fund is unable to meet certain requirements of
the Code, it may be subject to taxation as a corporation. The Fund may also
incur tax liability to the extent it invests in "passive foreign investment
companies." See the Statement of Additional Information.

For federal income tax purposes, any dividends derived from net investment
income and any excess of net short-term capital gain over net long-term capital
loss that investors (other than certain tax-exempt organizations that have not
borrowed to purchase Fund shares) receive from the Fund are considered ordinary
income. Part of the distributions paid by the Fund may be eligible for the
dividends-received deduction allowed to corporate shareholders under the Code.
Distributions of the excess of net long-term capital gain over net short-term
capital loss from transactions of the Fund are treated by shareholders as
long-term capital gains regardless of the length of time the Fund's shares have
been owned. Distributions of income and capital gains are taxed in the manner
described above, whether they are taken in cash or are reinvested in additional
shares of the Fund.

The Fund will inform its investors of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise investors of the tax status of those distributions and
dividends. Investors (including tax-exempt and foreign investors) are advised to
consult their own tax advisers regarding the particular tax consequences to them
of an investment in shares of the Fund. Additional information on tax matters
relating to the Fund and its shareholders is included in the Statement of
Additional Information.

General Information

The Trust

The Fund is a series of The Montgomery Funds, a Massachusetts business trust
organized on May 10, 1990 (the "Trust"). The Trust's Agreement and Declaration
of Trust permits the Board to issue an unlimited number of full and fractional
shares of beneficial interest, $.01 par value, in any number of series. The
assets and liabilities of each series within the Trust are separate and distinct
from those of each other series.

This Prospectus relates only to the Class R shares of the Fund. The Fund has
designated other classes of shares and may in the future designate other classes
of shares for specific purposes.

23
<PAGE>

Shareholder Rights

Shares issued by the Fund have no preemptive, conversion or subscription rights.
Each whole share is entitled to one vote as to any matter on which it is
entitled to vote and each fractional share is entitled to a proportionate
fractional vote. Shareholders have equal and exclusive rights as to dividends
and distributions as declared by the Fund and to the net assets of the Fund upon
liquidation or dissolution. The Fund, as a separate series of the Trust, votes
separately on matters affecting only the Fund (e.g., approval of the Investment
Management Agreement); all series of the Trust vote as a single class on matters
affecting all series of the Trust jointly or the Trust as a whole (e.g.,
election or removal of Trustees). Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in any election of Trustees can,
if they so choose, elect all of the Trustees. Except as set forth herein, all
classes of shares issued by the Fund shall have identical voting, dividend,
liquidation and other rights, preferences, and terms and conditions. The only
differences among the various classes of shares relate solely to the following:
(a) each class may be subject to different class expenses; (b) each class may
bear a different identifying designation; (c) each class may have exclusive
voting rights with respect to matters solely affecting such class; (d) each
class may have different exchange privileges; and (e) each class may provide for
the automatic conversion of that class into another class. While the Trust is
not required and does not intend to hold annual meetings of shareholders, such
meetings may be called by the Board at its discretion, or upon demand by the
holders of 10% or more of the outstanding shares of the Trust for the purpose of
electing or removing Trustees. Shareholders may receive assistance in
communicating with other shareholders in connection with the election or removal
of Trustees pursuant to the provisions of Section 16(c) of the Investment
Company Act.

Performance Information

From time to time, the Fund may publish its total return, such as in
advertisements and communications to investors. Total return information
generally will include the Fund's average annual compounded rate of return over
the most recent four calendar quarters and over the period from the Fund's
inception of operations. The Fund may also advertise aggregate and average total
return information over different periods of time. The Fund's average annual
compounded rate of return is determined by reference to a hypothetical $1,000
investment that includes capital appreciation and depreciation for the stated
period according to a specific formula. Aggregate total return is calculated in
a similar manner, except that the results are not annualized. Total return
figures will reflect all recurring charges against the Fund's income.

Investment results of the Fund will fluctuate over time, and any presentation of
the Fund's total return for any prior period should not be considered as a
representation of what an investor's total return or current yield may be in any
future period.

Legal Opinion

The validity of shares offered by this Prospectus will be passed on by Heller,
Ehrman, White & McAuliffe, 333 Bush Street, San Francisco, California 94104.

Shareholder Reports and Inquiries

Unless otherwise requested, only one copy of each shareholder report or other
material sent to shareholders will be mailed to each household with accounts
under common ownership and the same address regardless of the number of
shareholders or accounts at that household or address. A confirmation statement
will be mailed to your record address each time you request a transaction except
for pre-authorized automatic investment and redemption services (quarterly). All
transactions are recorded on quarterly account statements which you will receive
at the end of each calendar quarter. Your fourth-quarter account statement will
be a year-end statement, listing all transaction activity for the entire year.
Retain this statement for your tax records.

In general, shareholders who redeemed shares from a qualifying Montgomery
account should expect to receive an Average Cost Statement in February of the
following year. Your statement will calculate your average cost using the
average cost single-category method.

Any questions should be directed to The Montgomery Funds at 800-572-FUND
(800-572-3863).

24
<PAGE>

Backup Withholding Instructions

Shareholders are required by law to provide the Fund with their correct Social
Security or other Taxpayer Identification Number ("TIN"), regardless of whether
they file tax returns. Failure to do so may subject a shareholder to penalties.
Failure to provide a correct TIN or to check the appropriate boxes in the
Account Application and to sign the shareholder's name could result in backup
withholding by the Fund of an amount of federal income tax equal to 31% of
distributions, redemptions, exchanges and other payments made to a shareholder's
account. Any tax withheld may be credited against taxes owed on a shareholder's
federal income tax return.

A shareholder who does not have a TIN should apply for one immediately by
contacting the local office of the Social Security Administration or the IRS.
Backup withholding could apply to payments made to a shareholder's account while
awaiting receipt of a TIN. Special rules apply for certain entities. For
example, for an account established under the Uniform Gifts to Minors Act, the
TIN of the minor should be furnished. If a shareholder has been notified by the
IRS that he or she is subject to backup withholding because he or she failed to
report all interest and dividend income on his or her tax return and the
shareholder has not been notified by the IRS that such withholding will cease,
the shareholder should cross out the appropriate item in the Account
Application. Dividends paid to a foreign shareholder's account by the Fund may
be subject to up to 30% withholding instead of backup withholding.

