MONTGOMERY FUNDS I
485BPOS, 2000-04-07
Previous: WORLD VENTURES INC, 6-K, 2000-04-07
Next: BENCHMARK ELECTRONICS INC, 8-K, 2000-04-07





As filed with the Securities and Exchange Commission on April 7, 2000
                                                              File 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. 74
                                       and

         REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
                                Amendment No. 75

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

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

                                 (415) 572-3863
              (Registrant's Telephone Number, Including Area Code)

                       Johanne Castro, Assistant Secretary
                              101 California 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)
             _X_ on April 7, 2000 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)
             ___ on ______________ pursuant to Rule 485(a)

                                   ----------

                     Please Send Copy of Communications to:

                               JULIE ALLECTA, ESQ.
                              DAVID A. HEARTH, ESQ.
                      Paul, Hastings, Janofsky & Walker LLP
                              345 California Street
                         San Francisco, California 94104
                                 (415) 835-1600


<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

         Part A - Prospectus  for  the  Montgomery   U.S.  Select  20  Portfolio
                  (formerly the Montgomery Growth 20 Portfolio).

         Part A - Prospectus for the Montgomery International 20 Portfolio.

         Part B - Combined  Statement of Additional  Information  for Montgomery
                  U.S.  Select 20 Portfolio  (formerly the Montgomery  Growth 20
                  Portfolio) and the Montgomery International 20 Portfolio.

         Part C - Other Information

         Signature Page

         Exhibits


<PAGE>



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

                                     PART A

                                 PROSPECTUS FOR

                       MONTGOMERY U.S. SELECT 20 PORTFOLIO

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



<PAGE>


Prospectus

April 7, 2000

Stock Solutions(TM) from Montgomery

     U.S. Select 20 Portfolio

The Montgomery  Funds has registered  the Portfolio  offered in this  prospectus
with the U.S.  Securities and Exchange  Commission (SEC). That registration does
not imply, however, that the SEC endorses the Portfolio.

The SEC has not  approved or  disapproved  these  securities  or passed upon the
adequacy of this prospectus.  Any  representation  to the contrary is a criminal
offense.

                                       1

<PAGE>


- ---------------------------
     How to Contact Us
- ---------------------------

[Sidebar]

Montgomery Web Site
www.montgomeryfunds.com

E-mail
[email protected]

Montgomery Shareholder
Service Representatives
800.572.FUND [3863]
Available 6:00 A.M. to 5:00 P.M.
Pacific time

Address General
Correspondence to:
The Montgomery Funds
101 California Street
San Francisco, CA
94111-9361

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

Montgomery U.S. Select 20 Portfolio...........................................
Portfolio Management..........................................................
Additional Investment Strategies and Related Risks............................
     Defensive Investments....................................................
     Portfolio Turnover.......................................................
     Internet Risks...........................................................
     Interactive Fund Risks...................................................
Investment Options............................................................
www.montgomeryfunds.com.......................................................
What You Need to Know About Your Montgomery Account...........................
     Becoming a Montgomery Stock Solutions Shareholder........................
     How Portfolio Shares Are Priced..........................................
     Montgomery Online........................................................
     Buying Additional Shares.................................................
     Exchanging Shares........................................................
     Selling Shares...........................................................
     Other Policies...........................................................
     Tax Information..........................................................
     After You Invest.........................................................

                                       2

<PAGE>


This prospectus contains important  information about the investment  objective,
strategy and risks of the  Montgomery  U.S.  Select 20 Portfolio that you should
know before you invest in the Portfolio. Please read it carefully and keep it on
hand for future reference.  Please be aware that the U.S. Select 20 Portfolio:

>    Is not a bank deposit

>    Is not  guaranteed,  endorsed or insured by any  financial  institution  or
     government entity such as the Federal Deposit Insurance Corporation (FDIC)

You should also know that you could lose money by investing in the Portfolio.

                                       3

<PAGE>


- --------------------------------------------------------------------------------
U.S. Select 20 Portfolio
- --------------------------------------------------------------------------------

     Objective

[_]  Seeks  long-term  capital  appreciation  through  concentrated  exposure to
     growth-oriented U.S. companies


Principal Strategy [clipart]

Under normal  conditions,  the Montgomery U.S. Select 20 Portfolio  invests in a
limited number of U.S. companies, typically between 20 and 30, but generally not
fewer than 20. The Portfolio  selects  companies of any size, but will invest at
least 65% of its total assets in those companies whose shares have a total stock
market value (market  capitalization) of at least $1 billion. (Below $1 billion,
a company is generally considered to be a small or micro-cap company.)

The Portfolio's strategy is to identify  well-managed U.S. companies that may be
able to increase their sales and corporate  earnings on a sustained  basis.  The
manager favors companies that he believes  exhibit sound business  fundamentals,
offer  innovative  products  or have a  competitive  advantage.  In  identifying
potential  investments,  the Portfolio's  manager and analysts  conduct in-depth
analysis of each company's current business and future prospects.

Principal Risks [clipart]

By investing in stocks, the Portfolio may expose you to certain risks that could
cause  you to lose  money,  particularly  if  there  is a  sudden  decline  in a
holding's  share price or an overall  decline in the stock  market.  As with any
stock fund, the value of your  investment  will fluctuate on a day-to-day  basis
with movements in the stock market,  as well as in response to the activities of
individual  companies.  Growth-oriented  companies are widely regarded as having
more-volatile  stock prices than companies  considered to be value oriented.  To
the extent that the Portfolio is overweighted in certain market sectors compared
with the Standard and Poor's 500  Composite  Price Index,  the  Portfolio may be
more  volatile  than the S&P 500.  This is a  non-diversified  mutual  fund that
typically invests in the securities of as few as 20 companies. Consequently, the
value  of an  investment  in  the  Portfolio  will  vary  more  in  response  to
developments  or changes in market  value  affecting  particular  stocks than an
investment  in a  diversified  mutual  fund  investing  in a  greater  number of
securities.

Call toll-free 800.572.FUND [3863]

                                       4

<PAGE>


                                                        U.S. SELECT 20 PORTFOLIO

- --------------------------------------------------------------------------------
Past  Portfolio  Performance  The  Portfolio  was launched on December 31, 1999.
Performance  results  are not  provided  because the  Portfolio  has not been in
existence for a full calendar year.
- --------------------------------------------------------------------------------

Fees & Expenses [clipart]

<TABLE>
The following  table shows the fees and expenses you may pay if you buy and hold
shares of this  Portfolio.  Montgomery does not impose any front-end or deferred
sales loads on this  Portfolio and does not charge  shareholders  for exchanging
shares or reinvesting dividends.

<S>                                                                                              <C>
Shareholder Fees (fees paid directly from your investment)
    Redemption Fee                                                                               1.00%+
Annual Portfolio Operating Expenses (expenses that are deducted from Portfolio assets)++
    Management Fee                                                                               1.00%
    Distribution/Service (12b-1) Fee                                                             0.00%
    Other Expenses#                                                                              0.40%
- --------------------------------------------------------------------------------------------------------
Total Annual Portfolio Operating Expenses                                                        1.40%

<FN>
+    The 1.00% redemption fee applies to those shares redeemed within six months
     from  the  date  of  purchase  and is paid to the  Portfolio.  $10  will be
     deducted from redemption proceeds sent by wire or overnight courier.

++   Montgomery  Asset  Management has  contractually  agreed to reduce its fees
     and/or  absorb  expenses to limit the  Portfolio's  total annual  operating
     expenses (excluding interest and tax expense) to 1.40%. This contract has a
     rolling 10-year term.

#    Other expenses are based on estimated amounts for the current fiscal year.
</FN>
</TABLE>

Example of Portfolio expenses:  This example is intended to help you compare the
cost of  investing in the  Portfolio  with the cost of investing in other mutual
funds.  The table below shows what you would pay in expenses over time,  whether
or not you sold your  shares  at the end of each  period.  It  assumes a $10,000
initial investment,  5% total return each year and no changes in expenses.  This
example is for comparison  purposes only. It does not necessarily  represent the
Portfolio's actual expenses or returns.

 1 Year        3 Years
- ----------------------
$142            $442

                                                             [clipart] [sidebar]
                                                            Portfolio Management
                                                                    Andrew Pratt
                                                     For more details see page 6

www.montgomeryfunds.com

                                       5

<PAGE>


- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------

The investment  manager of the Stock  Solutions  Portfolios is Montgomery  Asset
Management, LLC, 101 California Street, San Francisco, California 94111. Founded
in 1990,  Montgomery  Asset Management is a subsidiary of Commerzbank AG, one of
the largest publicly held commercial banks in Germany.  As of December 31, 1999,
Montgomery Asset Management  managed  approximately $5 billion on behalf of some
200,000 investors in The Montgomery Funds. Montgomery may rely on the expertise,
research  and  resources  of  Commerzbank  AG and its  worldwide  affiliates  in
managing the Portfolio.

U.S. Select 20 Portfolio

[photo]  ANDREW  PRATT,  CFA,  portfolio  manager.  Montgomery  U.S.  Select  20
Portfolio  (since  inception  1999).  Mr. Pratt joined  Montgomery  in 1993 from
Hewlett-Packard  Company, where, as an equity analyst, he managed a portfolio of
small-cap  technology  companies and  researched  private  placement and venture
capital  investments.  Prior to that, he worked in the Capital  Markets Group at
Fidelity  Investments in Boston.  Mr. Pratt holds a Bachelor of Arts degree from
the  University  of  Wisconsin  and a Master of Science in Finance  from  Boston
College. He is a chartered financial analyst.

Management Fee and Operating Expense Limits

The table below shows the annual contractual  management fee rate and the annual
contractual total operating  expense limit (excluding  interest and tax expense)
for the Portfolio.  The management fee amounts actually paid to Montgomery Asset
Management may vary from year to year, depending on actual expenses.  The actual
fee  rates  may be  greater  than  the  contractual  rates  only  to the  extent
Montgomery recouped previously deferred fees during the fiscal year.

                                         MANAGEMENT FEES     TOTAL EXPENSE LIMIT
STOCK SOLUTIONS PORTFOLIO                 (annual rate)         (annual rate)
- --------------------------------------------------------------------------------
U.S. Select 20 Portfolio                     1.00%                   1.40%

Call toll-free 800.572.FUND [3863]

                                       6

<PAGE>


- --------------------------------------------------------------------------------
Additional Investment Strategies and Related Risks
- --------------------------------------------------------------------------------

Defensive Investments

At the discretion of its portfolio manager,  the Portfolio may invest up to 100%
of its assets in cash for temporary defensive  purposes.  Although the Portfolio
is not required or expected to take such a defensive  posture,  such an unlikely
stance may help the Portfolio  minimize or avoid losses during  adverse  market,
economic or political  conditions.  During such a period,  the Portfolio may not
achieve its investment objective.  For example, should the market advance during
this period,  the Portfolio may not  participate  as much as it would have if it
had been more fully invested.

Portfolio Turnover

The Portfolio's  manager will sell a security when he believes it is appropriate
to do so,  regardless of how long the Portfolio has owned that security.  Buying
and selling securities generally involves some expense to the Portfolio, such as
commission paid to brokers and other  transaction  costs. By selling a security,
the  Portfolio  may  realize  taxable  capital  gains that it will  subsequently
distribute  to  shareholders.  Generally  speaking,  the higher the  Portfolio's
annual portfolio  turnover,  the greater its brokerage costs and the greater the
likelihood that it will realize taxable capital gains. Increased brokerage costs
may  adversely  affect  the  Portfolio's  performance.  Also,  unless  you are a
tax-exempt investor or you purchase shares through a tax-deferred  account,  the
distribution of capital gains may affect your after-tax return. Annual portfolio
turnover of 100% or more, as is expected for the Portfolio, is considered high.

Internet Risks

An interruption in transmissions  over the Internet  generally,  or a problem in
the  transmission of  www.montgomeryfunds.com  in particular,  could result in a
delay or  interruption in your ability to access our Web site, to place purchase
or sale orders with the Portfolio,  to receive certain  shareholder  information
electronically or otherwise to interact with the Portfolio.

Interactive Fund Risks

To the extent  practicable,  Montgomery intends to post portfolio holdings every
week,  which  could pose the risk of  investors  using such  information  to the
detriment of the Portfolio.  In order to help mitigate this potential  risk, the
information  will only be provided to the Portfolio's  current  shareholders and
will be posted on a time-delayed basis of approximately two weeks.

Portfolio  holdings  are  subject  to change  and  should  not be  considered  a
recommendation  to buy  individual  securities.  Past  performance of individual
securities, as well as that of the Portfolio, is no guarantee of future results.

www.montgomeryfunds.com

                                       7

<PAGE>


<TABLE>
[table]

<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Options
- ------------------------------------------------------------------------------------------------------------------------------------

To open a new account,  complete and mail the New Account application included with this prospectus ($2,500 minimum), or complete an
application online by accessing our Web site at www.montgomeryfunds.com  ($1,000 minimum).

<S>                                                                     <C>
Purchase and redemption requests received after 1:00                    |_|  Buy, sell or exchange shares online*
P.M. Pacific time (4:00 P.M. eastern time) will be                           Go to the Account Access area of
executed at the following business day's closing price.                      www.montgomeryfunds.com. Follow the instructions
Once a trade is placed it may not be altered or                              to log in, then look for the View Details/Transact
canceled.                                                                    button next to your U.S. Select 20 account to buy,
                                                                             sell or exchange.
Checks should be made payable to:
The Montgomery Funds                                                    |_|  Buy, sell or exchange shares by phone*
                                                                             Contact The Montgomery Funds at 800.572.FUND
The minimum initial investment is $2,500 for the                             [3863]. Press (1) for a shareholder service
Portfolio, unless you use an application printed from                        representative. Press (2) for the automated
our Web site at www.montgomeryfunds.com, in which case                       Montgomery Star System.
the minimum is just $1,000. The minimum subsequent
investment is $100.                                                     |_|  Buy or sell shares by mail
                                                                             Mail buy/sell order(s) with your check:
For assistance e-mail us at                                                  By regular mail:
[email protected], or call 800.572.FUND                           The Montgomery Funds
[3863].                                                                      c/o DST Systems, Inc.
                                                                             P.O. Box 219073
Currently, an investment in this Portfolio can be made                       Kansas City, MO 64121-9073
only through The Montgomery Funds. Please call for
information on availability through third parties.                           By express or overnight service:

Once your account is established, you can:                                   The Montgomery Funds
                                                                             c/o DST Systems, Inc.
|_|  Gain exclusive access                                                   210 West 10th Street, 8th Floor
     View all stocks in the U.S. Select 20 Portfolio                         Kansas City, MO 64105-1614
     along with the portfolio manager's buy-and-sell
     decisions and more. Go to the Account Access area                  |_|  Buy or sell shares by wiring funds
     of www.montgomeryfunds.com. Follow the                                  To: Investors Fiduciary Trust Company
     instructions to create a PIN and login, then look                       ABA #101003621
     for the Stock Solutions button next to your U.S.                        For: DST Systems, Inc.
     Select 20 account.                                                      Account #7526601
                                                                             Attention: The Montgomery Funds
                                                                             For credit to: [shareholder(s) name]
                                                                             Shareholder account number:
                                                                             [shareholder(s) account number]
                                                                             Name of Portfolio: [Montgomery Portfolio Name]

<FN>
*To have shares automatically debited from or deposited to your bank account you must have our Electronic Link activated. (See page
__ for instructions.)
</FN>
</TABLE>

Call toll-free 800.572.FUND [3863]

                                                                 8

<PAGE>


                                                             ACCOUNT INFORMATION

[Table]
www.montgomeryfunds.com

Manage your Stock Solutions account online. Our Account Access area offers free,
secure access to your Montgomery Stock Solutions Portfolio around-the-clock.

At www.montgomeryfunds.com Montgomery Stock Solutions shareholders can:


>    View Portfolio holdings 24 hours a day
>    Track statistics on current holdings  including  previous close, day's high
     and low, trading volume and more
>    View stock charts that plot portfolio  holdings  against indices as well as
     the competition
>    Read portfolio manager's rationale for buy-and-sell decisions
>    Check current account balances
>    Buy, exchange or sell shares
>    View the most  recent  account  activity  and up to 80  records  of account
     history within the past two years
>    View tax summaries
>    View current versions of the Portfolio's prospectus,  annual and semiannual
     reports,   proxy  statements,   quarterly  account   statements  and  other
     shareholder information
>    Order duplicate statements and tax forms
>    Change address of record

Access your Stock  Solutions  account online today.  Simply click on the Account
Access  tab  and  follow   the  simple   steps  to  create  a  secure   personal
identification  number  (PIN).  Once  you have  logged  in,  look for the  Stock
Solutions  button next to your U.S Select 20 Account for Portfolio  holdings and
investment  details.  Click  the  View  Details/Transact   button  to  get  your
account-specific details or to transact online. Please note "Internet Risks" and
"Interactive Fund Risks" on page __.

Please note that for your  protection  this secure area of our Web site requires
the use of browsers with 128-bit  encryption.  If you are not sure what level of
security your browser supports, click on our convenient browser check.

[clipart]

www.montgomeryfunds.com

                                       9

<PAGE>


- --------------------------------------------------------------------------------
What You Need to Know About Your Montgomery Account
- --------------------------------------------------------------------------------

You pay no sales charge to invest in the Stock Solutions Portfolio.  The minimum
initial  investment is $2,500 unless you use an application from our Web site or
exchange into the Portfolio  online.  In that case,  the minimum is just $1,000.
The minimum subsequent investment is $100. Under certain conditions we may waive
these  minimums.  If you buy  shares  through  a broker or  investment  advisor,
different requirements may apply. All investments must be made in U.S. dollars.

     We must  receive  payment  from  you  within  three  business  days of your
purchase. In addition,  the Portfolio and the Distributor each reserve the right
to reject all or part of any purchase.

     From time to time,  Montgomery  may close and reopen the  Portfolio  to new
investors at its discretion.  Shareholders  who maintain open accounts that meet
the minimum  required balance of $1,000 in the Portfolio when it closes may make
additional  investments  in it. If the  Portfolio  is closed and you redeem your
total  investment in it, your account will be closed and you will not be able to
make any additional investments in the Portfolio.  The Montgomery Funds reserves
the right to close or liquidate the Portfolio at its discretion.

Becoming a Montgomery Stock Solutions Shareholder

To open a new account:

|_| Online Go to  www.montgomeryfunds.com.  Print and  complete the online Stock
Solutions  New  Account  application  and  send it with a check  payable  to The
Montgomery Funds to the appropriate  address (see sidebar on this page). You can
also open a new account  online by  exchanging  at least $1,000 from an existing
account into the U.S. Select 20 Portfolio.

|_| By Mail Send your completed  application  (included with this  prospectus or
printed from  www.montgomeryfunds.com),  with a check payable to The  Montgomery
Funds, to the appropriate address.  Your check must be in U.S. dollars and drawn
only on a bank located in the United States.  Dividends do not accrue until your
check has  cleared.  We do not  accept  third-party  checks,  "starter"  checks,
credit-card  checks,  instant-loan  checks or cash investments.  We may impose a
charge on checks that do not clear.

|_| By Wire Call us at  800.572.FUND  [3863]  to let us know that you  intend to
make your initial  investment by wire. Tell us your name and the amount you want
to invest in the U.S. Select 20 Portfolio. We will give you further instructions
and  a  fax  number  to  which  you  should  send  your  completed  New  Account
application.  To  ensure  that we handle  your  investment  accurately,  include
complete account information in all wire instructions. Then request your bank to
wire money from your account to the attention of:

Investors Fiduciary Trust Company
ABA #101003621
For: DST Systems, Inc.

and include the following:

Account #7526601
Attention: The Montgomery Funds
For credit to: [shareholder(s) name]
Shareholder Account Number:
[shareholder(s) account number]
Name of Portfolio: [Montgomery Portfolio name]

Please note that your bank may charge a wire transfer fee.