A shareholder that is an exempt recipient should furnish a TIN and check the
appropriate box. Exempt recipients include certain corporations, certain
tax-exempt entities, tax-exempt pension plans and IRAs, governmental agencies,
financial institutions, registered securities and commodities dealers and
others. For further information, see Section 3406 of the Code and consult with a
tax adviser.

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

This Prospectus is not an offering of the securities herein described in any
state in which the offering is unauthorized. No salesman, dealer or other person
is authorized to give any information or make any representation other than
those contained in this Prospectus, the Statement of Additional Information, or
in the Fund's official sales literature.

25
<PAGE>

Investment Manager
Montgomery Asset Management, L.P.
101 California Street
San Francisco, California 94111
1-800-572-FUND

Distributor
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
1-415-627-2485

Custodian
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201

Transfer Agent
DST Systems, Inc.
P.O. Box 419073
Kansas City, Missouri 64141-6073
1-800-447-4210

Legal Counsel
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104

<PAGE>

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

PART A

PROSPECTUS FOR CLASS P SHARES

MONTGOMERY GLOBAL ASSET ALLOCATION FUND

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

<PAGE>

The Montgomery Funds
101 California Street
San Francisco, California 94111
(800) 572-FUND

Prospectus
December 31, 1996

Class P shares of the Montgomery Global Asset Allocation Fund (the "Fund") are
offered in this Prospectus. The Fund seeks high total return, while also seeking
to reduce risk, through a strategic or active allocation of assets among
investments in five asset classes -- domestic stocks, international developed
markets stocks, emerging markets stocks, domestic dollar-denominated debt
instruments and cash or cash equivalents. The Fund is a "fund of funds" which
means that other than U.S. Government securities, the Fund will not own any
security directly but instead will allocate its assets among a diversified group
of five funds from The Montgomery Funds family, each of which focuses on one of
the Fund's five investment disciplines. Each of those underlying funds is called
an "Underlying Fund". As is the case for all mutual funds, attainment of the
Fund's investment objective cannot be assured.

The Fund's Class P shares are only sold through financial intermediaries and
financial professionals at net asset value with no sales load, no commissions
and no exchange fees. The Class P shares are subject to Rule 12b-1 distribution
fee as described in this Prospectus. In general, the minimum initial investment
in the Fund is $500, and subsequent investments must be at least $100. The
Manager or the Distributor, under any circumstances that either deems
appropriate, may waive these minimums. See "How to Invest in the Fund."

The Internet address for The Montgomery Funds is www.xperts.montgomery.com/1.

1
<PAGE>

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

Fees and Expenses of the Fund 3
- --------------------------------------------------------------------------------

The Fund's Investment Objective and Policies 4
- --------------------------------------------------------------------------------

Characteristics of the Underlying Funds 4
- --------------------------------------------------------------------------------

Portfolio Securities 6
- --------------------------------------------------------------------------------

Other Investment Practices 9
- --------------------------------------------------------------------------------

Risk Considerations 12
- --------------------------------------------------------------------------------

Management of the Fund 14
- --------------------------------------------------------------------------------

How To Contact the Fund 17
- --------------------------------------------------------------------------------

How To Invest in the Fund 17
- --------------------------------------------------------------------------------

How To Redeem an Investment in the Fund 20
- --------------------------------------------------------------------------------

Exchange Privileges and Restrictions 22
- --------------------------------------------------------------------------------

How Net Asset Value is Determined 23
- --------------------------------------------------------------------------------

Dividends and Distributions 23
- --------------------------------------------------------------------------------

Taxation 24
- --------------------------------------------------------------------------------

General Information 24
- --------------------------------------------------------------------------------

Backup Withholding Instructions 26
- --------------------------------------------------------------------------------

2
<PAGE>

Fees And Expenses Of The Fund

Shareholder Transaction Expenses for the Fund

<TABLE>
An investor would pay the following charges when buying or redeeming shares of
the Fund:

Estimated Annual Operating Expenses (as a percentage of average net assets)
<CAPTION>

Montgomery Global Asset Allocation Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Management Fee* 0.20%
- ---------------------------------------------------------------------------------------------------------------------------------
Other Expenses of the Fund (excluding expenses related to the Underlying Funds) 0.30%
(after reimbursement)*
- ---------------------------------------------------------------------------------------------------------------------------------
12b-1 Fee 0.25%
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses related to the Underlying Funds 1.25%
(after reimbursement)#
- ---------------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses* 2.00%
- ---------------------------------------------------------------------------------------------------------------------------------

<FN>
The previous tables are intended to assist the investor in understanding the
various direct and indirect costs and expenses of the Fund. Operating expenses
are paid out of the Fund's assets and are factored into the Fund's share price.
The Fund estimates that it will have the expenses listed (expressed as a
percentage of average net assets) for the current fiscal year. Because Rule
12b-1 distribution charges are accounted for on a class-level basis (and not on
an individual shareholder-level basis), individual long-term investors in the
Class P shares of the Fund may over time pay more than the economic equivalent
of the maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc. ("NASD"), even though all shareholders of that Class in
the aggregate will not. This is recognized and permitted by the NASD.

* Expenses for the Fund are estimated. The Manager will reduce its fees and
may absorb or reimburse the Fund for certain expenses to the extent
necessary to limit total annual fund operating expenses to the amount
indicated in the table for the Fund. The Fund is required to reimburse the
Manager for any reductions in the Manager's fee only during the two years
following that reduction and only if such reimbursement can be achieved
within the foregoing expense limit. The Manager generally seeks
reimbursement for the oldest reductions and waivers before payment by the
Fund for fees and expenses for the current year. Absent the reduction,
actual total Fund operating expenses are estimated to be 2.75% (0.60% other
expenses and 1.70% Underlying Fund expenses). The Manager may terminate
these voluntary reductions at any time. See "Management of the Fund."