Call toll-free 800.572.FUND [3863]

                                       10

<PAGE>


|_| By Phone To make an  initial  investment  by  phone,  you must  have  been a
current  Montgomery  shareholder  for at least 30 days.  Shares  for  Individual
Retirement Accounts (IRAs) may not be purchased by phone. Your new purchase must
meet the  investment  minimum and is limited to the total value of your existing
accounts or $10,000, whichever is greater. To complete the transaction,  we must
receive  payment within three business days. We reserve the right to collect any
losses from your account if we do not receive payment within that time.


                                               [sidebar]
                                               GETTING STARTED

                                               To invest, complete and send the
                                               New Account application enclosed
                                               with this prospectus or complete
                                               and sign the application from our
                                               Web site at
                                               www.montgomeryfunds.com. Send a
                                               check payable to The Montgomery
                                               Funds.

                                               Regular Mail
                                               The Montgomery Funds
                                               c/o DST Systems, Inc.
                                               P.O. Box 219073
                                               Kansas City, MO 64121-9073

                                               Express Mail or Overnight Courier
                                               The Montgomery Funds
                                               c/o DST Systems, Inc.
                                               210 West 10th Street
                                               8th Floor
                                               Kansas City, MO 64105-1614

                                               Foreign Investors:
                                               Foreign citizens and resident
                                               aliens of the United States
                                               living abroad may not invest in
                                               Stock Solutions Portfolios.

How Portfolio Shares Are Priced

How and when we  calculate  the  Portfolio's  price  or net  asset  value  (NAV)
determines  the price at which you will buy or sell  shares.  We  calculate  the
Portfolio's  NAV by dividing  the total net value of its assets by the number of
outstanding  shares.  We base the value of the Portfolio's  investments on their
market value, usually the last price reported for each security before the close
of market that day. A market  price may not be  available  for  securities  that
trade infrequently.  Occasionally,  an event that affects a security's value may
occur after the market closes.

     We calculate the NAV of the Portfolio after the close of trading on the New
York Stock Exchange  (NYSE) every day the NYSE is open. We do not calculate NAVs
on the days on which the NYSE is closed for trading. If we receive your order by
the  close  of  trading  on the  NYSE,  you can  purchase  shares  at the  price
calculated  for that day. The NYSE usually  closes at 4:00 P.M.  eastern time on
weekdays,  except for  holidays.  If your order is  received  after the NYSE has
closed, your shares will be priced at the next NAV we determine after receipt of
your order.  More details about how we calculate the  Portfolio's  NAV is in the
Statement of Additional Information.

[sidebar]
TRADING TIMES
Whether buying, exchanging or selling shares,
transaction requests received after 1:00 P.M. Pacific
time (4:00 P.M. eastern time) will be executed at the
next business day's closing price.

www.montgomeryfunds.com

                                       11

<PAGE>


Buying Additional Shares

|_| Online To buy shares online,  you must first set up an Electronic Link. Then
visit  our Web  site,  www.montgomeryfunds.com,  where  you can  purchase  up to
$25,000 per day in additional shares of the Montgomery U.S. Select 20 Portfolio,
unless they are held in a retirement account.  Once in the secure Account Access
area,  you  will be  asked  to  confirm  that  you  have  read  the  appropriate
prospectus.  The Portfolio's  current  prospectus will be readily  available for
viewing  and  printing  on our  Web  site.  The  cost  of  the  shares  will  be
automatically deducted from your bank account.

|_| By Mail Complete the form at the bottom of any Montgomery statement and mail
it with your check  payable to The  Montgomery  Funds.  Or mail the check with a
signed  letter noting the  Montgomery  U.S.  Select 20  Portfolio,  your account
number and telephone number. We will mail you a confirmation of your investment.
Note that we may impose a charge on checks that do not clear.

|_| By Phone Current  shareholders are  automatically  eligible to buy shares by
phone.  To  buy  shares  in  the  Portfolio  or  to  open  a new  account,  call
800.572.FUND  [3863].  Shares for IRAs may not be purchased by phone.  Telephone
purchases can be made for up to five times your account value as of the previous
day.

     We must receive  payment for your  purchase  within three  business days of
your request. To ensure that we do, you can:

>    Transfer money directly from your bank account by mailing a written request
     and a voided check or deposit slip (for a savings account)

>    Send us a check by overnight or second-day courier service

>    Instruct  your  bank  to  wire  money  to our  affiliated  bank  using  the
     information in "Becoming a Montgomery  Stock Solutions  Shareholder"  (page
     __)

|_| By Wire  There is no need to  contact us when  buying  additional  shares by
wire.  Instruct  your  bank to wire  funds  to our  affiliated  bank  using  the
information under "Becoming a Montgomery Stock Solutions Shareholder" (page __)

Exchanging Shares

You may exchange shares of the Portfolio for shares in the same class of another
Fund, in accounts with the same registration, Taxpayer Identification Number and
address.  The minimum  initial  investment  is $1,000.  Note that an exchange is
treated as a sale and may result in a  realized  gain or loss for tax  purposes.
You may  exchange  shares  online  at  www.montgomeryfunds.com  or by  phone  at
800.572.FUND [3863].

Other Exchange Policies

|_| We will process your exchange order at the next-calculated NAV.

|_| You may exchange  shares only if the Portfolio is qualified for sale in your
state. Call  800.572.FUND  [3863] for information on availability in your state.
You may not exchange  shares in the Portfolio  for shares of another  Montgomery
Fund that is  currently  closed to new  shareholders  unless  you are  already a
shareholder in the closed Fund.

|_| Because excessive exchanges can harm the Portfolio's performance, we reserve
the  right to  terminate  your  exchange  privileges  if you make more than four
exchanges  out of the  Montgomery  U.S.  Select 20  Portfolio  during a 12-month
period.  We may also refuse an exchange into the  Portfolio  from which you have
sold shares  within the  previous 90 days  (accounts  under  common  control and
accounts  having  the  same  Taxpayer  Identification  Number  will  be  counted
together).

Call toll-free 800.572.FUND [3863]

                                       12

<PAGE>


Our Electronic Link program allows us to automatically debit or credit your bank
account for  transactions  made by phone or online.  To take  advantage  of this
service, simply mail us a voided check or preprinted deposit slip from your bank
account along with a request to establish an Electronic Link.

|_| We may  restrict  or refuse your  exchanges  if we  receive,  or  anticipate
receiving,  simultaneous  orders  affecting a large  portion of the  Portfolio's
assets or if we detect a pattern of  exchanges  that  suggests  a  market-timing
strategy.

|_| We reserve the right to refuse exchanges into the Portfolio by any person or
group if, in our judgment,  the Portfolio would be unable to effectively  invest
the money in accordance with its investment objective and policies,  or might be
adversely affected in other ways.

|_| Any  redemption  fees will  apply to  exchanges  or  redemptions  out of the
Portfolio.

Selling Shares

You may sell some or all of your U.S.  Select 20  Portfolio  shares on days that
the New York Stock  Exchange  is open for  trading.  Note that a  redemption  is
treated as a sale and may result in a realized gain or loss for tax purposes.

     Your shares  will be sold at the next NAV we  calculate  for the  Portfolio
after receiving your order.  We will promptly pay the proceeds to you,  normally
within three business days of receiving  your order and all necessary  documents
(including a written redemption order with the appropriate signature guarantee).
We will mail or wire you the proceeds,  depending on your  instructions.  Shares
purchased  by check will be priced upon  receipt of you order,  but proceeds may
not be paid  until  your  check  clears,  which may take up to 15 days after the
purchase  date.  Within this 15-day  period,  you may choose to exchange  into a
Montgomery  Money Market Fund provided you have received and read the prospectus
for that Money Market Fund.

     Aside from any applicable redemption fees, we generally will not charge you
any fees when you sell your shares, although there are some minor exceptions:

>    For shares sold by wire a $10 wire  transfer fee will be deducted  directly
     from your proceeds.

>    For  redemption  checks  requested  by Federal  Express,  a $10 fee will be
     deducted directly from the redemption proceeds.

     In  accordance  with the rules of the  Securities  and Exchange  Commission
(SEC)  we  reserve  the  right  to  suspend   redemptions  under   extraordinary
circumstances.

     Shares can be sold in several ways:

|_| Online You may accept or decline Internet redemption  privileges on your New
Account  application.  If you accept,  you can sell up to $50,000 in shares in a
regular account in the Account Access section of wwwmontgomeryfunds.com.

|_| By Phone You may accept or decline telephone  redemption  privileges on your
New Account  application.  If you accept, you will be able to sell up to $50,000
in shares through one of our shareholder service  representatives or through our
automated Star System at 800.572.FUND  [3863]. You may not buy or sell shares in
a retirement account by phone. If you included bank wire information on your New
Account  application or made arrangements  later for wire redemptions,  proceeds
can be wired to your bank  account.  Please allow at least two business days for
the proceeds to be credited to your bank account. If you want proceeds to arrive
at your bank on the same business day (subject to bank cutoff times), there is a
$10 fee. For more  information  about our telephone  transaction  policies,  see
"Internet and  Telephone  Transaction."

|_| By Mail Send us a letter including your name, Montgomery account number, the
Portfolio  from  which you would like to sell  shares  and the dollar  amount or
number of shares  you want to sell.  You must sign the  letter the same way your
account is registered. If you have a joint account, all accountholders must sign
the letter.

www.montgomeryfunds.com

                                       13

<PAGE>


     If you want the  proceeds to go to a party other than the account  owner(s)
or your predesignated  bank account,  or if the dollar amount of your redemption
exceeds  $50,000,  you must obtain a signature  guarantee (not a  notarization),
available from many commercial banks,  savings  associations,  stock brokers and
other National Association of Securities Dealers member firms.

     If  you  want  to  wire  your  redemption   proceeds  but  do  not  have  a
predesignated bank account, include a preprinted,  voided check or deposit slip.
If you do not have a preprinted check, please send a signature-guaranteed letter
along  with  your bank  instructions.  The  minimum  wire  amount is $500.  Wire
charges,  if any, will be deducted from the redemption  proceeds.  We may permit
lesser wire amounts or fees at our discretion. Call 800.572.FUND [3863] for more
details.

                                               [sidebar]
                                               Shareholder service is available
                                               Monday through Friday from 6:00
                                               a.m. to 5:00 P.M. Pacific time.

                                               Shareholders can get information
                                               or perform transactions
                                               around-the-clock at
                                               www.montgomeryfunds.com or
                                               through the Montgomery Star
                                               System.

|_|  Redemption  Fee The  redemption fee is intended to compensate the Portfolio
for the increased expenses to longer-term shareholders and the disruptive effect
on the Portfolio  caused by short-term  investments.  The redemption fee will be
assessed on the net asset value of the shares  redeemed or exchanged and will be
deducted from the redemption proceeds otherwise payable to the shareholder.  The
Portfolio will retain the fee charged.

Other Policies

Minimum Account Balances

Due to the cost of  maintaining  small  accounts,  we require a minimum  account
balance of $1,000.  If your  account  balance  falls  below that  amount for any
reason,  we will ask you to add to your account.  If your account balance is not
brought  up to the  minimum  or you do not send us other  instructions,  we will
redeem your shares and send you the proceeds.  We believe that this policy is in
the best interest of all our shareholders.

Expense Limitations

Montgomery  Asset  Management may reduce its management fees and absorb expenses
in order to maintain total operating  expenses  (excluding  interest,  taxes and
dividend  expenses) for the Portfolio below its previously set operating expense
limit.  The Investment  Management  Agreement  allows  Montgomery three years to
recoup amounts  previously  reduced or absorbed,  provided the Portfolio remains
within the applicable expense limitation.  Montgomery  generally seeks to recoup
the oldest amounts  before seeking  payment of fees and expenses for the current
year.

Uncashed Redemption Checks

If you receive your  Portfolio  redemption  proceeds or  distributions  by check
(instead of by wire) and it does not arrive within a reasonable  period of time,
call us at 800.572.FUND  [3863].  Please note that we are  responsible  only for
mailing  redemption or distribution  checks and are not responsible for tracking
uncashed  checks or  determining  why  checks  are  uncashed.  If your  check is
returned to us by the U.S.  Postal  Service or other delivery  service,  we will
hold it on your behalf for a reasonable  period of time.  We will not invest the
proceeds in any  interest-bearing  account.  No interest will accrue on uncashed
distribution or redemption proceeds.

Call toll-free 800.572.FUND [3863]

                                       14

<PAGE>


Transaction Confirmation

If you notice any errors on your  confirmation,  you must notify  Montgomery  of
such errors within 30 days following  mailing of that  confirmation.  Montgomery
will not be responsible for any loss, damage, cost or expense arising out of any
transaction that appears on your confirmation after this 30-day period.

Internet and Telephone Transactions

By buying or selling  shares  through  the  Internet  or by phone,  you agree to
reimburse the Portfolio for any expenses or losses  incurred in connection  with
transfers  of money from your  account.  This  includes  any losses or  expenses
caused by your bank's failure to honor your debit or act in accordance with your
instructions.  If your bank makes  erroneous  payments or fails to make  payment
after you buy shares, we may cancel the purchase and immediately  terminate your
Internet and telephone transaction privileges.

     The shares you purchase  through the Internet or by phone will be priced at
the first net asset value we determine  after  receiving your request.  You will
not actually own the shares,  however, until we receive your payment in full. If
we do not receive your payment  within three  business days of your request,  we
will cancel your purchase. You may be responsible for any losses incurred by the
Portfolio as a result.

     Please  note  that  we  cannot  be  held  liable  for  following  telephone
instructions  that we  reasonably  believe to be genuine.  We use the  following
safeguards  to  ensure  that  the  instructions  we  receive  are  accurate  and
authentic:

>    Recording certain calls

>    Requiring an authorization  number or other personal information not likely
     to be known by others

>    Sending a transaction confirmation to the investor

     The Portfolio and our Transfer  Agent may be held liable for any losses due
to unauthorized or fraudulent Internet or telephone transactions only if we have
not followed these reasonable procedures.

     We reserve the right to revoke the transaction privilege of any shareholder
at any time if he or she has used abusive language over the phone or misused the
Internet or phone privilege by making  purchases and redemptions  that appear to
be part of a systematic market-timing strategy.

     If you notify us that your address has changed, we will temporarily suspend
your  Internet  and  telephone  redemption  privileges  until 30 days after your
notification to protect you and your account. We require all redemption requests
made during this period to be in writing with a signature guarantee.

     Shareholders  may  experience  delays in  exercising  Internet or telephone
redemption  privileges during periods of volatile economic or market conditions.
In these cases you may want to transmit  your  redemption  request:

>    Using the automated Star System

>    By overnight courier

>    By telegram

You may discontinue Internet or phone privileges at any time.

www.montgomeryfunds.com

                                       15

<PAGE>


[sidebar]

OUR PARTNERS

As a Montgomery shareholder, you may see the names of
our partners on a regular basis. We all work together
to ensure that your investments are handled accurately
and efficiently.

Funds Distributor, Inc., located in New York City and
Boston, distributes the Portfolio.

DST Systems, Inc., located in Kansas City, Missouri, is
the Portfolio' Master Transfer Agent. It performs
certain record keeping and accounting functions for the
Portfolio.

Investors Fiduciary Trust Company, also located in
Kansas City, Missouri, assists DST Systems, Inc. with
certain record keeping and accounting functions for the
Portfolio.


Tax Withholding Information

Be sure to complete the Taxpayer  Identification Number (TIN) section of the New
Account  application.  If you don't have a Social  Security Number or TIN, apply
for one  immediately  by  contacting  your local  office of the Social  Security
Administration  or the Internal  Revenue Service (IRS). If you do not provide us
with a TIN or a  Social  Security  Number,  federal  tax law may  require  us to
withhold  31%  of  your  taxable  dividends,   capital-gain  distributions,  and
redemption  and exchange  proceeds  (unless you qualify as an exempt payee under
certain rules).

     Other rules about TINs apply for certain investors. For example, if you are
establishing  an account for a minor under the Uniform  Gifts to Minors Act, you
should furnish the minor's TIN. If the IRS has notified you that you are subject
to backup  withholding  because you failed to report all  interest  and dividend
income  on your tax  return,  you must  check  the  appropriate  item on the New
Account  application.  Foreign  shareholders  should note that any dividends the
Portfolio pays to them may be subject to up to 30% withholding instead of backup
withholding.

                                               [sidebar]
                                               INVESTMENT MINIMUMS

                                               The minimum initial investment is
                                               $1,000 for the Portfolio when
                                               using an online application.
                                               Otherwise it is $2,500. The
                                               minimum subsequent investment is
                                               $100.

After You Invest

Taxes

IRS rules  require  that the  Portfolio  distributes  all of its net  investment
income and capital gains, if any, to shareholders.  Capital gains may be taxable
at different  rates  depending  upon the length of time the Portfolio  holds its
assets.  We will inform you about the source of any  dividends and capital gains
upon payment.  After the close of each calendar  year, we will advise you of the
tax  status.  The  Portfolio's  distributions,   whether  received  in  cash  or
reinvested,  may be taxable.  Any  redemption of the  Portfolio's  shares or any
exchange of the  Portfolio's  shares for another Fund will be treated as a sale,
and any gain on the transaction may be taxable.

Call toll-free 800.572.FUND [3863]

                                       16

<PAGE>


     Additional  information  about tax issues  relating to the Portfolio can be
found in our  Statement of  Additional  Information,  available  free by calling
800.572.FUND   [3863].   Consult  your  tax  advisor  about  the  potential  tax
consequences of investing in the Portfolio.

Dividends and Distributions

As a shareholder in the  Montgomery  U.S.  Select 20 Portfolio,  you may receive
income  dividends and  capital-gain  distributions  for which you will owe taxes
(unless you invest solely through a  tax-advantaged  account such as an IRA or a
401(k) plan).  Income dividends and capital-gain  distributions  are paid to all
shareholders who maintain accounts with the Portfolio as of its "record date."

     If you would like to receive dividends and distributions in cash,  indicate
that choice on your New Account application. Otherwise, the distribution will be
reinvested in additional Portfolio shares.

Keeping You Informed

<TABLE>
After you invest you will receive, either by regular mail or electronically, our
Shareholder  Services  Guide,  which  includes  more  information  about buying,
exchanging and selling shares in the Portfolio. It also describes in more detail
useful  tools for  investors  such as the  Montgomery  Star  System  and  online
transactions.