# The Manager has agreed to limit the Total Fund Operating Expenses to 2.00%.
To the extent the aggregate expenses that relate to investments in the
Underlying Funds (which shall be paid by the Fund proportionally as a
shareholder in the Underlying Funds) exceed 1.25%, the manager shall limit
the amount to be paid by the Fund to 1.25% and will reimburse the Fund for
the excess. The Fund will invest only in the class of an Underlying Fund
that does not charge a 12b-1 fee.
</FN>
</TABLE>

Example of Expenses for the Fund

Montgomery Global Asset Allocation Fund
- -------------------------------------------------------------------------------
1 Year $20
- -------------------------------------------------------------------------------
3 Years $63
- -------------------------------------------------------------------------------
5 Years N/A
- -------------------------------------------------------------------------------
10 Years N/A
- -------------------------------------------------------------------------------

3
<PAGE>

The Fund's Investment Objective And Policies

<TABLE>

The Investment objective of the Fund is to seek high total return, while also
seeking to reduce risk, through a strategic or active allocation of assets among
investments in five asset classes -- domestic stocks, international developed
markets stocks, emerging markets stocks, domestic dollar-denominated debt
instruments and cash or cash equivalents. The Fund is a "fund of funds" which
means the Fund will not invest directly in securities but will instead invest in
Underlying Funds which the Manager considers to be appropriate investments for
achieving the Fund's investment objective. The Fund adjusts the proportion of
its investments in each of these categories as needed to respond to current
market conditions, primarily by changing its allocation percentage among the
different Underlying Funds. The following table illustrates the anticipated
allocation methodology:

</TABLE>

Characteristics of the Underlying Funds

<TABLE>

The following table summarizes the characteristics of each of the Underlying
Funds:

Anticipated Maximum Typical Market
Equity Debt Capitalization of
Fund Name Exposure Exposure Focus Portfolio Companies
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Montgomery Growth Fund 65-100% 35% Growth Over $1 Billion
- -----------------------------------------------------------------------------------------------------------------------------
Montgomery International Growth Fund 65-100% 35% Foreign Growth Over $1 Billion
- -----------------------------------------------------------------------------------------------------------------------------
Montgomery Emerging Markets Fund 65-100% 35% Foreign Emerging Growth Any size
- -----------------------------------------------------------------------------------------------------------------------------
Montgomery Short Government Bond Fund 0% 100% Income N/A
- -----------------------------------------------------------------------------------------------------------------------------
Montgomery Government Reserve Fund 0% 100% Income N/A
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Montgomery Growth Fund (the "Growth Fund")

4
<PAGE>

fundamental analysis. The Fund initially identifies a universe of investment
candidates by screening companies based on changes in rates of growth and
valuation ratios such as price to sales, price to earnings and price to cash
flows. Through this process the Fund seeks to identify rapidly growing companies
with reasonable valuations and accelerating growth rates, or having low
valuations and initial signs of growth. The Fund then subjects these companies
to a rigorous fundamental analysis focusing on balance sheets and income
statements; company visits and discussions with management; contact with
industry specialists and industry analysts; and review of the competitive
environments.

Montgomery International Growth Fund (the "International Growth Fund")

Montgomery Emerging Markets Fund (the "Emerging Markets Fund")

5
<PAGE>

Montgomery Short Government Bond Fund (the "Short Bond Fund")

THE GLOBAL ASSET ALLOCATION FUND EXPECTS TO INVEST IN OTHER GENERAL INVESTMENT
GRADE BOND FUNDS THAT ARE ADVISED BY THE MANAGER.

Montgomery Government Reserve Fund (the "Reserve Fund")

Portfolio Securities

This section describes the portfolio securities that the Underlying Funds may
invest in. As noted above, the Fund does not invest directly in any securities,
other than U.S. Government securities.

Equity Securities

Depositary Receipts

6
<PAGE>

companies, and evidence ownership of either foreign or domestic securities.
Unsponsored ADR, EDR and GDR programs are organized without the cooperation of
the issuer of the underlying securities. As a result, available information
concerning the issuer may not be as current as for sponsored ADRs, EDRs and
GDRs, and the prices of unsponsored ADRs, EDRs and GDRs may be more volatile.

Convertible Securities

Securities Warrants and Rights

Privatizations

Special Situations

Investment Companies

The Underlying Funds do not intend to invest in other investment companies
unless, in the Manager's judgment, the potential benefits exceed associated
costs. As a shareholder in an investment company, the Fund bears its ratable
share of that investment company's expenses, including advisory and
administration fees. In accordance with applicable state regulatory provisions,
the Manager has agreed to waive its own management fee with respect to the
portion of the Underlying Fund's assets invested in other open-end (but not
closed-end) investment companies.

7
<PAGE>

Debt Securities

U.S. Government Securities

Mortgage-Related Securities and Derivative Securities

Agency Mortgage-Related Securities

Investors in the Fund should note that the dominant issuers or guarantors of
mortgage-related securities today are the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"). GNMA creates pass-through
securities from pools of government guaranteed or insured (Federal Housing
Authority or Veterans Administration) mortgages. FNMA and FHLMC issue
pass-through securities from pools of conventional and federally insured and/or
guaranteed residential mortgages. The principal and interest on GNMA
pass-through securities are guaranteed by GNMA and backed by the full faith and
credit of the U.S. Government. FNMA guarantees full and timely payment of all
interest and principal, and FHLMC guarantees timely payment of interest and
ultimate collection of principal of its pass-through securities. Securities from
FNMA and FHLMC are not backed by the full faith and credit of the U.S.
Government but are generally considered to offer minimal credit risks. The
yields provided by these mortgage-related securities have historically exceeded
the yields on other types of U.S. Government Securities with comparable "lives"
largely due to the risks associated with prepayment. See "Risk Considerations."