<CAPTION>
                                         INCOME DIVIDENDS                     CAPITAL GAINS
<S>                            <C>                                   <C>
U.S. Select 20 Portfolio       Declared and paid in the last         Declared and paid in the last
                               quarter of each calendar year*        quarter of each calendar year*

<FN>
*Following  its fiscal year end (June 30),  the  Portfolio  may make  additional
distributions to avoid the imposition of a tax.
</FN>
</TABLE>

     During the year, we will also send you,  either by mail or  electronically,
the following  communications:

>    Confirmation statements

>    Account statements, sent after the close of each calendar quarter

>    Annual and semiannual reports, sent approximately 60 days after June 30 and
     December 31

>    1099 tax form, sent by January 31

>    Annual updated prospectus, sent to existing shareholders in the fall

     To save you  money,  we send  only one copy of each  shareholder  report or
other mailings to your household if you hold accounts under common  ownership or
at the same address  (regardless  of the number of  shareholders  or accounts at
that household or address),  unless you request additional copies. You also have
the option of receiving the shareholder report or other mailings  electronically
to the extent Montgomery can provide it. Your consent to receive these materials
electronically  is effective until further notice by Montgomery or revocation by
you.

www.montgomeryfunds.com

                                       17

<PAGE>


                                               [sidebar]

                                               HOW TO AVOID "BUYING A DIVIDEND"

                                               If you plan to purchase shares in
                                               the Portfolio, check if it is
                                               planning to make a distribution
                                               in the near future. Here's why:
                                               If you buy shares of the
                                               Portfolio just before a
                                               distribution, you'll pay full
                                               price for the shares but receive
                                               a portion of your purchase price
                                               back as a taxable distribution.
                                               This is called "buying a
                                               dividend." Unless you hold the
                                               Portfolio in a tax-deferred
                                               account, you will have to include
                                               the distribution in your gross
                                               income for tax purposes, even
                                               though you may not have
                                               participated in the increase of
                                               the Portfolio's appreciation.

Call toll-free 800.572.FUND [3863]

                                       18

<PAGE>


The best place to get information  about the Montgomery U.S. Select 20 Portfolio
is online at  www.montgomeryfunds.com.  You can also find more information about
the Portfolio's  investment policies in the Statement of Additional  Information
(SAI), incorporated by reference in this prospectus,  which is available free of
charge.

You can also find  further  information  about the  Portfolio  in our annual and
semiannual   shareholder  reports,  which  discuss  the  market  conditions  and
investment  strategies that significantly  affected the Portfolio's  performance
during its most  recent  fiscal  period.  To  request a copy of the most  recent
annual or semiannual report, please call us at 800.572.FUND [3863], option 3, or
visit www.montgomeryfunds.com.

To request a free copy of the SAI,  call us at  800.572.  FUND  [3863].  You can
review and copy further  information about the Portfolio,  including the SAI, at
the  Securities  and Exchange  Commission's  (SEC's)  Public  Reference  Room in
Washington,  D.C. To obtain information on the operation of the Public Reference
Room please call 202.942.8090. Reports and other information about the Portfolio
are available at the SEC's Web site at  www.sec.gov.  You can also obtain copies
of this  information,  upon payment of a duplicating  fee, by writing the Public
Reference Section of the SEC, Washington, D.C., 20549-6009, or e-mailing the SEC
at [email protected].

Corporate Headquarters:
The Montgomery Funds
101 California Street
San Francisco, CA 94111-9361
800.572.FUND [3863]
wwwmontgomeryfunds.com


                                    SEC File Nos.: The Montgomery Funds 811-6011

                                                    Funds Distributor, Inc. 4/00

Owl logo
Invest wisely(R)
The Montgomery Funds(SM)
101 California Street
San Francisco, CA 94111-9361

- ---------------------------
  www.montgomeryfunds.com
   (800) 572.FUND [3863]
- ---------------------------

www.montgomeryfunds.com

                                       19

<PAGE>



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

                                     PART A

                                 PROSPECTUS FOR

                      MONTGOMERY INTERNATIONAL 20 PORTFOLIO

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



<PAGE>


Prospectus

April 7, 2000


The Montgomery Funds

     International 20 Portfolio

The Montgomery  Funds has registered  the Portfolio  offered in this  prospectus
with the U.S.  Securities and Exchange  Commission (SEC). That registration does
not imply, however, that the SEC endorses the Portfolio.

The SEC has not  approved or  disapproved  these  securities  or passed upon the
adequacy of this prospectus.  Any  representation  to the contrary is a criminal
offense.

                                       1

<PAGE>


- ---------------------------
     How to Contact Us
- ---------------------------

[Sidebar]


E-mail
[email protected]

Montgomery Shareholder
Service Representatives
800.572.FUND [3863]
Available 6:00 A.M. to 5:00 P.M.
Pacific time

Address General
Correspondence to:
The Montgomery Funds
101 California Street
San Francisco, CA
94111-9361

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

Montgomery International 20 Portfolio.........................................
Portfolio Management..........................................................
Additional Investment Strategies and Related Risks............................
     Montgomery International 20 Portfolio....................................
     Defensive Investments....................................................
     Portfolio Turnover.......................................................
     The Euro-Single European Currency........................................
Investment Options............................................................
What You Need to Know About Your Montgomery Account...........................
     Becoming a Montgomery Shareholder........................................
     How Portfolio Shares Are Priced..........................................
     Buying Additional Shares.................................................
     Exchanging Shares........................................................
     Selling Shares...........................................................
     Other Policies...........................................................
     Tax Withholding Information..............................................
     After You Invest.........................................................

                                       2

<PAGE>


This prospectus contains important  information about the investment  objective,
strategy and risks of the Montgomery  International 20 Portfolio that you should
know before you invest in the Portfolio. Please read it carefully and keep it on
hand for future reference.  Please be aware that the International 20 Portfolio:

>    Is not a bank  deposit

>    Is not  guaranteed,  endorsed or insured by any  financial  institution  or
     government entity such as the Federal Deposit Insurance Corporation (FDIC)

You should also know that you could lose money by investing in the Portfolio.

                                       3

<PAGE>


- --------------------------------------------------------------------------------
International 20 Portfolio |
- --------------------------------------------------------------------------------

Objective

[_]  Seeks  long-term  capital  appreciation  through  concentrated  exposure to
     companies in developed international stock markets

Principal Strategy  [clipart]

Under normal conditions,  the Montgomery International 20 Portfolio invests in a
limited number of companies outside the United States,  typically between 20 and
30, but  generally  not fewer than 20, and will invest at least 65% of its total
assets in those  companies  whose shares have a total stock market value (market
capitalization)  of  at  least  $1  billion.  The  Portfolio   concentrates  its
investments  in the stock  markets of western  Europe,  particularly  the United
Kingdom,  France,  Germany,  Italy  and the  Netherlands,  as well as  developed
markets in Asia, such as Japan and Hong Kong. The Portfolio typically invests in
at least three countries outside the United States, with no more than 40% of its
assets (or twice the benchmark index weighting used by the Portfolio,  whichever
is greater) in any one  country.  Montgomery  currently  expects that only those
investments in Japan could exceed that 40% limit.

The portfolio  managers seek  well-managed  companies  that they believe will be
able to increase  their sales and corporate  earnings on a sustained  basis.  In
addition, the portfolio managers purchase shares of companies that they consider
to be under- or  reasonably-valued  relative to their long-term  prospects.  The
managers favor companies that they believe have a competitive  advantage,  offer
innovative  products or services and may profit from such trends as deregulation
and privatization. On a strategic basis, the Portfolio's assets may be allocated
among  countries  in  an  attempt  to  take  advantage  of  market  trends.  The
Portfolio's  managers and analysts  frequently  travel to the countries in which
the Portfolio invests or may invest to gain firsthand insight into the economic,
political and social trends that affect investments in those countries.

Principal Risks  [clipart]

By investing in stocks, the Portfolio may expose you to certain risks that could
cause  you to lose  money,  particularly  if  there  is a  sudden  decline  in a
holding's  share price or an overall  decline in the stock  market.  As with any
stock fund, the value of your  investment  will fluctuate on a day-to-day  basis
with movements in the stock market,  as well as in response to the activities of
individual  companies.  This is a  non-diversified  mutual  fund that  typically
invests in the securities of as few as 20 companies.  Consequently, the value of
an  investment in the Portfolio  will vary more in response to  developments  or
changes in market value  affecting  particular  stocks than an  investment  in a
diversified mutual fund investing in a greater number of securities.

By investing  primarily in foreign stocks, the Portfolio may expose shareholders
to  additional  risks.  Foreign  stock markets tend to be more volatile than the
U.S. market due to economic and political  instability and regulatory conditions
in some  countries.  In addition,  most of the securities in which the Portfolio
invests are denominated in foreign  currencies,  whose value may decline against
the U.S. dollar.  To the extent that the Portfolio  invests in small-cap foreign
stocks,  it may expose  shareholders  to additional  risks.  These risks include
limited or inaccurate  information;  limited product lines, markets or financial
resources;  and securities that may trade less frequently and in limited volume.
As a result,  small-cap  stocks may fluctuate  significantly  more in value than
larger-cap stocks.

Because of the possible concentration of the Portfolio's investments in Japanese
companies,  investors  should be aware of the special risks  associated  with an
emphasis on Japanese  stocks.  See "Additional  Investment  Strategy and Related
Risks."

Call toll-free 800.572.FUND[3863]

                                       4

<PAGE>


                                                      INTERNATIONAL 20 PORTFOLIO

- --------------------------------------------------------------------------------
Past  Portfolio  Performance  The  Portfolio  was launched on December 31, 1999.
Performance results have not been provided because the Portfolio has not been in
existence for a full calendar year.
- --------------------------------------------------------------------------------

Fees & Expenses [clipart]

<TABLE>
The following  table shows the fees and expenses you may pay if you buy and hold
shares of this  Portfolio.  Montgomery does not impose any front-end or deferred
sales loads on this  Portfolio and does not charge  shareholders  for exchanging
shares or reinvesting dividends.

<S>                                                                                              <C>
Shareholder Fees (fees paid directly from your investment)
    Redemption Fee                                                                               1.00%+
Annual Portfolio Operating Expenses (expenses that are deducted from Portfolio assets) ++
    Management Fee                                                                               1.10%
    Distribution/Service (12b-1) Fee                                                             0.00%
    Other Expenses#                                                                              0.55%
- -------------------------------------------------------------------------------------------------------------------
Total Annual Portfolio Operating Expenses                                                        1.65%

<FN>
+    The 1.00% redemption fee applies to those shares redeemed within six months
     from  the  date  of  purchase  and is paid to the  Portfolio.  $10  will be
     deducted from redemption proceeds sent by wire or overnight courier.

++   Montgomery  Asset  Management has  contractually  agreed to reduce its fees
     and/or  absorb  expenses to limit the  Portfolio's  total annual  operating
     expenses (excluding interest and tax expense) to 1.65%. This contract has a
     rolling ten-year term.

#    Other expenses are based on estimated amounts for the current fiscal year.
</FN>
</TABLE>


Example of Portfolio expenses:  This example is intended to help you compare the
cost of  investing in the  Portfolio  with the cost of investing in other mutual
funds.  The table below shows what you would pay in expenses over time,  whether
or not you sold your  shares  at the end of each  period.  It  assumes a $10,000
initial investment,  5% total return each year and no changes in expenses.  This
example is for comparison  purposes only. It does not necessarily  represent the
Portfolio's actual expenses or returns.

 1 Year        3 Years
- ----------------------
  $167          $519

                                                             [clipart] [sidebar]
                                                            Portfolio Management
                                                                      John Boich
                                                                    Oscar Castro
                                                    For more details see page __

                                       5

<PAGE>


- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------

The investment manager of the Portfolio is Montgomery Asset Management, LLC, 101
California Street, San Francisco,  California 94111. Founded in 1990, Montgomery
Asset  Management is a subsidiary of Commerzbank AG, one of the largest publicly
held  commercial  banks in Germany.  As of December 31, 1999,  Montgomery  Asset
Management managed  approximately $5 billion on behalf of some 200,000 investors
in The Montgomery  Funds.  Montgomery  may rely on the  expertise,  research and
resources  of  Commerzbank  AG and its  worldwide  affiliates  in  managing  the
Portfolio.

International 20 Portfolio

[photo] JOHN BOICH, CFA, Senior Portfolio Manager and Principal

o Montgomery International 20 Portfolio (since inception, 1999)
Prior to joining Montgomery,  Mr. Boich was vice president and portfolio manager
at The Boston Company Institutional Investors,  Inc. with responsibility for the
development  and subsequent  management of their flagship  international  equity
product.  Before joining The Boston Company,  he was a founder and co-manager of
The Common Goal World  Fund,  a global  equity  partnership.  Mr.  Boich holds a
bachelor of arts degree in economics  from the  University  of Colorado and is a
chartered financial analyst.

[photo] OSCAR CASTRO, CFA, Senior Portfolio Manager and Principal

o Montgomery International 20 Portfolio (since inception, 1999)
Prior to joining Montgomery, Mr. Castro was vice president and portfolio manager
at G.T.  Capital  Management,  where he helped  launch and manage  mutual  funds
specializing in global  telecommunications and Latin America.  Preceding this he
was a founder and  co-manager  of The Common Goal World  Fund,  a global  equity
partnership.  Mr.  Castro  holds a master of business  administration  degree in
finance from Drexel University,  Pennsylvania,  and a bachelor of science degree
in finance  from  Drexel  University,  Pennsylvania,  and a bachelor  of science
degree in chemical  engineering from Simon Bolivar University in Venezuela,  and
is a chartered financial analyst.

Management Fees and Operating Expense Limits

The table below shows the annual contractual  management fee rate and the annual
contractual total operating  expense limit (excluding  interest and tax expense)
for the Portfolio.  The management fee amounts actually paid to Montgomery Asset
Management may vary from year to year, depending on actual expenses.  The actual
fee rate may be greater than the contractual rate only to the extent  Montgomery
recouped previously deferred fees during the fiscal year.

                                         MANAGEMENT FEES     TOTAL EXPENSE LIMIT
Montgomery Portfolio                      (annual rate)         (annual rate)
- --------------------------------------------------------------------------------
International 20 Portfolio                    1.10%                   1.65%

Call toll-free 800.572.FUND[3863]

                                       6

<PAGE>


- --------------------------------------------------------------------------------
Additional Investment Strategies and Related Risks
- --------------------------------------------------------------------------------

Montgomery International 20 Portfolio

To the extent that the Portfolio invests in Japanese  securities,  the Portfolio
exposes  shareholders to special risks. The Portfolio's  share value may be more
volatile  than that of mutual funds not sharing this  geographic  concentration.
The  value of the  Portfolio's  shares  may vary  dramatically  in  response  to
political and economic factors affecting companies in Japan.

Securities in Japan are denominated and quoted in yen. Yen are fully convertible
and transferable  based on floating exchange rates into all readily  convertible
currencies,  without administrative or legal restrictions for both non-residents
and  residents of Japan.  As a result,  in the absence of a successful  currency
hedge,  the value of the Portfolio's  assets as measured in U.S.  dollars may be
affected  favorably or unfavorably by  fluctuations in the value of Japanese yen
relative to the U.S. dollar.

The decline in the Japanese  securities  markets since 1989 has contributed to a
weakness in the Japanese economy,  and the impact of a further decline cannot be
ascertained.  The common stocks of many Japanese  companies continue to trade at
high  price-earnings  ratios in comparison with those in the United States, even
after that market decline.  Differences in accounting  methods make it difficult
to compare the earning of Japanese  companies  with those of  companies in other
countries, especially the United States.

Defensive Investments

At the  discretion of its portfolio  manager(s),  the Portfolio may invest up to
100% of its assets in cash for temporary  defensive  purposes.  The Portfolio is
not required or expected to take such a defensive posture.  But if used, such an
unlikely  stance may help the Portfolio  minimize or avoid losses during adverse
market,  economic or political  conditions.  During such a period, the Portfolio
may not achieve its investment objective. For example, should the market advance
during this period,  the Portfolio may not  participate as much as it would have
if it had been more fully invested.

Portfolio Turnover

The  Portfolio's  managers  will  sell  a  security  when  they  believe  it  is
appropriate  to do so,  regardless  of how long the  Portfolio  has  owned  that
security.  Buying and selling securities  generally involves some expense to the
Portfolio,  such as commission paid to brokers and other  transaction  costs. By
selling a security, the Portfolio may realize taxable capital gains that it will
subsequently  distribute to  shareholders.  Generally  speaking,  the higher the
Portfolio's annual portfolio  turnover,  the greater its brokerage costs and the
greater the likelihood  that it will realize  taxable  capital gains.  Increased
brokerage costs may adversely affect the Portfolio's  performance.  Also, unless
you are a tax-exempt  investor or you  purchase  shares  through a  tax-deferred
account,  the  distribution  of capital gains may affect your after-tax  return.
Annual portfolio turnover of 100% or more, as is expected for the Portfolio,  is
considered high.

The Euro: Single European Currency

Investors should note the following: On January 1, 1999, the European Union (EU)
introduced a single European  currency called the euro. Eleven of the fifteen EU
members have begun to convert their  currencies to the euro:  Austria,  Belgium,
Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,  Portugal
and Spain (leaving out Britain, Sweden, Denmark and Greece). For the first three
years,  the euro will be a phantom  currency  (only an accounting  entry).  Euro
notes and coins will begin circulating in 2002.

The introduction of the euro has occurred, but the following  uncertainties will
continue to exist for some time:

>    Whether  the  payment,  valuation  and  operational  systems  of banks  and
     financial institutions can operate reliably

>    The  applicable  conversion  rate  for  contracts  stated  in the  national
     currency of an EU member

>    The  ability of clearing  and  settlement  systems to process  transactions
     reliably

                                       7

<PAGE>


>    The effects of the euro on European financial and commercial markets

>    The effect of new  legislation  and  regulations  to  address  euro-related
     issues

These and other factors could cause market  disruptions  and affect the value of
your shares in the  Portfolio to the extent it invests in  companies  conducting
business in Europe. Montgomery and its key service providers have taken steps to
address  euro-related  issues,  but there can be no assurance that these efforts
will be sufficient.

Call toll-free 800.572.FUND[3863]

                                       8

<PAGE>


<TABLE>
[table]

<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Options
- ------------------------------------------------------------------------------------------------------------------------------------

To open a new account,  complete and mail the New Account application included with this prospectus ($2,500 minimum).

<S>                                                                     <C>
Purchase and redemption requests received after 1:00                    |_|  Buy, sell or exchange shares by phone*
P.M. Pacific time (4:00 P.M. eastern time) will be                           Contact The Montgomery Funds at 800.572.FUND
executed at the following business day's closing price.                      [3863]. Press (1) for a shareholder service
Once a trade is placed it may not be altered or                              representative. Press (2) for the automated
canceled.                                                                    Montgomery Star System.

Checks should be made payable to:                                       |_|  Buy or sell shares by mail
The Montgomery Funds                                                         Mail buy/sell order(s) with your check:
                                                                             By regular mail:
The minimum initial investment is $2,500. The                                The Montgomery Funds
minimum subsequent investment is $100.                                       c/o DST Systems, Inc.
                                                                             P.O. Box 219073
                                                                             Kansas City, MO 64121-9073
For assistance e-mail us at
[email protected], or call                                        By express or overnight service:
800.572.FUND [3863].                                                         The Montgomery Funds
                                                                             c/o DST Systems, Inc.
Currently, an investment in this Portfolio can be made                       210 West 10th Street, 8th Floor
only through The Montgomery Funds. Please call for                           Kansas City, MO 64105-1614
information on availability through third parties.
                                                                        |_|  Buy or sell shares by wiring funds
Once your account is established, you can:                                   To: Investors Fiduciary Trust Company
                                                                             ABA #101003621
|_|  Gain exclusive access                                                   For: DST Systems, Inc.
     View all stocks in the U.S. Select 20 Portfolio                         Account #7526601
     along with the portfolio manager's buy-and-sell                         Attention: The Montgomery Funds
     decisions and more. Go to the Account Access area                       For credit to: [shareholder(s) name]
     of www.montgomeryfunds.com. Follow the                                  Shareholder account number:
     instructions to create a PIN and login, then look                       [shareholder(s) account number]
     for the Stock Solutions button next to your U.S.                        Name of Portfolio: [Montgomery Portfolio Name]
     Select 20 account.



Please note that until the official  public  launch of this  portfolio,  Investors  will not be able to access  portfolio or account
information via our Star system or our Web site www.montgomeryfunds.com.

<FN>
*To have shares automatically debited from or deposited to your bank account you must have our Electronic Link activated. (See page
__ for instructions.)
</FN>
</TABLE>

                                                                 9

<PAGE>


                                                             ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
What You Need to Know About Your Montgomery Account
- --------------------------------------------------------------------------------

You pay no  sales  charge  to  invest  in the  Portfolio.  The  minimum  initial
investment is $2,500. The minimum  subsequent  investment is $100. Under certain
conditions we may waive these  minimums.  If you buy shares  through a broker or
investment  advisor,  different  requirements may apply. All investments must be
made in U.S. dollars.

     We must  receive  payment  from  you  within  three  business  days of your
purchase. In addition,  the Portfolio and the Distributor each reserve the right
to reject all or part of any purchase.

     From time to time,  Montgomery  may close and reopen the  Portfolio  to new
investors at its discretion.  Shareholders who maintain open accounts which meet
the minimum  required balance of $1,000 in the Portfolio when it closes may make
additional  investments  in it. If the  Portfolio  is closed and you redeem your
total investment in the Portfolio,  your account will be closed and you will not
be able to make any  additional  investments  in the  Portfolio.  The Montgomery
Funds reserves the right to close or liquidate the Portfolio at its discretion.

Becoming a Montgomery Shareholder

To open a new account:

|_| By Mail Send your completed  application  (included  with this  prospectus),
with a check payable to The Montgomery Funds, to the appropriate  address.  Your
check must be in U.S.  dollars  and drawn  only on a bank  located in the United
States.  Dividends do not accrue until your check has cleared.  We do not accept
third-party checks, "starter" checks, credit-card checks, instant-loan checks or
cash investments. We may impose a charge on checks that do not clear.

|_| By Wire Call us at  800.572.FUND  [3863]  to let us know that you  intend to
make your initial  investment by wire. Tell us your name and the amount you want
to  invest  in  the  International  20  Portfolio.  We  will  give  you  further
instructions  and a fax  number to which you  should  send  your  completed  New
Account  application.  To ensure  that we  handle  your  investment  accurately,
include complete account information in all wire instructions. Then request your
bank to wire money from your account to the attention of:

Investors Fiduciary Trust Company
ABA #101003621
For: DST Systems, Inc.

and include the following:

Account #7526601
Attention: The Montgomery Funds
For credit to: [shareholder(s) name]
Shareholder Account Number:
[shareholder(s) account number]
Name of Portfolio: [Montgomery Portfolio Name]

Please note that your bank may charge a wire transfer fee.

|_| By Phone To make an  initial  investment  by  phone,  you must  have  been a
current  Montgomery  shareholder  for at least 30 days.  Shares  for  Individual
Retirement Accounts (IRAs) may not be purchased by phone. Your new purchase must
meet the  investment  minimum and is limited to the total value of your existing
accounts or $10,000, whichever is greater. To complete the transaction,  we must
receive  payment within three business days. We reserve the right to collect any
losses from your account if we do not receive payment within that time.

Call toll-free 800.572.FUND[3863]

                                       10

<PAGE>


                                               [sidebar]
                                               GETTING STARTED

                                               To invest, complete and send the
                                               New Account application enclosed
                                               with this prospectus. Send a
                                               check payable to The Montgomery
                                               Funds.

                                               Regular Mail
                                               The Montgomery Funds
                                               c/o DST Systems, Inc.
                                               P.O. Box 219073
                                               Kansas City, MO 64121-9073

                                               Express Mail or Overnight Courier
                                               The Montgomery Funds
                                               c/o DST Systems, Inc.
                                               210 West 10th Street
                                               8th Floor
                                               Kansas City, MO 64105-1614

                                               Foreign Investors:
                                               Foreign citizens and resident
                                               aliens of the United States
                                               living abroad may not invest in
                                               the Portfolio.

How Portfolio Shares Are Priced

How and when we  calculate  the  Portfolio's  price  or net  asset  value  (NAV)
determines  the price at which you will buy or sell  shares.  We  calculate  the
Portfolio's  NAV by dividing  the total net value of its assets by the number of
outstanding  shares.  We base the value of the Portfolio's  investments on their
market value, usually the last price reported for each security before the close
of market that day. A market  price may not be  available  for  securities  that
trade infrequently.  Occasionally,  an event that affects a security's value may
occur  after the  market  closes.  This is more  likely to  happen  for  foreign
securities  traded in foreign markets that have different time zones than in the
United States.  Major  developments  affecting the price of those securities may
happen after the foreign markets in which such securities trade have closed, but
before the Portfolio  calculates its NAV. In this case,  Montgomery,  subject to
the supervision of the Portfolio's Board of Trustees or Pricing Committee,  will
make a good-faith  estimate of the security's  "fair value," which may be higher
or lower than the security's closing price in its relevant market.

     We calculate the NAV of the Portfolio after the close of trading on the New
York Stock Exchange  (NYSE) every day the NYSE is open. We do not calculate NAVs
on the days on which the NYSE is closed for  trading.  An  exception  applies as
described  below.  If we receive your order by the close of trading on the NYSE,
you can purchase  shares at the price  calculated for that day. The NYSE usually
closes at 4:00 P.M. eastern time on weekdays, except for holidays. If your order
is received  after the NYSE has  closed,  your shares will be priced at the next
NAV we  determine  after  receipt  of your  order.  More  details  about  how we
calculate the Portfolio's NAVs are in the Statement of Additional Information.

|_| The Portfolio  invests in securities  denominated in foreign  currencies and
traded on  foreign  exchanges.  To  determine  their  value,  we  convert  their
foreign-currency  price into U.S. dollars by using the exchange rate last quoted
by a major bank.  Exchange  rates  fluctuate  frequently and may affect the U.S.
dollar value of foreign-denominated  securities, even if their market price does
not change.  In addition,  some foreign  exchanges are open for trading when the
U.S. market is closed. As a result, the Portfolio's foreign  securities--and its
price--may  fluctuate during periods when you can't buy, sell or exchange shares
in the Portfolio.

[sidebar]
TRADING TIMES

Whether buying, exchanging or selling shares, transaction
requests received after 1:00 P.M. Pacific time (4:00 P.M. eastern
time) will be executed at the next business day's closing price.

                                       11

<PAGE>


Buying Additional Shares

|_| By Mail.  Complete the form at the bottom of any  Montgomery  statement  and
mail it with your check payable to The Montgomery  Funds. Or mail the check with
a signed letter noting the name of the  Montgomery  International  20 Portfolio,
your account number and telephone  number.  We will mail you a  confirmation  of
your investment. Note that we may impose a charge on checks that do not clear.

|_| By Phone. Current  shareholders are automatically  eligible to buy shares by
phone.  To  buy  shares  in  the  Portfolio  or  to  open  a new  account,  call
800.572.FUND  [3863].  Shares for IRAs may not be purchased by phone.  Telephone
purchases can be made for up to five times your account value as of the previous
day.

We must receive  payment for your  purchase  within three  business days of your
request. To ensure that we do, you can:

>    Transfer money directly from your bank account by mailing a written request
     and a voided check or deposit slip (for a savings account).

>    Send us a check by overnight or second-day courier service.

>    Instruct  your  bank  to  wire  money  to our  affiliated  bank  using  the
     information in "Becoming a Montgomery Shareholder" (page __).

|_| By Wire.  There is no need to contact us when  buying  additional  shares by
wire.  Instruct  your  bank to wire  funds  to our  affiliated  bank  using  the
information under "Becoming a Montgomery Shareholder" (page __).

Exchanging Shares

You may exchange shares of the Portfolio for shares in the same class of another
Fund, in accounts with the same registration, Taxpayer Identification Number and
address. The minimum initial investment is $2,500.

Other Exchange Policies

|_| We will process your exchange order at the next-calculated NAV.

|_| You may exchange  shares only if the Portfolio is qualified for sale in your
state. Call  800.572.FUND  [3863] for information on availability in your state.
You may not exchange  shares in the Portfolio  for shares of another  Montgomery
Fund that is  currently  closed to new  shareholders  unless  you are  already a
shareholder in the closed Fund.

|_| Because excessive exchanges can harm the Portfolio's performance, we reserve
the  right to  terminate  your  exchange  privileges  if you make more than four
exchanges out of the  Montgomery  International  20 Portfolio  during a 12-month
period.  We may also refuse an exchange into the  Portfolio  from which you have
sold shares  within the  previous 90 days  (accounts  under  common  control and
accounts  having  the  same  Taxpayer  Identification  Number  will  be  counted
together).

Our Electronic Link program allows us to automatically debit or credit your bank
account for  transactions  made by phone.  To take  advantage  of this  service,
simply mail us a voided check or preprinted  deposit slip from your bank account
along with a request to establish an Electronic Link.

|_| We may  restrict  or refuse your  exchanges  if we  receive,  or  anticipate
receiving,  simultaneous  orders  affecting a large  portion of the  Portfolio's
assets or if we detect a pattern of  exchanges  that  suggests  a  market-timing
strategy.

|_| We reserve the right to refuse exchanges into the Portfolio by any person or
group if, in our judgment,  the Portfolio would be unable to effectively  invest
the money in accordance with its investment objective and policies,  or might be
adversely affected in other ways.

|_| Any  redemption  fees will  apply to  exchanges  or  redemptions  out of the
Portfolio.

Call toll-free 800.572.FUND[3863]

                                       12

<PAGE>


Selling Shares

You may sell some or all of your  International 20 Portfolio shares on days that
the New York Stock  Exchange  is open for  trading.  Note that a  redemption  is
treated as a sale and may result in a realized gain or loss for tax purposes.

     Your shares  will be sold at the next NAV we  calculate  for the  Portfolio
after receiving your order.  We will promptly pay the proceeds to you,  normally
within three business days of receiving  your order and all necessary  documents
(including a written redemption order with the appropriate signature guarantee).
We will mail or wire you the proceeds,  depending on your  instructions.  Shares
purchased  by check will be priced upon  receipt of you order,  but proceeds may
not be paid  until  your  check  clears,  which may take up to 15 days after the
purchase  date.  Within this 15-day  period,  you may choose to exchange  into a
Montgomery  Money Market Fund provided you have received and read the prospectus
for that Money Market fund.

     Aside from any applicable redemption fees, we generally will not charge you
any fees when you sell your shares, although there are some minor exceptions:

>    For shares sold by wire a $10 wire  transfer fee will be deducted  directly
     from your proceeds.

>    For  redemption  checks  requested  by Federal  Express,  a $10 fee will be
     deducted directly from the redemption proceeds.

     In  accordance  with the rules of the  Securities  and Exchange  Commission
(SEC)  we  reserve  the  right  to  suspend   redemptions  under   extraordinary
circumstances.

     Shares can be sold in several ways:

|_| By Phone. You may accept or decline telephone redemption  privileges on your
New Account  application.  If you accept, you will be able to sell up to $50,000
in shares  through one of our  shareholder  service  representatives  by calling
800.572.FUND  [3863]  option 1. You may not buy or sell shares in an IRA account
by phone. If you included bank wire information on your New Account  application
or made arrangements  later for wire redemptions,  proceeds can be wired to your
bank  account.  Please allow at least two  business  days for the proceeds to be
credited to your bank  account.  If you want  proceeds to arrive at your bank on
the same  business day (subject to bank cutoff  times),  there is a $10 fee. For
more  information  about our  telephone  transaction  policies,  see  "Telephone
Transactions."

|_| By Mail. Send us a letter  including your name,  Montgomery  account number,
the Portfolio  from which you would like to sell shares and the dollar amount or
number of shares  you want to sell.  You must sign the  letter the same way your
account is registered. If you have a joint account, all accountholders must sign
the letter.

     If you want the  proceeds to go to a party other than the account  owner(s)
or your predesignated  bank account,  or if the dollar amount of your redemption
exceeds  $50,000,  you must obtain a signature  guarantee (not a  notarization),
available from many commercial banks,  savings  associations,  stock brokers and
other National Association of Securities Dealers member firms.

     If  you  want  to  wire  your  redemption   proceeds  but  do  not  have  a
predesignated bank account, include a preprinted,  voided check or deposit slip.
If you do not have a preprinted check, please send a signature-guaranteed letter
along  with  your bank  instructions.  The  minimum  wire  amount is $500.  Wire
charges,  if any, will be deducted from the redemption  proceeds.  We may permit
lesser wire amounts or fees at our discretion. Call 800.572.FUND [3863] for more
details.

                                               [sidebar]
                                               Shareholder service is available
                                               Monday through Friday from 6:00
                                               A.M. to 5:00 P.M. Pacific time.

|_|  Redemption  Fee. The redemption fee is intended to compensate the Portfolio
for the increased expenses to longer-term shareholders and the disruptive effect
on the Portfolio  caused by short-term  investments.  The redemption fee will be
assessed on the net asset value of the shares  redeemed or exchanged and will be
deducted from the redemption proceeds otherwise payable to the shareholder.  The
Portfolio will retain the fee charged.

                                       13

<PAGE>


Other Policies

Minimum Account Balances

Due to the cost of  maintaining  small  accounts,  we require a minimum  account
balance of $1,000.  If your  account  balance  falls  below that  amount for any
reason,  we will ask you to add to your account.  If your account balance is not
brought  up to the  minimum  or you do not send us other  instructions,  we will
redeem your shares and send you the proceeds.  We believe that this policy is in
the best interest of all our shareholders.

Expense Limitations

Montgomery  Asset  Management may reduce its management fees and absorb expenses
in order to maintain total operating  expenses  (excluding  interest,  taxes and
dividend  expenses) for the Portfolio below its previously set operating expense
limit.  The Investment  Management  Agreement  allows  Montgomery three years to
recoup amounts  previously  reduced or absorbed,  provided the Portfolio remains
within the applicable expense limitation.  Montgomery  generally seeks to recoup
the oldest amounts  before seeking  payment of fees and expenses for the current
year.

Uncashed Redemption Checks

If you receive your  Portfolio  redemption  proceeds or  distributions  by check
(instead of by wire) and it does not arrive within a reasonable  period of time,
call us at 800.572.FUND  [3863].  Please note that we are  responsible  only for
mailing  redemption or distribution  checks and are not responsible for tracking
uncashed  checks or  determining  why  checks  are  uncashed.  If your  check is
returned to us by the U.S.  Postal  Service or other delivery  service,  we will
hold it on your behalf for a reasonable  period of time.  We will not invest the
proceeds in any  interest-bearing  account.  No interest will accrue on uncashed
distribution or redemption proceeds.

Transaction Confirmation

If you notice any errors on your  confirmation,  you must notify  Montgomery  of
such errors within 30 days following  mailing of that  confirmation.  Montgomery
will not be responsible for any loss, damage, cost or expense arising out of any
transaction that appears on your confirmation after this 30-day period.

Telephone Transactions

By buying or selling shares over the phone, you agree to reimburse the Portfolio
for any expenses or losses  incurred in connection  with transfers of money from
your account. This includes any losses or expenses caused by your bank's failure
to honor your debit or act in accordance  with your  instructions.  If your bank
makes erroneous  payments or fails to make payment after you buy shares,  we may
cancel  the  purchase  and  immediately  terminate  your  telephone  transaction
privileges.

     The  shares  you  purchase  by phone  will be priced at the first net asset
value we determine after  receiving your request.  You will not actually own the
shares,  however,  until we receive your  payment in full.  If we do not receive
your payment  within three  business days of your  request,  we will cancel your
purchase.  You may be responsible  for any losses incurred by the Portfolio as a
result.

Call toll-free 800.572.FUND[3863]

                                       14

<PAGE>


     Please  note  that  we  cannot  be  held  liable  for  following  telephone
instructions  that we  reasonably  believe to be genuine.  We use the  following
safeguards  to  ensure  that  the  instructions  we  receive  are  accurate  and
authentic:

>    Recording certain calls

>    Requiring an authorization  number or other personal information not likely
     to be known by others

>    Sending a transaction confirmation to the investor

     The Portfolio and our Transfer  Agent may be held liable for any losses due
to  unauthorized  or  fraudulent  telephone  transactions  only if we  have  not
followed these reasonable procedures.

     We reserve the right to revoke the telephone  transaction  privilege of any
shareholder  at any time if he or she has used  abusive  language or misused the
phone privilege by making  purchases and redemptions that appear to be part of a
systematic market-timing strategy.

     If you notify us that your address has changed, we will temporarily suspend
your telephone  redemption  privileges until 30 days after your  notification to
protect you and your  account.  We require all  redemption  requests made during
this period to be in writing with a signature guarantee.

     Shareholders  may  experience  delays in  exercising  telephone  redemption
privileges  during periods of volatile economic or market  conditions.  In these
cases you may want to transmit your redemption request:

>    By overnight courier

>    By telegram

You may discontinue phone privileges at any time.

[sidebar]

OUR PARTNERS

As a Montgomery shareholder, you may see the names of our
partners on a regular basis. We all work together to ensure that
your investments are handled accurately and efficiently.

Funds Distributor, Inc., located in New York City and Boston,
distributes the Portfolio.

DST Systems, Inc., located in Kansas City, Missouri, is the
Portfolio's Master Transfer Agent. It performs certain record
keeping and accounting functions for the Portfolio.

Investors Fiduciary Trust Company, also located in Kansas City,
Missouri, assists DST Systems, Inc. with certain record keeping
and accounting functions for the Portfolio.

                                       15

<PAGE>


Tax Withholding Information

Be sure to complete the Taxpayer  Identification Number (TIN) section of the New
Account  application.  If you don't have a Social  Security Number or TIN, apply
for one  immediately  by  contacting  your local  office of the Social  Security
Administration  or the Internal  Revenue Service (IRS). If you do not provide us
with a TIN or a  Social  Security  Number,  federal  tax law may  require  us to
withhold  31%  of  your  taxable  dividends,   capital-gain  distributions,  and
redemption  and exchange  proceeds  (unless you qualify as an exempt payee under
certain rules).

     Other rules about TINs apply for certain investors. For example, if you are
establishing  an account for a minor under the Uniform  Gifts to Minors Act, you
should furnish the minor's TIN. If the IRS has notified you that you are subject
to backup  withholding  because you failed to report all  interest  and dividend
income  on your tax  return,  you must  check  the  appropriate  item on the New
Account  application.  Foreign  shareholders  should note that any dividends the
Portfolio pays to them may be subject to up to 30% withholding instead of backup
withholding.

                                               [sidebar]
                                               INVESTMENT MINIMUMS

                                               The minimum initial investment is
                                               $2,500 for the Portfolio. The
                                               minimum subsequent investment is
                                               $100.