8
<PAGE>

Zero Coupon Bonds

Asset-Backed Securities, Custodial Receipts, Participation Interests and Tender
Option Bonds

Other Investment Practices

Repurchase Agreements

Each Underlying Fund may enter into repurchase agreements. Pursuant to a
repurchase agreement, an Underlying Fund acquires a U.S. Government security or
other high-grade liquid debt instrument from a financial institution that
simultaneously agrees to repurchase the same security at a specified time and
price. The repurchase price reflects an agreed-upon rate of return not
determined by the coupon rate on the underlying security. Under the Investment
Company Act, repurchase agreements are considered to be loans by the Underlying
Fund and must be fully collateralized by cash, letters of credit, U.S.
Government securities or other high-grade liquid debt or equity securities that
the Underlying Fund's custodian, or a designated sub-custodian separately
identifies and renders unavailable for investment ("collateral assets"). If the
seller defaults on its obligation to repurchase the underlying security, the
Underlying Fund may experience delay or difficulty in exercising its rights to
realize upon the security, may incur a loss if the value of the security
declines and may incur disposition costs in liquidating the security.

9
<PAGE>

Borrowing

Reverse Repurchase Agreements

Leverage

Securities Lending

When-Issued and Forward Commitment Securities

Hedging and Risk Management Practices

Forward Currency Contracts

10
<PAGE>

conducts its foreign currency exchange transactions either on a spot (i.e.,
cash) basis at the spot rate in the foreign currency exchange market at the time
of the transaction, or through entering into forward contracts to purchase or
sell foreign currencies at a future date. The Underlying Fund generally does not
enter into forward contracts with terms greater than one year.

Options on Securities, Securities Indices and Currencies

Futures and Options on Futures

Hedging Considerations

Illiquid Securities

11
<PAGE>

Defensive Investments and Portfolio Turnover

Investment Restrictions

Risk Considerations

Small Companies

Foreign Securities

12
<PAGE>

Interest Rates

Prepayments of principal of mortgage-related securities by mortgagors or
mortgage foreclosures affect the average life of the mortgage-related securities
in an Underlying Fund's portfolio. Mortgage prepayments are affected by the
level of interest rates and other factors, including general economic conditions
and the underlying location and age of the mortgage. In periods of rising
interest rates, the prepayment rate tends to decrease, lengthening the average
life of a pool of mortgage-related securities. In periods of falling interest
rates, the prepayment rate tends to increase, shortening the average life of a
pool. Because prepayments of principal generally occur when interest rates are
declining, it is likely that an Underlying Fund, to the extent it retains the
same percentage of debt securities, may have to reinvest the proceeds of
prepayments at lower interest rates than those of their previous investments. If
this occurs, an Underlying Fund's yield will correspondingly decline. Thus,
mortgage-related securities may have less potential for capital appreciation in
periods of falling interest rates than other fixed-income securities of
comparable duration, although they may have a comparable risk of decline in
market value in periods of rising interest rates. To the extent that an
Underlying Fund purchases mortgage-related securities at a premium, unscheduled
prepayments, which are made at par, result in a loss equal to any unamortized
premium.

13
<PAGE>

Management Of The Fund

Portfolio Managers

14
<PAGE>

researched private placement and venture capital investments. From 1983 through
1988, he worked in the Capital Markets Group at Fidelity Investments in Boston,
Massachusetts. Mr. Pratt, as a key member of the growth equity team (which
includes also Mr. Honour and Mr. Carmen), manages the Growth Fund.

Management Fees and Other Expenses

Annual Rate
- ------------------------------------------------------------------------------
Montgomery Global Asset Allocation Fund 0.20%
- ------------------------------------------------------------------------------

Rule 12b-1 adopted by the Securities and Exchange Commission (the "SEC") under
the Investment Company Act permits an investment company directly or indirectly
to pay expenses associated with the distribution of its shares ("distribution
expenses") in accordance with a plan adopted by the investment company's Board
of Trustees and approved by its shareholders. Pursuant to that Rule, the Trust's
Board of Trustees and the initial shareholder of the Class P shares of the Fund
have approved, and the Fund has entered into, a Share Marketing Plan (the
"Plan") with the Manager, as the distribution coordinator, for the Class P
shares. Under the Plan, the Fund will pay distribution fees to the Manager at an
annual rate of 0.25% of the Fund's aggregate average daily net assets
attributable to its Class P shares, to reimburse the Manager for its
distribution costs with respect to that Class.

15
<PAGE>

to, direct mail promotions and television, radio, newspaper, magazine and other
mass media advertising for that Class; (ii) costs of printing and distributing
prospectuses, statements of additional information and reports of the Fund to
prospective investors in that Class; (iii) costs involved in preparing, printing
and distributing sales literature pertaining to the Fund and that Class; and
(iv) costs involved obtaining whatever information, analysis and reports with
respect to marketing and promotional activities that the Fund may, from time to
time, deem advisable with respect to the distribution of that Class.
Distribution fees are accrued daily and paid monthly, and are charged as
expenses of the Class P shares as accrued.

In adopting the Plan, the Board of Trustees determined that there was a
reasonable likelihood that the Plan would benefit the Fund and the shareholders
of Class P shares. Information with respect to distribution revenues and
expenses is presented to the Board of Trustees quarterly for its consideration
in connection with its deliberations as to the continuance of the Plan. In its
review of the Plan, the Board of Trustees is asked to take into consideration
expenses incurred in connection with the separate distribution of the Class P
shares.

The Class P shares are not obligated under the Plan to pay any distribution
expenses in excess of the distribution fee. Thus, if the Plan were terminated or
otherwise not continued, no amounts (other than current amounts accrued but not
yet paid) would be owed by the Class to the Manager.

The distribution fee attributable to the Class P shares is designed to permit an
investor to purchase Class P shares through broker-dealers without the
assessment of a front-end sales charge and at the same time to permit the
Manager to compensate broker-dealers on an ongoing basis in connection with the
sale of the Class P shares.

The Plan provides that it shall continue in effect from year to year provided
that a majority of the Board of Trustees of the Trust, including a majority of
the Trustees who are not "interested persons" of the Trust (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of the Plan or any agreement related to the Plan (the "Independent
Trustees"), vote annually to continue the Plan. The Plan may be terminated at
any time by vote of a majority of the Independent Trustees or of a majority of
the outstanding shares (as defined in the Investment Company Act) of the Class P
shares.