After You Invest

Taxes

IRS rules  require  that the  Portfolio  distributes  all of its net  investment
income and capital gains, if any, to shareholders.  Capital gains may be taxable
at different  rates  depending  upon the length of time the Portfolio  holds its
assets.  We will inform you about the source of any  dividends and capital gains
upon payment.  After the close of each calendar  year, we will advise you of the
tax  status.  The  Portfolio's  distributions,   whether  received  in  cash  or
reinvested,  may be taxable.  Any  redemption of the  Portfolio's  shares or any
exchange of the  Portfolio's  shares for another Fund will be treated as a sale,
and any gain on the transaction may be taxable.

     Additional  information  about tax issues  relating to the Portfolio can be
found in our  Statement of  Additional  Information,  available  free by calling
800.572.FUND   [3863].   Consult  your  tax  advisor  about  the  potential  tax
consequences of investing in the Portfolio.

Dividends and Distributions

As a shareholder in the Montgomery  International 20 Portfolio,  you may receive
income  dividends and  capital-gain  distributions  for which you will owe taxes
(unless you invest solely through a  tax-advantaged  account such as an IRA or a
401(k) plan).  Income dividends and capital-gain  distributions  are paid to all
shareholders who maintain accounts with the Portfolio as of its "record date."

     If you would like to receive dividends and distributions in cash,  indicate
that choice on your New Account application. Otherwise, the distribution will be
reinvested in additional Portfolio shares.

Call toll-free 800.572.FUND[3863]

                                       16

<PAGE>


Keeping You Informed

After you  invest  you will  receive,  our  Shareholder  Services  Guide,  which
includes more  information  about buying,  exchanging  and selling shares in the
Portfolio.  It also  describes in more detail useful tools for investors such as
the Montgomery Star System and online transactions  (please note automated phone
services and online capabilities are not available for this Portfolio).

     During the year, we will also send you,  either by mail or  electronically,
the following  communications:

>    Confirmation statements

>    Account statements, sent after the close of each calendar quarter

>    Annual and semiannual reports, sent approximately 60 days after June 30 and
     December 31

>    1099 tax form, sent by January 31

>    Annual updated prospectus, sent to existing shareholders in the fall

<TABLE>
     To save you  money,  we send  only one copy of each  shareholder  report or
other mailings to your household if you hold accounts under common  ownership or
at the same address  (regardless  of the number of  shareholders  or accounts at
that household or address),  unless you request additional copies. You also have
the option of receiving the shareholder report or other mailings  electronically
to the extent Montgomery can provide it. Your consent to receive these materials
electronically  is effective until further notice by Montgomery or revocation by
you.

                                         INCOME DIVIDENDS                     CAPITAL GAINS
<S>                            <C>                                   <C>
International 20 Portfolio     Declared and paid in the last         Declared and paid in the last
                               quarter of each calendar year*        quarter of each calendar year*

<FN>
*Following  its fiscal year end (June 30),  the  Portfolio  may make  additional
distributions to avoid the imposition of a tax.
</FN>
</TABLE>

                                               [sidebar]

                                               HOW TO AVOID "BUYING A DIVIDEND"

                                               If you plan to purchase shares in
                                               the Portfolio, check if it is
                                               planning to make a distribution
                                               in the near future. Here's why:
                                               If you buy shares of the
                                               Portfolio just before a
                                               distribution, you'll pay full
                                               price for the shares but receive
                                               a portion of your purchase price
                                               back as a taxable distribution.
                                               This is called "buying a
                                               dividend." Unless you hold the
                                               Portfolio in a tax-deferred
                                               account, you will have to include
                                               the distribution in your gross
                                               income for tax purposes, even
                                               though you may not have
                                               participated in the increase of
                                               the Portfolio's appreciation.

                                       17

<PAGE>


To  get  more   information  on  the  investment   policies  of  the  Montgomery
International 20 Portfolio, please request a Statement of Additional Information
(SAI), incorporated by reference in this prospectus,  which is available free of
charge.

You can also find  further  information  about the  Portfolio  in our annual and
semiannual   shareholder  reports,  which  discuss  the  market  conditions  and
investment  strategies that significantly  affected the Portfolio's  performance
during its most  recent  fiscal  period.  To  request a copy of the most  recent
annual or semiannual report, please call us at 800.572.FUND [3863], option 3.

To  request  a free copy of the SAI,  call us at  800.572.FUND  [3863].  You can
review and copy further  information about the Portfolio,  including the SAI, at
the  Securities  and Exchange  Commission's  (SEC's)  Public  Reference  Room in
Washington,  D.C. To obtain information on the operation of the Public Reference
Room please call 202.942.8090. Reports and other information about the Portfolio
are available at the SEC's Web site at  www.sec.gov.  You can also obtain copies
of this  information,  upon payment of a duplicating  fee, by writing the Public
Reference Section of the SEC, Washington, D.C., 20549-6009, or e-mailing the SEC
at [email protected].

Corporate Headquarters:
The Montgomery Funds
101 California Street
San Francisco, CA 94111-9361

                                     SEC File No.: The Montgomery Funds 811-6011

                                                Funds Distributor, Inc. 4/00 038

[Owl logo]
Invest wisely(R)
The Montgomery Funds(SM)
101 California Street
San Francisco, CA 94111-9361

- ---------------------------
  www.montgomeryfunds.com
   (800) 572.FUND [3863]
- ---------------------------

                                       18

<PAGE>



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

                                     PART B

                COMBINED STATEMENT OF ADDITIONAL INFORMATION FOR

                       MONTGOMERY U.S. SELECT 20 PORTFOLIO
                      MONTGOMERY INTERNATIONAL 20 PORTFOLIO

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



<PAGE>


                              THE MONTGOMERY FUNDS

                       MONTGOMERY U.S. SELECT 20 PORTFOLIO
                      MONTGOMERY INTERNATIONAL 20 PORTFOLIO

                              101 California Street
                         San Francisco, California 94111
                              (800) 572-FUND [3863]

                       STATEMENT OF ADDITIONAL INFORMATION

                                  April 7, 2000

         The  Montgomery  Funds is an  open-end  management  investment  company
organized as a  Massachusetts  business  trust (the "Trust"),  having  different
series of shares of beneficial interest. The Montgomery U.S. Select 20 Portfolio
(formerly  Montgomery  Growth 20 Portfolio) and the Montgomery  International 20
Portfolio (each a "Portfolio" and collectively,  the "Portfolios") are series of
the Trust.  This  Statement of Additional  Information  contains  information in
addition to that set forth in the respective  prospectuses  for the  Portfolios,
each dated April 7, 2000, as those prospectuses may be revised from time to time
(each a "Prospectus" and collectively, the "Prospectuses").  Each Prospectus may
be obtained  without charge at the address or telephone  number  provided above.
This Statement of Additional  Information is not a prospectus and should be read
in conjunction with a Prospectus.


<PAGE>


                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
STATEMENT OF ADDITIONAL INFORMATION............................................1
THE TRUST......................................................................3
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS...........................3
RISK FACTORS..................................................................14
INVESTMENT RESTRICTIONS.......................................................16
DISTRIBUTIONS AND TAX INFORMATION.............................................19
TRUSTEES AND OFFICERS.........................................................23
INVESTMENT MANAGEMENT AND OTHER SERVICES......................................26
EXECUTION OF PORTFOLIO TRANSACTIONS...........................................29
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................31
DETERMINATION OF NET ASSET VALUE..............................................32
PRINCIPAL UNDERWRITER.........................................................34
PERFORMANCE INFORMATION.......................................................35
GENERAL INFORMATION...........................................................37
FINANCIAL STATEMENTS..........................................................38
APPENDIX......................................................................41

                                      B-2

<PAGE>


                                    THE TRUST

         The  Montgomery  Funds is an  open-end  management  investment  company
organized as a  Massachusetts  business trust on May 10, 1990, and is registered
under the Investment  Company Act of 1940, as amended (the  "Investment  Company
Act"). The Trust currently offers shares of beneficial interest, $0.01 par value
per share, in various series. This Statement of Additional  Information pertains
to the Montgomery U.S. Select 20 Portfolio  (formerly  Growth 20 Portfolio) (the
"U.S.  Select 20 Portfolio") and the Montgomery  International 20 Portfolio (the
"International 20 Portfolio").


              INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS

         The Portfolios  are managed by Montgomery  Asset  Management,  LLC (the
"Manager")  and their shares are  distributed  by Funds  Distributor,  Inc. (the
"Distributor").  The  investment  objectives  and policies of the Portfolios are
described  in  detail  in the  combined  Prospectus.  The  following  discussion
supplements the discussion in the Prospectus.

         Each Portfolio is a non-diversified series of The Montgomery Funds. The
achievement  of each  Portfolio's  investment  objective will depend upon market
conditions  generally and on the Manager's  analytical and portfolio  management
skills.

Alternative Structures

         Each  Portfolio  has  reserved  the right,  if approved by the Board of
Trustees,  to convert to a  "master/feeder"  structure.  In this  structure  the
assets of mutual funds with common investment  objectives and similar parameters
are combined in a pool,  rather than being managed  separately.  The  individual
funds are known as "feeder"  funds and the pool as the "master"  fund.  Although
combining assets in this way allows for economies of scale and other advantages,
this  change  will  not  affect  the  investment  objectives,   philosophies  or
disciplines currently employed by the Portfolios and the Manager. Each Portfolio
would  notify  its  shareholders  before it took any  action to  convert to this
structure.  As of the date of this  Statement  of  Additional  Information,  the
Portfolios have not proposed instituting this alternative structure.

Portfolio Securities

         Depositary  Receipts,  Convertible  Securities and Securities Warrants.
Each  Portfolio may hold  securities of foreign  issuers in the form of American
Depositary  Receipts ("ADRs"),  European  Depositary  Receipts ("EDRs"),  Global
Depository Receipts ("GDRs"),  and other similar global instruments available in
emerging  markets,  or other securities  convertible into securities of eligible
issuers.  These  securities  may not  necessarily  be  denominated  in the  same
currency as the securities for which they may be exchanged.  Generally,  ADRs in
registered form are designed for use in U.S.  securities  markets,  and EDRs and
other similar global instruments in bearer form are designed for use in European
securities  markets.  For  purposes  of a  Portfolio's  investment  policies,  a
Portfolio's  investments in ADRs, EDRs and similar instruments will be deemed to
be investments in the equity  securities  representing the securities of foreign
issuers  into which they may be  converted.  Each  Portfolio  may also invest in
convertible securities and securities warrants.

         Other  Investment  Companies.  Each  Portfolio may invest in securities
issued by other investment companies.  Those investment companies must invest in
securities  in which the Portfolio  can invest in a manner  consistent  with the
Portfolio's  investment  objective  and policies.  Applicable  provisions of the
Investment

                                      B-3

<PAGE>


Company  Act  require  that a  Portfolio  limit  its  investments  so  that,  as
determined  immediately  after a securities  purchase is made: (a) not more than
10% of the value of a Portfolio's total assets will be invested in the aggregate
in securities of investment companies as a group; and (b) either (i) a Portfolio
and  affiliated  persons of that  Portfolio not own together more than 3% of the
total outstanding  shares of any one investment  company at the time of purchase
(and that all shares of the investment  company held by that Portfolio in excess
of 1% of the company's total outstanding  shares be deemed illiquid),  or (ii) a
Portfolio  not  invest  more than 5% of its total  assets in any one  investment
company and the investment  not represent more than 3% of the total  outstanding
voting stock of the investment company at the time of purchase.

         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 the  International 20 Portfolio 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. The  International  20 Portfolio
also may incur tax  liability  to the  extent  that 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
Portfolio.

         Each Portfolio does 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,  these  Portfolios bear their
ratable share of that  investment  company's  expenses,  including  advisory and
administration  fees,  resulting in an additional  layer of management  fees and
expenses for  shareholders.  This duplication of expenses would occur regardless
of the type of investment company, i.e., open-end (mutual fund) or closed-end.

         Debt  Securities.  Each  Portfolio  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.  Debt securities may constitute up to 35% of
each Portfolio's total assets.  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  Portfolio  may  invest up to 5% of its total  assets in debt
securities rated lower than investment  grade.  Subject to this limitation,  the
Portfolio  may invest in any debt  security,  including  securities  in default.
After its purchase by the  Portfolio,  a debt  security may cease to be rated or
its rating may be reduced below that required for purchase by the  Portfolio.  A
security downgraded below the minimum level may be retained if determined by the
Manager and the Board to be in the best interests of the Portfolio.

         Debt securities may also consist of participation certificates in large
loans made by financial institutions to various borrowers, typically in the form
of large unsecured  corporate loans.  These  certificates  must otherwise comply
with the maturity and  credit-quality  standards  of the  Portfolio  and will be
limited to 5% of the Portfolio's total assets.

         In addition to traditional corporate, government and supranational debt
securities,  the  International  20 Portfolio may invest in external  (i.e.,  to
foreign lenders) debt obligations issued by the governments, government entities
and companies of emerging markets countries. The percentage distribution between
equity and debt will vary from country to country,  based on anticipated  trends
in  inflation  and interest  rates;  expected  rates of economic  and  corporate
profits growth; changes in government policy;  stability,  solvency and expected
trends of  government  finances;  and  conditions of the balance of payments and
terms of trade.

                                      B-4

<PAGE>


         U.S.  Government  Securities.  Each  Portfolio may invest a substantial
portion,  if not all, of its net assets in  obligations  issued or guaranteed by
the U.S.  government,  its agencies or  instrumentalities,  including repurchase
agreements backed by such securities ("U.S. government securities"). A Portfolio
generally  will  have  a  lower  yield  than  if it  purchased  higher  yielding
commercial paper or other securities with  correspondingly  greater risk instead
of U.S. Government securities.

         Certain of the obligations,  including U.S.  Treasury bills,  notes and
bonds, and mortgage-related  securities of the 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,  such as those  issued by the Federal  Home Loan Bank,  whereas
others,  such as those issued by the 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.  The U.S.  government does not guarantee the net
asset value of a Portfolio's  shares,  however.  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.  The securities  issued by these agencies are
discussed in more detail later.

         Asset-Backed  Securities.  Each  Portfolio  may  invest up to 5% of its
total assets in asset-backed  securities.  These are secured by and payable from
pools of assets,  such as motor vehicle  installment  loan contracts,  leases of
various types of real and personal  property,  and  receivables  from  revolving
credit (e.g., credit card) agreements. Like mortgage-related  securities,  these
securities are subject to the risk of prepayment.

         Structured Notes and Indexed  Securities.  Each Portfolio 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 a  Portfolio  invests in these
securities,  however,  the  Manager  analyzes  these  securities  in its overall
assessment of the effective duration of that Portfolio's  portfolio in an effort
to monitor the Portfolio's interest rate risk.

         Privatizations.   The   International   20  Portfolio   may  invest  in
privatizations.   Foreign   governmental   programs  of  selling   interests  in
government-owned  or -controlled  enterprises  ("privatizations")  may represent
opportunities for significant capital  appreciation and the Portfolio may invest
in  privatizations.  The ability of U.S.  entities,  such as the  Portfolio,  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  International  20  Portfolio  may  invest in
special situations.  The Portfolio believes that carefully selected  investments
in joint ventures,  cooperatives,  partnerships,  private  placements,  unlisted
securities  and similar  vehicles  (collectively,  "special  situations")  could
enhance their capital appreciation  potential.  The Portfolio also may invest in
certain  types of vehicles or  derivative  securities  that  represent  indirect
investments in foreign  markets or securities in which it is  impracticable  for
the  Portfolio to invest  directly.  Investments  in special  situations  may be
illiquid,  as determined by the Manager based on criteria reviewed by the Board.
The  Portfolio  does not  invest  more than 15% of its net  assets  in  illiquid
investments, including special situations.

                                      B-5

<PAGE>


Risk Factors/Special Considerations Relating to Debt Securities

         The  International  20 Portfolio may invest in debt securities that are
rated  below BBB by S&P,  Baa by Moody's or BBB by Fitch,  or, if  unrated,  are
deemed to be of equivalent  investment  quality by the Manager.  As an operating
policy,  which may be  changed  by the  Board of  Trustees  without  shareholder
approval,  the  Portfolio  will  invest  no more  than 5% of its  assets in debt
securities  rated  below  Baa by  Moody's  or BBB by S&P,  or,  if  unrated,  of
equivalent  investment quality as determined by the Manager. The market value of
debt  securities  generally  varies in response to changes in interest rates and
the financial  condition of each issuer.  During  periods of declining  interest
rates,  the value of debt securities  generally  increases.  Conversely,  during
periods  of  rising  interest  rates,  the  value of such  securities  generally
declines.  The net asset value of the  Portfolio  will reflect  these changes in
market value.

         Bonds  rated C by Moody's  are the  lowest  rated  class of bonds,  and
issues so rated can be  regarded  as having  extremely  poor  prospects  of ever
attaining any real investment standing.  Bonds rated C by S&P are obligations on
which no interest is being paid. Bonds rated below BBB or Baa are often referred
to as "junk bonds."

         Although  such  bonds  may  offer  higher   yields  than   higher-rated
securities, low-rated debt securities generally involve greater price volatility
and risk of principal and income loss,  including the possibility of default by,
or bankruptcy  of, the issuers of the  securities.  In addition,  the markets in
which  low-rated  debt  securities  are traded are more  limited  than those for
higher-rated  securities.  The  existence  of  limited  markets  for  particular
securities  may diminish the ability of the Portfolio to sell the  securities at
fair value  either to meet  redemption  requests or to respond to changes in the
economy or financial markets and could adversely affect,  and cause fluctuations
in, the per-share net asset value of the Portfolio.

         Adverse  publicity  and investor  perceptions,  whether or not based on
fundamental  analysis,  may decrease the values and liquidity of low-rated  debt
securities,   especially   in  a  thinly   traded   market.   Analysis   of  the
creditworthiness  of issuers of low-rated  debt  securities  may be more complex
than for issuers of higher-rated securities, and the ability of the Portfolio to
achieve its  investment  objectives  may, to the extent it invests in  low-rated
debt  securities,  be more dependent upon such credit analysis than would be the
case if the Portfolio invested in higher-rated debt securities.

         Low-rated debt securities may be more  susceptible to real or perceived
adverse  economic and  competitive  industry  conditions  than  investment-grade
securities.  The prices of low-rated debt  securities have been found to be less
sensitive to interest rate changes than  higher-rated  debt  securities but more
sensitive to adverse economic downturns or individual corporate developments.  A
projection of an economic  downturn or of a period of rising interest rates, for
example,  could  cause  a  sharper  decline  in the  prices  of  low-rated  debt
securities  because  the advent of a  recession  could  lessen the  ability of a
highly  leveraged  company to make  principal and interest  payments on its debt
securities.  If the issuer of low-rated debt securities defaults,  the Portfolio
may incur  additional  expenses to seek financial  recovery.  The low-rated bond
market is relatively new, and many of the  outstanding  low-rated bonds have not
endured a major business downturn.

Hedging and Risk Management Practices

         The  International  20 Portfolio  typically  will not hedge against the
foreign  currency  exchange  risks  associated  with its  investments in foreign
securities. Consequently, the Portfolio will be very sensitive to any changes in
exchange  rates  for  the  currencies  in  which  its  foreign  investments  are
denominated  or linked.  The

                                      B-6

<PAGE>


Portfolio may enter into forward foreign currency exchange  contracts  ("forward
contracts") and foreign currency futures  contracts,  as well as purchase put or
call options on foreign  currencies,  as described  below,  in  connection  with
making an investment or, on rare occasions,  to hedge against  expected  adverse
currency  exchange rate  changes.  Despite their very limited use, the Portfolio
may enter into hedging  transactions  when, in fact, it is  inopportune to do so
and,  conversely,  when it is more opportune to enter into hedging  transactions
the Portfolio might not enter into such transactions. Such inopportune timing of
utilization  of hedging  practices  could  result in  substantial  losses to the
Portfolio.

         The  International  20 Portfolio also may conduct its foreign  currency
exchange  transactions on a spot (i.e.,  cash) basis at the spot rate prevailing
in the foreign currency exchange market.

         Each  Portfolio may purchase  options and futures and may write covered
options.

         Forward Contracts. A forward contract, which is individually negotiated
and  privately  traded by  currency  traders  and their  customers,  involves an
obligation to purchase or sell a specific currency for an agreed-upon price at a
future date.

         The International 20 Portfolio may enter into a forward  contract,  for
example,  when it enters into a contract  for the purchase or sale of a security
denominated in a foreign currency or is expecting a dividend or interest payment
in order to "lock in" the U.S. dollar price of a security,  dividend or interest
payment.  When the  Portfolio  believes  that a foreign  currency  may  suffer a
substantial  decline  against  the U.S.  dollar,  it may  enter  into a  forward
contract to sell an amount of that foreign currency  approximating  the value of
some  or  all  of the  Portfolio's  portfolio  securities  denominated  in  such
currency,  or when the  Portfolio  believes  that the U.S.  dollar  may suffer a
substantial  decline  against a foreign  currency,  it may enter  into a forward
contract to buy that currency for a fixed dollar amount.

         In connection with the Portfolio's  forward contract  transactions,  an
amount of the Portfolio's  assets equal to the amount of its commitments will be
held aside or segregated to be used to pay for the commitments. Accordingly, the
Portfolio  always  will have cash,  cash  equivalents  or liquid  equity or debt
securities  denominated  in the  appropriate  currency  available  in an  amount
sufficient to cover any commitments  under these  contracts.  Segregated  assets
used to cover forward contracts will be marked to market on a daily basis. While
these  contracts are not presently  regulated by the Commodity  Futures  Trading
Commission  ("CFTC"),  the CFTC may in the future regulate them, and the ability
of the  Portfolio  to  utilize  forward  contracts  may be  restricted.  Forward
contracts may limit  potential gain from a positive  change in the  relationship
between  the U.S.  dollar  and  foreign  currencies.  Unanticipated  changes  in
currency  prices may result in poorer overall  performance by the Portfolio than
if it had not entered into such  contracts.  The  Portfolio  generally  will not
enter into a forward foreign currency exchange contract with a term greater than
one year.

         Futures  Contracts  and Options on Futures  Contracts.  Each  Portfolio
typically will not hedge against movements in interest rates,  securities prices
or currency  exchange rates. The Portfolio may still  occasionally  purchase and
sell various kinds of futures  contracts and options on futures  contracts.  The
Portfolio  also may enter  into  closing  purchase  and sale  transactions  with
respect to any such  contracts  and options.  Futures  contracts may be based on
various securities (such as U.S.  government  securities),  securities  indices,
foreign currencies and other financial instruments and indices.

         The  Trust has filed a notice of  eligibility  for  exclusion  from the
definition of the term  "commodity pool operator" with the CFTC and the National
Futures Association,  which regulate trading in the futures markets.

                                      B-7

<PAGE>


Pursuant to Section 4.5 of the regulations under the Commodity Exchange Act, the
notice of eligibility  included the  representation  that the Portfolio will use
futures  contracts and related options for bona fide hedging purposes within the
meaning of CFTC  regulations,  provided that the Portfolio may hold positions in
futures  contracts and related options that do not fall within the definition of
bona fide hedging  transactions  if the  aggregate  initial  margin and premiums
required to establish such positions will not exceed 5% of the  Portfolio's  net
assets (after taking into account  unrealized  profits and unrealized  losses on
any such  positions) and that in the case of an option that is  in-the-money  at
the time of purchase, the in-the-money amount may be excluded from such 5%.

         The Portfolio will attempt to determine whether the price  fluctuations
in the futures  contracts  and options on futures used for hedging  purposes are
substantially  related to price fluctuations in securities held by the Portfolio
for  which  it  expects  to  purchase.   When  used,  the  Portfolio's   futures
transactions  generally  will be  entered  into  only  for  traditional  hedging
purposes--i.e.,  futures  contracts will be sold to protect against a decline in
the price of  securities  or  currencies  and will be  purchased  to protect the
Portfolio  against an increase in the price of securities it intends to purchase
(or the currencies in which they are denominated). All futures contracts entered
into by the Portfolio are traded on U.S.  exchanges or boards of trade  licensed
and regulated by the CFTC or on foreign exchanges.

         Positions  taken  in the  futures  markets  are  not  normally  held to
maturity but are instead  liquidated through offsetting or "closing" purchase or
sale transactions, which may result in a profit or a loss. While the Portfolio's
futures contracts on securities or currencies will usually be liquidated in this
manner, the Portfolio may make or take delivery of the underlying  securities or
currencies whenever it appears economically advantageous. A clearing corporation
associated  with the exchange on which futures on  securities or currencies  are
traded guarantees that, if still open, the sale or purchase will be performed on
the settlement date.

         By using  futures  contracts to hedge their  positions,  the  Portfolio
seeks to establish more certainty than would  otherwise be possible with respect
to the effective  price,  rate of return or currency  exchange rate on portfolio
securities or securities  that the Portfolio  proposes to acquire.  For example,
when interest rates are rising or securities  prices are falling,  the Portfolio
can seek,  through  the sale of  futures  contracts,  to offset a decline in the
value of its current portfolio securities.  When rates are falling or prices are
rising, the Portfolio, through the purchase of futures contracts, can attempt to
secure  better  rates or prices than might later be available in the market with
respect to  anticipated  purchases.  Similarly,  the  Portfolio can sell futures
contracts on a specified  currency to protect  against a decline in the value of
such  currency  and its  portfolio  securities  which  are  denominated  in such
currency.  The Portfolio can purchase futures contracts on a foreign currency to
fix the price in U.S.  dollars of a security  denominated  in such  currency the
Portfolio has acquired or expects to acquire.

         As part of its  hedging  strategy,  the  Portfolio  also may enter into
other types of financial  futures  contracts  if, in the opinion of the Manager,
there is a  sufficient  degree  of  correlation  between  price  trends  for the
Portfolio's portfolio securities and such futures contracts. Although under some
circumstances  prices of securities in the Portfolio's  portfolio may be more or
less volatile than prices of such futures contracts, the Manager will attempt to
estimate  the  extent  of this  difference  in  volatility  based on  historical
patterns and to compensate  for it by having the Portfolio  enter into a greater
or lesser number of futures contracts or by attempting to achieve only a partial
hedge against price changes affecting the Portfolio's securities portfolio. When
hedging  of this  character  is  successful,  any  depreciation  in the value of
portfolio securities can be substantially offset by appreciation in the value of
the futures position.  However,  any unanticipated  appreciation

                                      B-8

<PAGE>


in  the  value  of  the  Portfolio's   portfolio   securities  could  be  offset
substantially by a decline in the value of the futures position.

         The acquisition of put and call options on futures  contracts gives the
Portfolio the right (but not the obligation),  for a specified price, to sell or
purchase the underlying  futures  contract at any time during the option period.
Purchasing  an option on a futures  contract  gives the Portfolio the benefit of
the futures  position if prices  move in a favorable  direction,  and limits its
risk of loss, in the event of an unfavorable price movement,  to the loss of the
premium and transaction costs.

         The  Portfolio  may  terminate  its  position in an option  contract by
selling an offsetting option on the same series. There is no guarantee that such
a closing transaction can be effected.  The Portfolio's ability to establish and
close out positions on such options is dependent upon a liquid market.

         Loss  from  investing  in  futures  transactions  by the  Portfolio  is
potentially unlimited.

         The  Portfolio  will engage in  transactions  in futures  contracts and
related  options only to the extent such  transactions  are consistent  with the
requirements of the Internal  Revenue Code of 1986, as amended,  for maintaining
its  qualification  as a regulated  investment  company  for federal  income tax
purposes.

         Options  on  Securities,   Securities  Indices  and  Currencies.   Each
Portfolio  may  purchase  put and call  options  on  securities  in which it has
invested,  on  foreign  currencies  represented  in  its  portfolios  and on any
securities index based in whole or in part on securities in which that Portfolio
may invest. A Portfolio also may enter into closing sales  transactions in order
to realize gains or minimize losses on options they have purchased.

         A Portfolio  normally will purchase call options in  anticipation of an
increase in the market value of securities of the type in which it may invest or
a positive change in the currency in which such securities are denominated.  The
purchase of a call option would  entitle a Portfolio,  in return for the premium
paid,  to  purchase  specified  securities  or a  specified  amount of a foreign
currency at a specified price during the option period.

         A Portfolio  may purchase  and sell options  traded on U.S. and foreign
exchanges.  Although a Portfolio will generally  purchase only those options for
which there appears to be an active secondary market,  there can be no assurance
that a liquid  secondary  market on an  exchange  will exist for any  particular
option or at any particular  time. For some options,  no secondary  market on an
exchange may exist.  In such event,  it might not be possible to effect  closing
transactions in particular options,  with the result that a Portfolio would have
to  exercise  its  options  in order to  realize  any  profit  and  would  incur
transaction costs upon the purchase or sale of the underlying securities.

         Secondary markets on an exchange may not exist or may not be liquid for
a variety of reasons  including:  (i)  insufficient  trading interest in certain
options;  (ii)  restrictions  on opening  transactions  or closing  transactions
imposed by an exchange;  (iii) trading halts,  suspensions or other restrictions
may be imposed with  respect to  particular  classes or series of options;  (iv)
unusual or unforeseen  circumstances  which  interrupt  normal  operations on an
exchange;  (v)  inadequate  facilities  of an exchange  or the Options  Clearing
Corporation   to  handle  current   trading   volume  at  all  times;   or  (vi)
discontinuance  in the future by one or more  exchanges  for  economic  or other
reasons,  of trading of options (or of a particular class or series of options),
in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist,  although

                                      B-9

<PAGE>


outstanding  options  on that  exchange  that had  been  issued  by the  Options
Clearing Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.

         Although the Portfolios do not currently  intend to do so, they may, in
the future,  write  (i.e.,  sell)  covered put and call  options on  securities,
securities  indices  and  currencies  in which they may invest.  A covered  call
option involves a Portfolio's giving another party, in return for a premium, the
right to buy specified  securities owned by that Portfolio at a specified future
date and price set at the time of the contract.  A covered call option serves as
a partial hedge against a price decline of the underlying security.  However, by
writing a covered call option, a Portfolio gives up the  opportunity,  while the
option is in effect,  to realize gain from any price increase  (above the option
exercise price) in the underlying  security.  In addition, a Portfolio's ability
to sell the underlying  security is limited while the option is in effect unless
that Portfolio effects a closing purchase transaction.

         Each  Portfolio also may write covered put options that give the holder
of the option the right to sell the underlying  security to the Portfolio at the
stated  exercise  price.  A Portfolio  will  receive a premium for writing a put
option  but  will be  obligated  for as long as the  option  is  outstanding  to
purchase the  underlying  security at a price that may be higher than the market
value of that security at the time of exercise.  In order to "cover" put options
it has written,  a Portfolio  will cause its custodian to segregate  cash,  cash
equivalents,   U.S.  Government  securities  or  other  liquid  equity  or  debt
securities  with at least the value of the exercise price of the put options.  A
Portfolio will not write put options if the aggregate  value of the  obligations
underlying the put options exceeds 25% of that Portfolio's total assets.

         There is no assurance that higher than anticipated  trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the Options Clearing Corporation inadequate, and result in the institution by an
exchange of special  procedures that may interfere with the timely  execution of
the Portfolios' orders.

         Equity-Linked  Derivatives--SPDRs,   WEBS,  DIAMONDS  and  OPALS.  Each
Portfolio may invest in Standard & Poor's ("S&P") Depository  Receipts ("SPDRs")
and  S&P's  MidCap  400  Depository  Receipts  ("MidCap  SPDRs"),  World  Equity
Benchmark Series ("WEBS"), Dow Jones Industrial Average instruments ("DIAMONDS")
and baskets of Country  Securities  ("OPALS").  Each of these  instruments  is a
derivative security whose value follows a well-known securities index or baskets
of securities.

         SPDRs and MidCap  SPDRs are designed to follow the  performance  of S&P
500  Index  and the S&P  MidCap  400  Index,  respectively.  WEBS are  currently
available  in 17  varieties,  each  designed  to  follow  the  performance  of a
different  Morgan Stanley  Capital  International  country  index.  DIAMONDS are
designed to follow the  performance  of the Dow Jones  Industrial  Average which
tracks the composite stock  performance of 30 major U.S.  companies in a diverse
range of industries.

         OPALS track the  performance  of adjustable  baskets of stocks owned by
Morgan Stanley Capital (Luxembourg) S.A. (the "Counterparty")  until a specified
maturity  date.  Holders  of  OPALS  will  receive   semi-annual   distributions
corresponding to dividends received on shares contained in the underlying basket
of stocks and certain  amounts,  net of expenses.  On the  maturity  date of the
OPALS,  the  holders  will  receive  the  physical  securities   comprising  the
underlying baskets. Opals, like many of these types of instruments, represent an
unsecured   obligation  and  therefore   carry  with  them  the  risk  that  the
Counterparty will default.

                                      B-10

<PAGE>


         Because the prices of SPDRs, MidCap SPDRs, WEBS, DIAMONDS and OPALS are
correlated  to  diversified  portfolios,  they are  subject to the risk that the
general  level of stock  prices  may  decline  or that  the  underlying  indices
decline. In addition, because SPDRs, MidCap SPDRs, WEBS, DIAMONDS and OPALS will
continue to be traded  even when  trading is halted in  component  stocks of the
underlying  indices,  price  quotations for these  securities  may, at times, be
based upon non-current price information with respect to some of even all of the
stocks in the underlying indices. In addition to the risks disclosed in "Foreign
Securities"  below,  because  WEBS mirror the  performance  of a single  country
index,  a economic  downturn in a single country could  significantly  adversely
affect the price of the WEBS for that country.

Other Investment Practices

         Repurchase  Agreements.   Each  Portfolio  may  enter  into  repurchase
agreements.  A  Portfolio's  repurchase  agreements  will  generally  involve  a
short-term  investment in a U.S.  Government security or other high-grade liquid
debt security, with the seller of the underlying security agreeing to repurchase
it at a mutually  agreed-upon  time and price. The repurchase price is generally
higher than the purchase  price,  the difference  being interest  income to that
Portfolio.  Alternatively,  the purchase and repurchase  prices may be the same,
with interest at a stated rate due to a Portfolio  together with the  repurchase
price on the date of  repurchase.  In either case,  the income to a Portfolio is
unrelated to the interest rate on the underlying security.

         Under each repurchase agreement, the seller is required to maintain the
value of the  securities  subject to the  repurchase  agreement at not less than
their repurchase price. The Manager,  acting under the supervision of the Board,
reviews on a periodic basis the suitability and creditworthiness,  and the value
of the  collateral,  of those  sellers  with  whom  the  Portfolios  enter  into
repurchase agreements to evaluate potential risk. All repurchase agreements will
be made pursuant to procedures adopted and regularly reviewed by the Board.

         The Portfolios generally will enter into repurchase agreements of short
maturities,  from overnight to one week, although the underlying securities will
generally have longer  maturities.  The Portfolios regard repurchase  agreements
with maturities in excess of seven days as illiquid.  A Portfolio may not invest
more than 15% of the value of its net assets in illiquid  securities,  including
repurchase agreements with maturities greater than seven days.

         For purposes of the Investment  Company Act, a repurchase  agreement is
deemed  to be a  collateralized  loan  from a  Portfolio  to the  seller  of the
security  subject to the repurchase  agreement.  It is not clear whether a court
would  consider  the  security  acquired by a Portfolio  subject to a repurchase
agreement as being owned by that Portfolio or as being  collateral for a loan by
that  Portfolio to the seller.  If  bankruptcy  or  insolvency  proceedings  are
commenced with respect to the seller of the security  before its  repurchase,  a
Portfolio  may  encounter  delays and incur costs  before being able to sell the
security.  Delays  may  involve  loss of  interest  or a decline in price of the
security.  If a court characterizes such a transaction as a loan and a Portfolio
has not  perfected a security  interest in the security,  that  Portfolio may be
required  to return the  security  to the  seller's  estate and be treated as an
unsecured creditor.  As such, a Portfolio would be at risk of losing some or all
of the principal and income involved in the  transaction.  As with any unsecured
debt  instrument  purchased  for a Portfolio,  the Manager seeks to minimize the
risk of loss through repurchase  agreements by analyzing the creditworthiness of
the seller of the security.

         Apart  from  the  risk  of  bankruptcy  or  insolvency  proceedings,  a
Portfolio  also  runs  the risk  that the  seller  may  fail to  repurchase  the
security.  However, each Portfolio always requires collateral for any repurchase
agreement to which it is a party in the form of securities acceptable to it, the
market  value of which is equal to at

                                      B-11

<PAGE>


least 100% of the amount  invested by the Portfolio plus accrued  interest,  and
each Portfolio makes payment against such securities only upon physical delivery
or evidence of book entry transfer to the account of its custodian  bank. If the
market value of the security  subject to the repurchase  agreement  becomes less
than the repurchase price  (including  interest),  a Portfolio,  pursuant to its
repurchase  agreement,  may  require  the  seller  of the  security  to  deliver
additional  securities so that the market value of all securities subject to the
repurchase agreement equals or exceeds the repurchase price (including interest)
at all times.

         The Portfolios may  participate in one or more joint accounts with each
other and other  series  of the  Trusts  that  invest in  repurchase  agreements
collateralized,  subject to their investment policies, either by (i) obligations
issued or guaranteed  as to principal and interest by the U.S.  Government or by
one  of  its   agencies  or   instrumentalities,   or  (ii)   privately   issued
mortgage-related securities that are in turn collateralized by securities issued
by GNMA,  FNMA or  FHLMC,  and are rated in the  highest  rating  category  by a
nationally  recognized  statistical  rating  organization,  or, if unrated,  are
deemed by the Manager to be of comparable quality using objective criteria.  Any
such  repurchase  agreement  will  have,  with rare  exceptions,  an  overnight,
over-the-weekend or over-the-holiday  duration,  and in no event have a duration
of more than seven days.

         Reverse  Repurchase  Agreements.  Each Portfolio may enter into reverse
repurchase  agreements.  A Portfolio  typically  will  invest the  proceeds of a
reverse   repurchase   agreement  in  money  market  instruments  or  repurchase
agreements  maturing  not later than the  expiration  of the reverse  repurchase
agreement.  This use of proceeds involves  leverage,  and a Portfolio will enter
into a reverse repurchase  agreement for leverage purposes only when the Manager
believes  that the  interest  income to be  earned  from the  investment  of the
proceeds  would be  greater  than the  interest  expense of the  transaction.  A
Portfolio also may use the proceeds of reverse repurchase  agreements to provide
liquidity to meet redemption requests when sale of the Portfolio's securities is
disadvantageous.