All distribution fees paid by the Fund under the Plan will be paid in accordance
with Rule 2830 of the NASD Rules of Conduct.

The Manager has agreed to reduce its management fee if necessary to keep total
annual operating expenses (excluding the Rule 12b-1 fee) at or below five-tenths
of one percent (0.50%) of the Fund's average net assets or one and seventy-five
one-hundredth of one percent (1.75%) including the total expenses of the
Underlying Funds. The Manager also may voluntarily reduce additional amounts to
increase the return to the Fund's investors. The Manager may terminate these
voluntary reductions at any time. Any reductions made by the Manager in its fees
are subject to reimbursement by the Fund within the following two years,
provided that the Fund is able to effect such reimbursement and remain in
compliance with the applicable expense limitation. The Manager generally seeks
reimbursement for the oldest reductions and waivers before payment by the Fund
for fees and expenses for the current year.

16
<PAGE>

How To Contact The Fund

For information on the Fund or your account, call a Montgomery Shareholder
Service Representative at:

(800) 572-3863

Mail your completed application, any checks, investment or redemption
instructions and correspondence to:

Visit the Montgomery World Wide Web Site at:

www.xperts.montgomery.com/1

How To Invest In The Fund

The Fund's shares are offered only through financial intermediaries and
financial professionals, with no sales load, at their next-determined net asset
value after receipt of an order with payment. The Fund's shares are offered for
sale by Montgomery Securities, the Fund's Distributor, 600 Montgomery Street,
San Francisco, California 94111, (800) 572-3863, and through selected securities
brokers and dealers.

The minimum initial investment in the Fund is $500 (including IRAs) and $100 for
subsequent investments. The Manager or the Distributor, in its discretion, may
waive these minimums. Purchases may also be made in certain circumstances by
payment of securities. See the Statement of Additional Information for further
details.

Initial Investments

Minimum Initial Investment (including IRAs): $500

- --------------------------------------------------------------------------------
Initial Investments by Check
- --------------------------------------------------------------------------------

o Complete the Account Application. Tell us in which Fund(s)
you want to invest and make your check payable to The
Montgomery Funds.

o We do not accept third party checks or cash investments.
Checks must be in U.S. dollars and, to avoid fees and
delays, drawn only on banks located in the U.S.

o A charge may be imposed on checks that do not clear.

17
<PAGE>

- --------------------------------------------------------------------------------
Initial Investments by Wire
- --------------------------------------------------------------------------------

o Request your bank to transmit immediately available funds
by wire for purchase of shares in your name to the
following:

o Your bank may charge a fee for any wire transfers.

o The Fund and the Distributor each reserve the right to
reject any purchase order in whole or in part.

Subsequent Investments

Minimum Subsequent Investment (including IRAs): $100

- --------------------------------------------------------------------------------
Subsequent Investments by Check
- --------------------------------------------------------------------------------

o Make your check payable to The Montgomery Funds. Enclose
an investment stub or Flexible Account Builder stub with
your check. If you do not have an investment stub, mail
your check with written instructions indicating the Fund
name and account number to which your investment should
be credited.

o We do not accept third party checks or cash investments.
Checks must be made in U.S. dollars and, to avoid fees
and delays, drawn only on banks located in the U.S.

o A charge may be imposed on checks that do not clear.

- --------------------------------------------------------------------------------
Subsequent Investments by Wire
- --------------------------------------------------------------------------------

o You do not need to contact the Transfer Agent prior to
making subsequent investments by wire. Instruct your
bank to wire funds to the Transfer Agent's affiliated
bank by using the bank wire information under "Initial
Investments by Wire."

o Shareholders are automatically eligible to make
telephone purchases. To make a purchase, call the
Transfer Agent at (800) 572-3863 before the Fund
cutoff time.

o Shares for IRAs may not be purchased by phone.

18
<PAGE>

o The maximum telephone purchase is an amount up to
five times your account value on the previous day.

o You should do one of the following to ensure payment
is received in time:

o Transfer funds directly from your bank
account by sending a letter and a voided
check or deposit slip (for a savings
account) to the Transfer Agent.

o Send a check by overnight or 2nd day
courier service.

o Instruct your bank to wire funds to the
Transfer Agent's affiliated bank by using
the bank wire information under the
section titled "Initial Investments by
Wire."

- --------------------------------------------------------------------------------
Automatic Account Builder ("AAB")
- --------------------------------------------------------------------------------

o AAB will be established on existing accounts only.
You may not use an AAB investment to open a new
account. The minimum automatic investment amount is
the Fund's subsequent investment minimum.

o Your bank must be a member of the Automated Clearing
House.

o You should allow 20 business days for this service to
become effective.

o You may cancel your AAB at any time by sending a
letter to the Transfer Agent. Your request will be
processed upon receipt.

Telephone Transactions

19
<PAGE>

Retirement Plans

Share Certificates

Share certificates will not be issued by the Fund. All shares are held in
non-certificated form registered on the books of the Fund and the Transfer Agent
for the account of the shareholder.

How To Redeem An Investment In The Fund

- --------------------------------------------------------------------------------
Redeeming by Written Instruction
- --------------------------------------------------------------------------------

o Write a letter giving your name, account number,
the name of the Fund from which you wish to redeem
and the dollar amount or number of shares you wish
to redeem.

o Signature guarantee your letter if you want the
redemption proceeds to go to a party other than
the account owner(s), your predesignated bank
account or if the dollar amount of the redemption
exceeds $50,000. Signature guarantees may be
provided by an eligible guarantor institution such
as a commercial bank, an NASD member firm such as
a stock broker, a savings association or national
securities exchange. Contact the Transfer Agent
for more information.

o If you do not have a predesignated bank account
and want to wire your redemption proceeds, include
a voided check or deposit slip with your letter.
The minimum amount that may be wired is $500 (wire
charges, if any, will be deducted from redemption
proceeds). The Fund reserves the right to permit
lesser wire amounts or fees in the Manager's
discretion.