         The Portfolios cause their custodian to segregate  liquid assets,  such
as cash,  U.S.  Government  securities or other liquid equity or debt securities
equal in value to their obligations (including accrued interest) with respect to
reverse repurchase agreements.  Such assets are marked to market daily to ensure
that full collateralization is maintained.

         Lending of Portfolio  Securities.  Although the Portfolios currently do
not intend to do so, a Portfolio may lend its  portfolio  securities in order to
generate  additional  income.  Such loans may be made to broker-dealers or other
financial  institutions  whose  creditworthiness  is  acceptable to the Manager.
These  loans  would  be  required  to be  secured  continuously  by  collateral,
including cash, cash equivalents, irrevocable letters of credit, U.S. Government
securities, or other high-grade liquid debt securities,  maintained on a current
basis (i.e.,  marked to market daily) at an amount at least equal to 100% of the
market value of the securities loaned plus accrued interest. A Portfolio may pay
reasonable  administrative  and custodial fees in connection with a loan and may
pay a  negotiated  portion of the income  earned on the cash to the  borrower or
placing broker. Loans are subject to termination at the option of a Portfolio or
the borrower at any time. Upon such  termination,  that Portfolio is entitled to
obtain the return of the securities loaned within five business days.

         For the duration of the loan, a Portfolio  will continue to receive the
equivalent  of the  interest or dividends  paid by the issuer on the  securities
loaned,  will receive  proceeds from the  investment of the  collateral and will
continue to retain any voting rights with respect to those  securities.  As with
other extensions of credit,  there are risks of delay in recovery or even losses
of rights in the securities  loaned should the borrower of the  securities  fail
financially.  However,  the loans will be made only to  borrowers  deemed by the
Manager to be

                                      B-12

<PAGE>


creditworthy,  and when, in the judgment of the Manager, the income which can be
earned currently from such loans justifies the attendant risk.

         When-Issued  and Forward  Commitment  Securities.  The  Portfolios  may
purchase securities on a "when-issued" basis and may purchase or sell securities
on a  "forward  commitment"  or  "delayed  delivery"  basis.  The  price of such
securities is fixed at the time the  commitment to purchase or sell is made, but
delivery and payment for the  securities  take place at a later date.  Normally,
the settlement  date occurs within one month of the purchase;  during the period
between  purchase  and  settlement,  no  payment is made by a  Portfolio  to the
issuer.  While the Portfolios  reserve the right to sell  when-issued or delayed
delivery  securities  prior to the settlement  date,  the  Portfolios  intend to
purchase such  securities  with the purpose of actually  acquiring them unless a
sale appears desirable for investment  reasons.  At the time a Portfolio makes a
commitment to purchase a security on a when-issued or delayed delivery basis, it
will record the transaction and reflect the value of the security in determining
its net asset value. The market value of the when-issued  securities may be more
or less than the settlement  price. The Portfolios do not believe that their net
asset values will be adversely  affected by their  purchase of  securities  on a
when-issued or delayed  delivery basis.  The Portfolios cause their custodian to
segregate  cash,  U.S.  Government  securities  or other  liquid  equity or debt
securities with a value equal in value to commitments for when-issued or delayed
delivery  securities.  The  segregated  securities  either  will  mature  or, if
necessary,  be sold on or before the settlement  date. To the extent that assets
of a  Portfolio  are  held in cash  pending  the  settlement  of a  purchase  of
securities, that Portfolio will earn no income on these assets.

         The Portfolios may seek to hedge  investments or to realize  additional
gains through forward  commitments to sell high-grade  liquid debt securities it
does  not  own  at the  time  it  enters  into  the  commitments.  Such  forward
commitments  effectively  constitute  a form of short sale.  To complete  such a
transaction,  the  Portfolio  must  obtain  the  security  which  it has  made a
commitment to deliver. If the Portfolio does not have cash available to purchase
the  security  it is  obligated  to deliver,  it may be  required  to  liquidate
securities  in its  portfolio at either a gain or a loss, or borrow cash under a
reverse repurchase or other short-term arrangement, thus incurring an additional
expense. In addition, the Portfolio may incur a loss as a result of this type of
forward  commitment if the price of the security  increases between the date the
Portfolio  enters  into  the  forward  commitment  and the date on which it must
purchase the security it is committed to deliver.  The Portfolio  will realize a
gain from this type of forward  commitment  if the  security  declines  in price
between those dates.  The amount of any gain will be reduced,  and the amount of
any loss increased,  by the amount of the interest or other transaction expenses
the  Portfolio  may be required to pay in  connection  with this type of forward
commitment. Whenever this Portfolio engages in this type of transaction, it will
segregate assets as discussed above.

         Illiquid  Securities.  The  Portfolio  may  invest up to 15% of its net
assets in illiquid securities.  The term "illiquid  securities" for this purpose
means  securities  that cannot be disposed of within  seven days in the ordinary
course of business at  approximately  the amount at which a Portfolio has valued
the securities and includes,  among others,  repurchase  agreements  maturing in
more than seven days,  certain  restricted  securities and  securities  that are
otherwise not freely transferable. Illiquid securities also include shares of an
investment  company held by a Portfolio in excess of 1% of the total outstanding
shares of that  investment  company.  Restricted  securities may be sold only in
privately negotiated transactions or in public offerings with respect to which a
registration statement is in effect under the Securities Act of 1933, as amended
("1933 Act"). Illiquid securities acquired by a Portfolio may include those that
are subject to restrictions on transferability  contained in the securities laws
of other countries.  Securities that are freely  marketable in the country where
they are  principally  traded,  but that would not be freely  marketable  in the
United States, will not be considered illiquid.  Where registration is required,
a Portfolio may be obligated to pay all or part of the registration expenses and
a

                                      B-13

<PAGE>


considerable  period may elapse between the time of the decision to sell and the
time that  Portfolio  may be  permitted  to sell a security  under an  effective
registration statement. If, during such a period, adverse market conditions were
to develop,  that Portfolio  might obtain a less favorable  price than prevailed
when it decided to sell.

         In recent years a large institutional  market has developed for certain
securities that are not registered under the 1933 Act, including securities sold
in  private  placements,   repurchase  agreements,   commercial  paper,  foreign
securities and corporate bonds and notes. These instruments often are restricted
securities  because  the  securities  are  sold in  transactions  not  requiring
registration.  Institutional  investors  generally  will not seek to sell  these
instruments  to the general  public,  but instead will often depend either on an
efficient  institutional  market in which such  unregistered  securities  can be
resold  readily  or on an  issuer's  ability  to honor a demand  for  repayment.
Therefore,  the fact that there are contractual or legal  restrictions on resale
to the  general  public or  certain  institutions  is not  determinative  of the
liquidity of such investments.

         Rule  144A  under  the  1933 Act  establishes  a safe  harbor  from the
registration  requirements of the 1933 Act for resales of certain  securities to
qualified institutional buyers.  Institutional markets for restricted securities
sold  pursuant to Rule 144A in many cases  provide  both  readily  ascertainable
values for  restricted  securities and the ability to liquidate an investment to
satisfy share redemption  orders.  Such markets might include  automated systems
for the trading, clearance and settlement of unregistered securities of domestic
and  foreign  issuers,  such as the  PORTAL  System  sponsored  by the  National
Association  of Securities  Dealers,  Inc. An  insufficient  number of qualified
buyers  interested  in  purchasing  Rule  144A-eligible  restricted  securities,
however,  could adversely affect the marketability of such portfolio  securities
and result in a Portfolio's  inability to dispose of such securities promptly or
at favorable prices.

         The  Board   has   delegated   the   function   of  making   day-to-day
determinations  of liquidity to the Manager  pursuant to guidelines  approved by
the  Board.  The  Manager  takes into  account a number of  factors in  reaching
liquidity decisions,  including, but not limited to: (i) the frequency of trades
for the security, (ii) the number of dealers that quote prices for the security,
(iii)  the  number  of  dealers  that  have  undertaken  to make a market in the
security,  (iv) the number of other potential purchasers,  and (v) the nature of
the  security  and how  trading is effected  (e.g.,  the time needed to sell the
security,  how bids are solicited  and the  mechanics of transfer).  The Manager
monitors the liquidity of restricted  securities in the  Portfolios'  portfolios
and reports periodically on such decisions to the Board.


                                  RISK FACTORS

         The following  describes  certain risks  involved with investing in the
Portfolios in addition to those described in the prospectus or elsewhere in this
Statement of Additional Information.

Foreign Securities

         The   Portfolios   may  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 inherent in domestic
investments.  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

                                      B-14


<PAGE>


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 United  States.
Foreign  companies  are often not subject to uniform  accounting,  auditing  and
financial  reporting   standards.   Further,   these  Portfolios  may  encounter
difficulties  in pursuing  legal  remedies or in obtaining  judgments in foreign
courts.

         Brokerage  commissions,  fees for  custodial  services  and other costs
relating to  investments  by the  Portfolios  in other  countries  are generally
greater than in the United States.  Foreign markets have different clearance and
settlement  procedures from those in the United States, and certain markets have
experienced  times  when  settlements  did not  keep  pace  with the  volume  of
securities  transactions which resulted in settlement difficulty.  The inability
of  a  Portfolio  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 Portfolio if the value of the  portfolio  security  declined,  or
result in claims against the Portfolio 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 United States.  The securities  markets of many of
the  countries in which these  Portfolios  may invest may also be smaller,  less
liquid and subject to greater price volatility than those in the United States.

         Because  certain  securities 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 a Portfolio's  securities  denominated in the currency.
Such  changes  also  affect  the  Portfolio's   income  and   distributions   to
shareholders.  A Portfolio may be affected  either  favorably or  unfavorably by
changes in the  relative  rates of exchange  among the  currencies  of different
nations,  and a  Portfolio  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 one of these  Portfolios  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  Portfolio.  Many  countries in which a Portfolio  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 Portfolios.  The
Portfolios 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.

Exchange Rates and Policies

         The  International  20  Portfolio  endeavors  to buy and  sell  foreign
currencies on favorable terms. Some price spreads on currency exchange (to cover
service  charges)  may be  incurred,  particularly  when the  Portfolio  changes
investments from one country to another or when proceeds from the sale of shares
in U.S.  dollars are

                                      B-15

<PAGE>


used for the purchase of securities in foreign  countries.  Also, some countries
may adopt policies which would prevent the Portfolio from repatriating  invested
capital  and  dividends,  withhold  portions of interest  and  dividends  at the
source,  or impose other taxes,  with respect to the Portfolio's  investments in
securities  of  issuers  of  that  country.  There  also is the  possibility  of
expropriation, nationalization, confiscatory or other taxation, foreign exchange
controls (which may include  suspension of the ability to transfer currency from
a given country), default in foreign government securities,  political or social
instability,  or diplomatic developments that could adversely affect investments
in securities of issuers in those nations.

         The  Portfolio  may be affected  either  favorably  or  unfavorably  by
fluctuations  in the  relative  rates of  exchange  between  the  currencies  of
different  nations,  exchange  control  regulations and indigenous  economic and
political developments.

         The  Manager   considers  at  least  annually  the  likelihood  of  the
imposition by any foreign government of exchange control restrictions that would
affect the liquidity of the  Portfolio's  assets  maintained  with custodians in
foreign countries,  as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed.  The Manager also considers the
degree of risk attendant to holding portfolio securities in domestic and foreign
securities depositories (see "Investment Management and Other Services").

Interest Rates

         The market value of debt securities that are interest rate sensitive is
inversely  related to changes  in  interest  rates.  That is, an  interest  rate
decline  produces an increase in a security's  market value and an interest rate
increase  produces a decrease in value.  The longer the remaining  maturity of a
security,  the  greater  the effect of  interest  rate  changes.  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.

Equity Swaps

         The  Portfolios  may invest in equity  swaps.  Equity  swaps  allow the
parties to exchange  the  dividend  income or other  components  of return on an
equity  investment  (e.g.,  a group of  equity  securities  or an  index)  for a
component of return on another non-equity or equity investment. Equity swaps are
derivatives,  and their  values can be very  volatile.  To the  extent  that the
Manager  does  not  accurately   analyze  and  predict  the  potential  relative
fluctuation of the components swapped with another party, a Portfolio may suffer
a loss. The value of some  components of an equity swap (like the dividends on a
common stock) may also be sensitive to changes in interest  rates.  Furthermore,
during the period a swap is outstanding,  the Portfolio may suffer a loss if the
counterparty defaults.

Short Sales

         Neither  Portfolio  expects to make significant use of short sales, but
the  portfolio  managers  may,  from time to time,  engage in short  sales  when
believed to be  appropriate.  Short sales are  transactions in which a Portfolio
sells a security  or other asset  which it does not own,  in  anticipation  of a
decline in the market  value of the security or other  asset.  A Portfolio  will
realize  a profit  or  incur a loss  depending  upon  whether  the  price of the
security  sold short  decreases or  increases  in value  between the date of the
short sale and the date on which that Fund must replace the  borrowed  security.
Short sales are speculative  investments  and involve  special risks,  including
greater reliance on the Manager's accurately  anticipating the future value of a
security.  Short sales also may result in a Portfolio's  recognition of gain for
certain portfolio securities.

                                      B-16

<PAGE>


         Until the Portfolio replaces a borrowed security,  it will instruct its
custodian  to identify as  unavailable  for  investment  cash,  U.S.  government
securities,  or other liquid debt or equity  securities  such that the amount so
identified  plus any  amount  deposited  with a broker  or  other  custodian  as
collateral  will equal the current value of the security sold short and will not
be less than the value of the security at the time it was sold short.  Depending
on arrangements made with the broker or custodian, the Portfolio may not receive
any payments  (including  interest) on collateral  deposited  with the broker or
custodian.

Non-Diversified Portfolio

         The Portfolios are  "non-diversified"  investment  companies  under the
Investment Company Act. This means that, with respect to 50% of each Portfolio's
total  assets,  it may not  invest  more  than  5% of its  total  assets  in the
securities  of any one issuer (other than the U.S.  government).  The balance of
its assets may be invested  in as few as two  issuers.  Thus,  up to 25% of each
Portfolio's  total assets may be invested in the  securities  of any one issuer.
The investment  return on a  non-diversified  portfolio,  however,  typically is
dependent upon the  performance  of a smaller number of issuers  relative to the
number of issuers held in a diversified portfolio. If the financial condition or
market assessment of certain issuers changes,  a Portfolio's policy of acquiring
large positions in the  obligations of a relatively  small number of issuers may
affect the value of its portfolio to a greater extent than if its portfolio were
fully diversified.

INVESTMENT RESTRICTIONS

         The following policies and investment restrictions have been adopted by
the  Portfolios  and  (unless  otherwise  noted) are  fundamental  and cannot be
changed  without  the  affirmative   vote  of  a  majority  of  the  Portfolios'
outstanding  voting  securities  as defined in the  Investment  Company Act. The
Portfolios may not:

         1.       Make loans to others,  except (a) through the purchase of debt
                  securities in  accordance  with its  investment  objective and
                  policies,  (b)  through  the  lending  of up  to  30%  of  its
                  portfolio  securities as described above, or (c) to the extent
                  the entry into a repurchase agreement or a reverse dollar roll
                  transaction is deemed to be a loan.

         2.       (a)      Borrow  money,  except  for  temporary  or  emergency
                           purposes   from  a  bank,   or  pursuant  to  reverse
                           repurchase agreements or dollar roll transactions and
                           then not in excess of  one-third  of the value of its
                           total   assets   (including   the  proceeds  of  such
                           borrowings,  at the  lower  of cost  or  fair  market
                           value).  Any  such  borrowing  will be  made  only if
                           immediately  thereafter there is an asset coverage of
                           at least 300% of all  borrowings,  and no  additional
                           investments may be made while any such borrowings are
                           in excess of 10% of total assets.  Transactions  that
                           are fully  collateralized  in a manner  that does not
                           involve   the   prohibited   issuance  of  a  "senior
                           security"  within the meaning of Section 18(f) of the
                           Investment  Company  Act  shall  not be  regarded  as
                           borrowings for the purposes of this restriction.

                  (b)      Mortgage,  pledge or  hypothecate  any of its  assets
                           except in connection with permissible  borrowings and
                           permissible  forward  contracts,  futures  contracts,
                           option contracts or other hedging transactions.

         3.       Except as  required in  connection  with  permissible  hedging
                  activities,   purchase  securities  on  margin  or  underwrite
                  securities. (This does not preclude a Portfolio from obtaining
                  such  short-term  credit as may be necessary for the clearance
                  of purchases  and sales of its  portfolio  securities

                                      B-17

<PAGE>


                  or from engaging in transactions that are fully collateralized
                  in a manner that does not involve the prohibited issuance of a
                  senior  security  within the  meaning of Section  18(f) of the
                  Investment Company Act.)

         4.       Buy or sell real estate or commodities or commodity contracts;
                  however, the Portfolio, to the extent not otherwise prohibited
                  in the Prospectus or this Statement of Additional Information,
                  may invest in  securities  secured by real estate or interests
                  therein or issued by companies  which invest in real estate or
                  interests  therein,  including real estate investment  trusts,
                  and  may  purchase  or  sell  currencies   (including  forward
                  currency  exchange  contracts),  futures contracts and related
                  options generally as described in this Statement of Additional
                  Information.

         5.       Invest in securities of other investment companies,  except to
                  the  extent  permitted  by  the  Investment  Company  Act  and
                  discussed in this Statement of Additional  Information,  or as
                  such   securities  may  be  acquired  as  part  of  a  merger,
                  consolidation or acquisition of assets.

         6.       Invest,  in the aggregate,  more than 15% of its net assets in
                  illiquid    securities,    including    (under   current   SEC
                  interpretations)  restricted securities (excluding liquid Rule
                  144A-eligible restricted securities), securities which are not
                  otherwise  readily  marketable,   repurchase  agreements  that
                  mature in more than  seven days and  over-the-counter  options
                  (and  securities  underlying  such  options)  purchased  by  a
                  Portfolio.  (This is an  operating  policy that may be changed
                  without shareholder  approval,  consistent with the Investment
                  Company Act and changes in relevant SEC interpretations).

         7.       Invest in any issuer for  purposes  of  exercising  control or
                  management  of the issuer.  (This is an operating  policy that
                  may be changed without shareholder  approval,  consistent with
                  the Investment Company Act.)

         8.       Invest more than 25% of the market  value of its total  assets
                  in the  securities  of companies  engaged in any one industry.
                  (This does not apply to  investment  in the  securities of the
                  U.S.  government,  its  agencies  or  instrumentalities.)  For
                  purposes of this restriction, the Portfolios generally rely on
                  the U.S. Office of Management and Budget's Standard Industrial
                  Classifications.

         9.       Issue senior securities,  as defined in the Investment Company
                  Act,  except  that  this  restriction  shall  not be deemed to
                  prohibit a Portfolio from (a) making any permitted borrowings,
                  mortgages  or  pledges,   or  (b)  entering  into  permissible
                  repurchase and dollar roll transactions.

         10.      Except  as   described  in  this   Statement   of   Additional
                  Information,  acquire  or dispose of put,  call,  straddle  or
                  spread options unless:

                  (a)      such options are written by other  persons or are put
                           options    written   with   respect   to   securities
                           representing  25%  or  less  of a  Portfolio's  total
                           assets, and

                  (b)      the aggregate premiums paid on all such options which
                           are  held  at  any  time  do  not   exceed  5%  of  a
                           Portfolio's total assets.

                  (This  is an  operating  policy  that may be  changed  without
                  shareholder approval.)