20
<PAGE>

- --------------------------------------------------------------------------------
Redeeming By Telephone
- --------------------------------------------------------------------------------

o Unless you have declined telephone redemption
privileges on your account application, you may
redeem shares up to $50,000 by calling the
Transfer Agent before the Fund cutoff time.

o If you included bank wire information on your
account application or made subsequent
arrangements to accommodate bank wire redemptions,
you may request that the Transfer Agent wire your
redemption proceeds to your bank account. Allow at
least two business days for redemption proceeds to
be credited to your bank account. If you want to
wire your redemption proceeds to arrive at your
bank on the same business day (subject to bank
cutoff times), there is a $10 fee.

o Telephone redemption privileges will be suspended
30 days after an address change. All redemption
requests during this period must be in writing
with a guaranteed signature.

o Telephone redemption privileges may be cancelled
after an account is opened by instructing the
Transfer Agent in writing. Your request will be
processed upon receipt. This service is not
available for IRA accounts.

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

Systematic Withdrawal Plan

Under a Systematic Withdrawal Plan, a shareholder with an account value of $500
or more in the Fund may receive (or have sent to a third party) periodic
payments (by check or wire). The minimum payment amount is $100 from each Fund
account. Payments may be made either monthly or quarterly on the 1st of each
month. Depending on the form of payment requested, shares will be redeemed up to
five business days before the redemption proceeds are scheduled to be received
by the shareholder. The redemption may result in the recognition of gain or loss
for income tax purposes.

Small Accounts

Due to the relatively high cost of maintaining smaller accounts, the Fund will
redeem shares from any account if at any time, because of redemptions by the
shareholder, the total value of a shareholder's account is less than $500. If
the Fund decides to make an involuntary redemption, the shareholder will first
be notified that the value of the shareholder's account is less than the minimum
level and will be allowed 30 days to make an additional investment to bring the
value of that account at least to the minimum investment required to open an
account before the Fund takes any action.

Exchange Privileges And Restrictions

21
<PAGE>

Shares of the Fund may be exchanged for Class P shares of the other series of
the Trust and The Montgomery Funds II (together with the Fund, the "Montgomery
Funds"), with restrictions noted below, on the basis of their relative net asset
values (with no sales charge or exchange fee) next determined after the time of
the exchange request and provided that you have the current prospectus for the
fund into which you are exchanging shares of the Fund. You are automatically
eligible to make telephone exchanges with your Montgomery account. See
discussion of Fund telephone procedures and limitations of liability under
"Telephone Transactions." Shareholders should note that an exchange may result
in recognition of a gain or loss for income tax purposes.

Exchange Restrictions

A shareholder's privilege of exchanging shares of the Fund has the following
restrictions:

o Shareholders may exchange for shares of a Montgomery fund only in states
where that fund's shares are qualified for sale.

o A shareholder may not exchange for shares of a Montgomery fund that is not
open to new shareholders unless the shareholder has an existing account with
that Montgomery fund.

o Shares of the Fund may not be exchanged for shares of another Montgomery
fund unless the amount to be received in the exchange satisfies that fund's
minimum investment requirement.

Brokers and Other Intermediaries

Investing through Securities Brokers, Dealers and Financial Intermediaries

Redemption Orders Through Brokerage Accounts

22
<PAGE>

such order on a timely basis to the Transfer Agent so that it is received by
4:00 p.m., New York time, on a day that the Fund redeems shares. Orders received
after that time are entitled to the net asset value next determined after
receipt.

How Net Asset Value Is Determined

Dividends And Distributions

Unless investors request cash distributions in writing at least seven business
days prior to the distribution, or on the Account Application, all dividends and
other distributions will be reinvested automatically in additional Class P
shares of the Fund and credited to the shareholder's account at the closing net
asset value on the reinvestment date.

Taxation

23
<PAGE>
For federal income tax purposes, any dividends derived from net investment
income and any excess of net short-term capital gain over net long-term capital
loss that investors (other than certain tax-exempt organizations that have not
borrowed to purchase Fund shares) receive from the Fund are considered ordinary
income. Part of the distributions paid by the Fund may be eligible for the
dividends-received deduction allowed to corporate shareholders under the Code.
Distributions of the excess of net long-term capital gain over net short-term
capital loss from transactions of the Fund are treated by shareholders as
long-term capital gains regardless of the length of time the Fund's shares have
been owned. Distributions of income and capital gains are taxed in the manner
described above, whether they are taken in cash or are reinvested in additional
shares of the Fund.

General Information

The Trust

This Prospectus relates only to the Class P shares of the Fund. The Fund has
designated other classes of shares and may in the future designate other classes
of shares for specific purposes.

Shareholder Rights

Performance Information

From time to time, the Fund may publish its total return, such as in
advertisements and communications to investors. Performance data may be quoted
separately for the Class P shares as for the other classes. Total return
information generally will include the Fund's average annual compounded rate of
return over the most recent four calendar quarters and over the period from the
Fund's inception of operations. The Fund may also advertise aggregate and
average total return information over different periods of time. The Fund's
average annual compounded rate of return is determined by reference to a

24
<PAGE>

hypothetical $1,000 investment that includes capital appreciation and
depreciation for the stated period according to a specific formula. Aggregate
total return is calculated in a similar manner, except that the results are not
annualized. Total return figures will reflect all recurring charges against the
Fund's income.

Legal Opinion

The validity of shares offered by this Prospectus will be passed on by Heller,
Ehrman, White & McAuliffe, 333 Bush Street, San Francisco, California 94104.

Shareholder Reports and Inquiries

Any questions should be directed to The Montgomery Funds at 800-572-FUND
(800-572-3863).

Backup Withholding Instructions

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

25
<PAGE>

26
<PAGE>
Investment Manager
Montgomery Asset Management, L.P.
101 California Street
San Francisco, California 94111
1-800-572-FUND

Distributor
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
1-415-627-2485

Custodian
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11201

Transfer Agent
DST Systems, Inc.
P.O. Box 419073
Kansas City, Missouri 64141-6073
1-800-447-4210

Legal Counsel
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94104

<PAGE>

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

PART A

PROSPECTUS FOR CLASS L SHARES

MONTGOMERY GLOBAL ASSET ALLOCATION FUND

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

<PAGE>

The Montgomery Funds
101 California Street
San Francisco, California 94111
(800) 572-FUND

Prospectus
December 31, 1996

Class L shares of the Montgomery Global Asset Allocation Fund (the "Fund") are
offered in this Prospectus. The Fund seeks high total return, while also seeking
to reduce risk, through a strategic or active allocation of assets among
investments in five asset classes -- domestic stocks, international developed
markets stocks, emerging markets stocks, domestic dollar-denominated debt
instruments and cash or cash equivalents. The Fund is a "fund of funds" which
means that other than U.S. Government securities, the Fund will not own any
security directly but instead will allocate its assets among a diversified group
of five funds from The Montgomery Funds family, each of which focuses on one of
the Fund's five investment disciplines. Each of those underlying funds is called
an "Underlying Fund". As is the case for all mutual funds, attainment of the
Fund's investment objective cannot be assured.

The Fund's Class L shares are only sold through financial intermediaries and
financial professionals at net asset value with no sales load, no commissions
and no exchange fees. The Class L shares are subject to a Rule 12b-1
distribution fee as described in this Prospectus. In general, the minimum
initial investment in the Fund is $500, and subsequent investments must be at
least $100. The Manager or the Distributor, under any circumstances that either
deems appropriate, may waive these minimums. See "How to Invest in the Fund."

The Internet address for The Montgomery Funds is www.xperts.montgomery.com/1.

1
<PAGE>

TABLE OF CONTENTS
- -------------------------------------------------------------------------------

Fees and Expenses of the Fund 3
- -------------------------------------------------------------------------------

The Fund's Investment Objective and Policies 4
- -------------------------------------------------------------------------------

Characteristics of the Underlying Funds 4
- -------------------------------------------------------------------------------

Portfolio Securities 6
- -------------------------------------------------------------------------------

Other Investment Practices 9
- -------------------------------------------------------------------------------

Risk Considerations 12
- -------------------------------------------------------------------------------

Management of the Fund 14
- -------------------------------------------------------------------------------

How To Contact the Fund 17
- -------------------------------------------------------------------------------

How To Invest in the Fund 17
- -------------------------------------------------------------------------------

How To Redeem an Investment in the Fund 20
- -------------------------------------------------------------------------------

Exchange Privileges and Restrictions 22
- -------------------------------------------------------------------------------

How Net Asset Value is Determined 23
- -------------------------------------------------------------------------------

Dividends and Distributions 23
- -------------------------------------------------------------------------------

Taxation 24
- -------------------------------------------------------------------------------

General Information 24
- -------------------------------------------------------------------------------

Backup Withholding Instructions 26
- -------------------------------------------------------------------------------

2
<PAGE>

Fees And Expenses Of The Fund

Shareholder Transaction Expenses for the Fund

<TABLE>
An investor would pay the following charges when buying or redeeming shares of
the Fund:

<TABLE>
Estimated Annual Operating Expenses (as a percentage of average net assets)

<CAPTION>
Montgomery Global Asset Allocation Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Management Fee* 0.20%
- ---------------------------------------------------------------------------------------------------------------------------------
Other Expenses of the Fund (excluding expenses related to the Underlying Funds) 0.30%
(after reimbursement)*
- ---------------------------------------------------------------------------------------------------------------------------------
12b-1 Fee 0.75%
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses related to the Underlying Funds 1.25%
(after reimbursement)#
- ---------------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses* 2.50%
- ---------------------------------------------------------------------------------------------------------------------------------

<FN>
The previous tables are intended to assist the investor in understanding the
various direct and indirect costs and expenses of the Fund. Operating expenses
are paid out of the Fund's assets and are factored into the Fund's share price.
The Fund estimates that it will have the expenses listed (expressed as a
percentage of average net assets) for the current fiscal year. Because Rule
12b-1 distribution charges are accounted for on a class-level basis (and not on
an individual shareholder-level basis), individual long-term investors in the
Class L shares of the Fund may over time pay more than the economic equivalent
of the maximum front-end sales charge permitted by the National Association of
Securities Dealers, Inc. ("NASD"), even though all shareholders of that Class in
the aggregate will not. This is recognized and permitted by the NASD.

* Expenses for the Fund are estimated. The Manager will reduce its fees and
may absorb or reimburse the Fund for certain expenses to the extent
necessary to limit total annual fund operating expenses to the amount
indicated in the table for the Fund. The Fund is required to reimburse the
Manager for any reductions in the Manager's fee only during the two years
following that reduction and only if such reimbursement can be achieved
within the foregoing expense limit. The Manager generally seeks
reimbursement for the oldest reductions and waivers before payment by the
Fund for fees and expenses for the current year. Absent the reduction,
actual total Fund operating expenses are estimated to be 3.25% (0.60% other
expenses and 1.70% Underlying Fund expenses). The Manager may terminate
these voluntary reductions at any time. See "Management of the Fund."

# The Manager has agreed to limit the Total Fund Operating Expenses to 2.50%.
To the extent the aggregate expenses that relate to investments in the
Underlying Funds (which shall be paid by the Fund proportionally as a
shareholder in the Underlying Funds) exceed 1.25%, the manager shall limit
the amount to be paid by the Fund to 1.25% and will reimburse the Fund for
the excess. The Fund will invest only in the class of an Underlying Fund
that does not charge a 12b-1 fee.
</FN>
</TABLE>

Example of Expenses for the Fund

Montgomery Global Asset Allocation Fund
- --------------------------------------------------------------------------------
1 Year $25
- --------------------------------------------------------------------------------
3 Years $78
- --------------------------------------------------------------------------------
5 Years N/A
- --------------------------------------------------------------------------------
10 Years N/A
- --------------------------------------------------------------------------------

3
<PAGE>

The Fund's Investment Objective And Policies

Characteristics of the Underlying Funds

<TABLE>
The following table summarizes the characteristics of each of the Underlying
Funds:

Montgomery Growth Fund (the "Growth Fund")

4
<PAGE>

Montgomery International Growth Fund (the "International Growth Fund")

Montgomery Emerging Markets Fund (the "Emerging Markets Fund")

5
<PAGE>

Montgomery Short Government Bond Fund (the "Short Bond Fund")

THE GLOBAL ASSET ALLOCATION FUND EXPECTS TO INVEST IN OTHER GENERAL INVESTMENT
GRADE BOND FUNDS THAT ARE ADVISED BY THE MANAGER.

Montgomery Government Reserve Fund (the "Reserve Fund")

Portfolio Securities

This section describes the portfolio securities that the Underlying Funds may
invest in. As noted above, the Fund does not invest directly in any securities,
other than U.S. Government securities.

Equity Securities

Depositary Receipts

6
<PAGE>

Convertible Securities

Securities Warrants and Rights

Privatizations

Special Situations

Investment Companies

7
<PAGE>

provisions, the Manager has agreed to waive its own management fee with respect
to the portion of the Underlying Fund's assets invested in other open-end (but
not closed-end) investment companies.

Debt Securities

U.S. Government Securities

Mortgage-Related Securities and Derivative Securities

Agency Mortgage-Related Securities

8
<PAGE>

Zero Coupon Bonds

Asset-Backed Securities, Custodial Receipts, Participation Interests and Tender
Option Bonds

Other Investment Practices

Repurchase Agreements

9
<PAGE>
Government securities or other high-grade liquid debt or equity securities that
the Underlying Fund's custodian, or a designated sub-custodian separately
identifies and renders unavailable for investment ("collateral assets"). If the
seller defaults on its obligation to repurchase the underlying security, the
Underlying Fund may experience delay or difficulty in exercising its rights to
realize upon the security, may incur a loss if the value of the security
declines and may incur disposition costs in liquidating the security.

Borrowing

Reverse Repurchase Agreements

Leverage

Securities Lending

When-Issued and Forward Commitment Securities

Hedging and Risk Management Practices

10
<PAGE>

the Underlying Fund engages in hedging activities only when the Manager deems it
to be appropriate and does not necessarily engage in hedging transactions with
respect to each investment.

Forward Currency Contracts

Options on Securities, Securities Indices and Currencies

Futures and Options on Futures

Hedging Considerations

11
<PAGE>

Illiquid Securities

Defensive Investments and Portfolio Turnover

Investment Restrictions

Risk Considerations

Small Companies

Foreign Securities

12
<PAGE>

Interest Rates

13
<PAGE>

Management Of The Fund

Portfolio Managers

14
<PAGE>

Management Fees and Other Expenses

Rule 12b-1 adopted by the Securities and Exchange Commission (the "SEC") under
the Investment Company Act permits an investment company directly or indirectly
to pay expenses associated with the distribution of its shares ("distribution
expenses") in accordance with a plan adopted by the investment company's Board
of Trustees and approved by its shareholders. Pursuant to that Rule, the Trust's
Board of Trustees and the initial shareholder of the Class L shares of the Fund
have approved, and the Fund has entered into, a Share Marketing Plan (the
"Plan") with the Manager, as the distribution coordinator, for the Class L
shares. Under the Plan, the Fund will pay distribution fees to the Manager at an
annual rate of 0.75% of the Fund's

15
<PAGE>

aggregate average daily net assets attributable to its Class L shares, to
reimburse the Manager for its distribution costs with respect to that Class.

The Plan provides that the Manager may use the distribution fees received from
the Class to pay for the distribution expenses of that Class, including, but not
limited to (i) incentive compensation paid to the directors, officers and
employees of, agents for and consultants to, the Manager or any other
broker-dealer or financial institution that engages in the distribution of that
Class; and (ii) compensation to broker-dealers, financial institutions or other
persons for providing distribution assistance with respect to that Class.
Distribution fees may also be used for (i) marketing and promotional activities,
including, but not limited to, direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising for that Class; (ii) costs
of printing and distributing prospectuses, statements of additional information
and reports of the Fund to prospective investors in that Class; (iii) costs
involved in preparing, printing and distributing sales literature pertaining to
the Fund and that Class; and (iv) costs involved obtaining whatever information,
analysis and reports with respect to marketing and promotional activities that
the Fund may, from time to time, deem advisable with respect to the distribution
of that Class. Distribution fees are accrued daily and paid monthly, and are
charged as expenses of the Class L shares as accrued.

In adopting the Plan, the Board of Trustees determined that there was a
reasonable likelihood that the Plan would benefit the Fund and the shareholders
of Class L shares. Information with respect to distribution revenues and
expenses is presented to the Board of Trustees quarterly for its consideration
in connection with its deliberations as to the continuance of the Plan. In its
review of the Plan, the Board of Trustees is asked to take into consideration
expenses incurred in connection with the separate distribution of the Class L
shares.

The Class L shares are not obligated under the Plan to pay any distribution
expenses in excess of the distribution fee. Thus, if the Plan were terminated or
otherwise not continued, no amounts (other than current amounts accrued but not
yet paid) would be owed by the Class to the Manager.

The distribution fee attributable to the Class L shares is designed to permit an
investor to purchase Class L shares through broker-dealers without the
assessment of a front-end sales charge and at the same time to permit the
Manager to compensate broker-dealers on an ongoing basis in connection with the
sale of the Class L shares.

All distribution fees paid by the Fund under the Plan will be paid in accordance
with Rule 2830 of the NASD Rules of Conduct.

16
<PAGE>
may lawfully and appropriately use in its investment management and advisory
capacities. Provided the Fund receives prompt execution at competitive prices,
the Manager also may consider sale of the Fund's shares as a factor in selecting
broker-dealers for the Fund's portfolio transactions. It is anticipated that
Montgomery Securities may act as one of the Fund's brokers in the purchase and
sale of portfolio securities and, in that capacity, will receive brokerage
commissions from the Fund. The Fund will use Montgomery Securities as its broker
only when, in the judgment of the Manager and pursuant to review by the Board,
Montgomery Securities will obtain a price and execution at least as favorable as
that available from other qualified brokers. See "Execution of Portfolio
Transactions" in the Statement of Additional Information for further information
regarding Fund policies concerning execution of portfolio transactions.