                                      B-18

<PAGE>


         11.      Except as described in the  Prospectus  and this  Statement of
                  Additional  Information,  engage in short sales of securities.
                  (This  is an  operating  policy  that may be  changed  without
                  shareholder approval, consistent with applicable regulations.)

         12.      Purchase more than 10% of the outstanding voting securities of
                  any one  issuer.  (This  is an  operating  policy  that may be
                  changed without shareholder approval.)

         13.      Invest in commodities, except for futures contracts or options
                  on futures  contracts  if the  investments  are either (a) for
                  bona  fide  hedging   purposes  within  the  meaning  of  CFTC
                  regulations  or (b) for other than bona fide hedging  purposes
                  if,  as a result  thereof,  no more  than 5% of a  Portfolio's
                  total  assets  (taken at market  value at the time of entering
                  into the contract) would be committed to initial  deposits and
                  premiums  on  open  futures  contracts  and  options  on  such
                  contracts.

         To the extent these  restrictions  reflect matters of operating  policy
that may be changed without  shareholder vote, these restrictions may be amended
upon approval by the Board and notice to shareholders.

         If a percentage restriction is adhered to at the time of investment,  a
subsequent  increase or decrease in a percentage  resulting from a change in the
values of assets will not constitute a violation of that restriction,  except as
otherwise noted.


                        DISTRIBUTIONS AND TAX INFORMATION

         Distributions.  The Portfolios  receive income in the form of dividends
and interest earned on their  investments in securities.  This income,  less the
expenses incurred in their operations, is the Portfolios' net investment income,
substantially  all of which will be declared  as  dividends  to the  Portfolios'
shareholders.

         The amount of ordinary  income  dividend  payments  by a  Portfolio  is
dependent  upon the amount of net investment  income  received by that Portfolio
from its portfolio holdings,  is not guaranteed and is subject to the discretion
of the Portfolio's  Board. The Portfolios do not pay "interest" or guarantee any
fixed rate of return on an investment in its shares.

         The  Portfolios  also may derive  capital gains or losses in connection
with sales or other dispositions of their portfolio  securities.  Any net gain a
Portfolio may realize from transactions involving investments held less than the
period  required for  long-term  capital gain or loss  recognition  or otherwise
producing short-term capital gains and losses (taking into account any carryover
of  capital  losses  from  the  eight  previous   taxable  years),   although  a
distribution from capital gains, will be distributed to shareholders with and as
a part of  dividends  giving  rise to  ordinary  income.  If  during  any year a
Portfolio realizes a net gain on transactions involving investments held for the
period  required for  long-term  capital gain or loss  recognition  or otherwise
producing  long-term  capital gains and losses,  that  Portfolio will have a net
long-term  capital  gain.  After  deduction of the amount of any net  short-term
capital  loss,  the  balance  (to the extent not  offset by any  capital  losses
carried over from the eight  previous  taxable  years) will be  distributed  and
treated as long-term  capital gains in the hands of the shareholders  regardless
of the  length  of  time  the  Portfolio's  shares  may  have  been  held by the
shareholders.

         The maximum long-term federal capital gains rate for individuals is 20%
with respect to capital assets held for more than 12 months. The maximum capital
gains rate for  corporate  shareholders  is the same as the maximum tax rate for
ordinary income.

                                      B-19

<PAGE>


         Any dividend or distribution per share paid by a Portfolio  reduces its
net asset  value per share on the date  paid by the  amount of the  dividend  or
distribution  per share.  Accordingly,  a dividend or distribution  paid shortly
after a purchase of shares by a shareholder  would  represent,  in substance,  a
partial return of capital (to the extent it is paid on the shares so purchased),
even though it would be subject to income taxes.

          Dividends  and other  distributions  will be  reinvested in additional
shares  of  the  Portfolio  unless  the  shareholder  has  otherwise  indicated.
Investors  have  the  right  to  change  their  elections  with  respect  to the
reinvestment of dividends and  distributions  by notifying the Transfer Agent in
writing,  but any such change will be effective  only as to dividends  and other
distributions for which the record date is seven or more business days after the
Transfer Agent has received the written request.

         Tax Information.  Each Portfolio has elected and intends to continue to
qualify to be treated as a regulated  investment  company under  Subchapter M of
the Internal  Revenue Code of 1986,  as amended (the  "Code"),  for each taxable
year by complying with all applicable  requirements  regarding the source of its
income, the  diversification of its assets, and the timing of its distributions.
A Portfolio  that has filed a tax return has so  qualified  and elected in prior
tax years. The Portfolios'  policy is to distribute to their shareholders all of
their  investment  company taxable income and any net realized capital gains for
each fiscal year in a manner that complies with the distribution requirements of
the Code,  so the  Portfolios  will not be subject to any federal  income tax or
excise  taxes based on net income.  However,  the Board of Trustees may elect to
pay such excise taxes if it determines that payment is, under the circumstances,
in the best interests of the Portfolios.

         In order to qualify as a regulated  investment company,  each Portfolio
must, among other things,  (a) derive at least 90% of its gross income each year
from  dividends,   interest,  payments  with  respect  to  loans  of  stock  and
securities,  gains from the sale or other  disposition of stock or securities or
foreign currency gains related to investments in stocks or other securities,  or
other  income  (generally  including  gains  from  options,  futures  or forward
contracts)  derived  with  respect  to  the  business  of  investing  in  stock,
securities  or currency,  and (b)  diversify its holdings so that, at the end of
each  fiscal  quarter,  (i) at least 50% of the  market  value of its  assets is
represented by cash, cash items, U.S. Government securities, securities of other
regulated  investment  companies and other securities  limited,  for purposes of
this calculation, in the case of other securities of any one issuer to an amount
not greater than 5% of that Portfolio's  assets or 10% of the voting  securities
of the issuer, and (ii) not more than 25% of the value of its assets is invested
in the  securities of any one issuer (other than U.S.  Government  securities or
securities of other regulated investment  companies).  As such, and by complying
with the applicable  provisions of the Code, the Portfolios  will not be subject
to federal income tax on taxable income (including  realized capital gains) that
is distributed to shareholders in accordance with the timing requirements of the
Code. If a Portfolio is unable to meet certain  requirements of the Code, it may
be subject to taxation as a corporation.

         Distributions  of net investment  income and net realized capital gains
by a  Portfolio  will  be  taxable  to  shareholders  whether  made  in  cash or
reinvested in shares. In determining amounts of net realized capital gains to be
distributed, any capital loss carryovers from the eight prior taxable years will
be applied against capital gains.  Shareholders  receiving  distributions in the
form of additional shares will have a cost basis for federal income tax purposes
in each share so received equal to the net asset value of a share of a Portfolio
on the  reinvestment  date.  Portfolio  distributions  also will be  included in
individual and corporate  shareholders'  income on which the alternative minimum
tax may be imposed.

         The Portfolios or any securities  dealer  effecting a redemption of the
Portfolios' shares by a shareholder will be required to file information reports
with the IRS with respect to distributions and payments made to the

                                      B-20

<PAGE>


shareholder.  In addition,  the Portfolios will be required to withhold  federal
income  tax at the  rate of 31% on  taxable  dividends,  redemptions  and  other
payments  made to accounts of individual or other  non-exempt  shareholders  who
have not  furnished  their  correct  taxpayer  identification  numbers  and made
certain required  certifications on the Account Application Form or with respect
to which the  Portfolios or the  securities  dealer has been notified by the IRS
that the number furnished is incorrect or that the account is otherwise  subject
to withholding.

         The   Portfolios   intend  to  declare  and  pay  dividends  and  other
distributions, as stated in the Prospectus. In order to avoid the payment of any
federal excise tax based on net income, the Portfolios must declare on or before
December 31 of each year, and pay on or before January 31 of the following year,
distributions  at least equal to 98% of its  ordinary  income for that  calendar
year and at least 98% of the excess of any capital gains over any capital losses
realized in the one-year  period ending  October 31 of that year,  together with
any  undistributed  amounts of ordinary  income and capital  gains (in excess of
capital losses) from the previous calendar year.

         The   Portfolios   may  receive   dividend   distributions   from  U.S.
corporations.  To the  extent  that a  Portfolio  receives  such  dividends  and
distributes them to its  shareholders,  and meets certain other  requirements of
the Code,  corporate  shareholders  of that  Portfolio  may be  entitled  to the
"dividends  received"  deduction.  Availability  of the  deduction is subject to
certain holding period and debt-financing limitations.

         If more than 50% in value of the total assets of a Portfolio at the end
of its  fiscal  year is  invested  in  stock  or  other  securities  of  foreign
corporations,  that Portfolio may elect to pass through to its  shareholders the
pro rata  share of all  foreign  income  taxes  paid by the  Portfolio.  If this
election is made,  shareholders  will be (i)  required to include in their gross
income their pro rata share of any foreign  income taxes paid by the  Portfolio,
and  (ii)  entitled  either  to  deduct  their  share of such  foreign  taxes in
computing their taxable income or to claim a credit for such taxes against their
U.S.  income  tax,  subject to  certain  limitations  under the Code,  including
certain holding period requirements. In this case, shareholders will be informed
in writing by that  Portfolio at the end of each  calendar  year  regarding  the
availability  of  any  credits  on and  the  amount  of  foreign  source  income
(including  or  excluding  foreign  income  taxes paid by the  Portfolio)  to be
included in their income tax returns.  If 50% or less in value of a  Portfolio's
total  assets  at the end of its  fiscal  year  are  invested  in stock or other
securities of foreign  corporations,  that  Portfolio will not be entitled under
the Code to pass through to its shareholders their pro rata share of the foreign
income taxes paid by the Portfolio. In this case, these taxes will be taken as a
deduction by the Portfolio.

         A Portfolio  may be subject to foreign  withholding  taxes on dividends
and interest  earned with respect to  securities of foreign  corporations.  Each
Portfolio  may  invest  up to 10% of its total  assets  in the stock of  foreign
investment  companies.  Such  companies  are likely to be  treated  as  "passive
foreign  investment  companies"  ("PFICs") under the Code. Certain other foreign
corporations, not operated as investment companies, may nevertheless satisfy the
PFIC definition. A portion of the income and gains that a Portfolio derives from
PFIC  stock  may  be  subject  to a  non-deductible  federal  income  tax at the
Portfolio level. In some cases,  that Portfolio may be able to avoid this tax by
electing to be taxed currently on its share of the PFIC's income, whether or not
such income is actually distributed by the PFIC. Each Portfolio will endeavor to
limit its exposure to the PFIC tax by investing in PFICs only where the election
to be taxed  currently  will be  made.  Because  it is not  always  possible  to
identify  a foreign  issuer as a PFIC in advance  of making  the  investment,  a
Portfolio may incur the PFIC tax in some instances.

                                      B-21

<PAGE>


         Hedging.  The use of hedging strategies,  such as entering into futures
contracts and forward contracts and purchasing  options,  involves complex rules
that will  determine  the  character  and  timing of  recognition  of the income
received in connection therewith by a Portfolio.  Income from foreign currencies
(except certain gains therefrom that may be excluded by future  regulations) and
income from  transactions in options,  futures  contracts and forward  contracts
derived by a Portfolio  with respect to its business of investing in  securities
or foreign  currencies will qualify as permissible  income under Subchapter M of
the Code.

         For  accounting  purposes,  when a Portfolio  purchases an option,  the
premium  paid by that  Portfolio  is  recorded  as an asset and is  subsequently
adjusted to the current market value of the option. Any gain or loss realized by
a Portfolio  upon the  expiration or sale of such options held by that Portfolio
generally will be capital gain or loss.

         Any  security,  option,  or other  position  entered  into or held by a
Portfolio that  substantially  diminishes that Portfolio's risk of loss from any
other  position held by that  Portfolio may  constitute a "straddle" for federal
income tax purposes. In general, straddles are subject to certain rules that may
affect the amount,  character and timing of a Portfolio's  gains and losses with
respect to straddle  positions by requiring,  among other things,  that the loss
realized on  disposition of one position of a straddle be deferred until gain is
realized on disposition of the offsetting  position;  that a Portfolio's holding
period in certain straddle  positions not begin until the straddle is terminated
(possibly  resulting in the gain being treated as short-term capital gain rather
than long-term capital gain); and that losses recognized with respect to certain
straddle positions,  which would otherwise constitute short-term capital losses,
be treated as long-term capital losses.  Different  elections are available to a
Portfolio that may mitigate the effects of the straddle rules.

         Certain  options,  futures  contracts  and forward  contracts  that are
subject to Section 1256 of the Code ("Section 1256 Contracts") and that are held
by a Portfolio at the end of its taxable year  generally  will be required to be
"marked to market" for federal income tax purposes, that is, deemed to have been
sold at market value.  Sixty percent of any net gain or loss recognized on these
deemed sales and 60% of any net gain or loss  realized  from any actual sales of
Section 1256  Contracts  will be treated as long-term  capital gain or loss, and
the balance will be treated as short-term capital gain or loss.

         Section  988 of the Code  contains  special  tax  rules  applicable  to
certain foreign  currency  transactions  that may affect the amount,  timing and
character of income, gain or loss recognized by a Portfolio.  Under these rules,
foreign   exchange   gain   or   loss   realized   with   respect   to   foreign
currency-denominated  debt  instruments,  foreign  currency  forward  contracts,
foreign  currency-denominated  payables  and  receivables  and foreign  currency
options and futures contracts (other than options and futures contracts that are
governed by the  mark-to-market  and 60/40 rules of Section 1256 of the Code and
for which no election is made) is treated as ordinary  income or loss. Some part
of a Portfolio's  gain or loss on the sale or other  disposition  of shares of a
foreign  corporation may, because of changes in foreign currency exchange rates,
be treated as ordinary income or loss under Section 988 of the Code, rather than
as capital gain or loss.

         Redemptions and exchanges of shares of a Portfolio will result in gains
or losses for tax purposes to the extent of the difference  between the proceeds
and the shareholder's  adjusted tax basis for the shares. Any loss realized upon
the  redemption  or  exchange  of shares  within six  months  from their date of
purchase  will  be  treated  as a  long-term  capital  loss  to  the  extent  of
distributions  of long-term  capital gain  dividends with respect to such shares
during  such  six-month  period.  All or a portion of a loss  realized  upon the
redemption  of shares of a Portfolio  may be  disallowed to the extent shares of
that Portfolio are purchased  (including  shares acquired by means of reinvested
dividends) within 30 days before or after such redemption.

                                      B-22

<PAGE>


         Distributions  and redemptions may be subject to state and local income
taxes,  and the  treatment  thereof  may  differ  from the  federal  income  tax
treatment. Foreign taxes may apply to non-U.S. investors.

         The above  discussion and the related  discussion in the Prospectus are
not  intended  to  be  complete   discussions  of  all  applicable  federal  tax
consequences of an investment in the Portfolios. The law firm of Paul, Hastings,
Janofsky & Walker LLP has expressed no opinion in respect  thereof.  Nonresident
aliens and  foreign  persons  are  subject to  different  tax rules,  and may be
subject  to  withholding  of up to 30% on  certain  payments  received  from the
Portfolios.  Shareholders  are  advised to consult  with their own tax  advisers
concerning  the  application  of foreign,  federal,  state and local taxes to an
investment in the Portfolios.


                              TRUSTEES AND OFFICERS

         The Trustees of the Trust are responsible for the overall management of
the  Portfolios,   including  establishing  the  Portfolios'  policies,  general
supervision and review of their investment activities.  The officers (the Trust,
as well as two affiliated  Trusts,  The  Montgomery  Funds II and The Montgomery
Funds  III,  have the same  officers),  who  administer  the  Portfolios'  daily
operations,  are  appointed by the Board of Trustees.  The current  Trustees and
officers of the Trust performing a policy-making function and their affiliations
and principal occupations for the past five years are set forth below:

George A. Rio, President and Treasurer (born 1955)

60 State Street,  Suite 1300, Boston,  Massachusetts 02109. Mr. Rio is Executive
Vice President and Client Service  Director of Funds  Distributor,  Inc. ("FDI")
and  an  officer  of  certain  investment  companies  distributed  by FDI or its
affiliates  (since April 1998). From June 1995 to March 1998, he was Senior Vice
President,  Senior Key Account Manager for Putnam Mutual Funds. From May 1994 to
June 1995, he was Director of business  development for First Data  Corporation.
From  September  1993 to May 1994,  he was Senior Vice  President and Manager of
Client Services; and Director of Internal Audit at the Boston Company.

Karen Jacoppo-Wood, Vice President and Assistant Secretary (born 1966)

60 State Street,  Suite 1300, Boston,  Massachusetts  02109. Ms. Jacoppo-Wood is
the  Vice  President  and  Senior  Counsel  of FDI  and an  officer  of  certain
investment  companies  distributed by FDI or its  affiliates.  From June 1994 to
January 1996, Ms. Jacoppo-Wood was a Manager, SEC Registration, Scudder, Stevens
& Clark, Inc.

Margaret W. Chambers, Secretary (born 1959)

60 State Street, Suite 1300, Boston, Massachusetts 02109. Ms. Chambers is Senior
Vice President and General  Counsel of FDI and an officer of certain  investment
companies  distributed by FDI or its affiliates  (since April 1998). From August
1996 to March 1998,  Ms.  Chambers  was Vice  President  and  Assistant  General
Counsel for Loomis,  Sayles & Company,  L.P. From January 1986 to July 1996, she
was an associate with the law firm of Ropes & Gray.

Christopher J. Kelley, Vice President and Assistant Secretary (born 1964)

60 State Street, Suite 300, Boston,  Massachusetts 02109. Mr. Kelley is the Vice
President and Senior Associate General Counsel of FDI and Premier Mutual, and an
officer of certain  investment  companies  distributed by FDI or its affiliates.
From  April  1994 to July  1996,  Mr.  Kelley  was  Assistant  Counsel  at Forum
Financial Group.

                                      B-23

<PAGE>


Mary A. Nelson, Vice President and Assistant Treasurer (born 1964)

60 State Street, Suite 1300, Boston, Massachusetts 02109. Ms. Nelson is the Vice
President and Manager of Treasury Services and Administration of FDI and Premier
Mutual, and an officer of certain investment companies distributed by FDI or its
affiliates. From 1989 to 1994 Ms. Nelson was Assistant Vice President and Client
Manager for The Boston Company, Inc.

Kathleen K. Morrisey, Vice President and Assistant Treasurer (born 1972)

60 State Street,  Suite 1300, Boston,  Massachusetts  02109. Ms. Morrisey is the
Assistant Vice President and Manager of Financial  Administration  of FDI and an
officer of certain  investment  companies  distributed by FDI or its affiliates.
From July 1994 to November  1995,  Ms.  Morrisey  was a Fund  Accountant  II for
Investors Bank & Trust Company.

Marie E. Connolly, Vice President and Assistant Treasurer (born 1957)

60 State Street,  Suite 1300, Boston,  Massachusetts  02109. Ms. Connolly is the
President, Chief Executive Officer, Chief Compliance Officer and Director of FDI
and Premier Mutual, and an officer of certain investment  companies  distributed
by FDI or its  affiliates.  From  December 1991 to July 1994,  Ms.  Connolly was
President  and Chief  Compliance  Officer of FDI.  Prior to December  1991,  Ms.
Connolly  served  as Vice  President  and  Controller,  and  later  Senior  Vice
President of TBCA.

Douglas C. Conroy, Vice President and Assistant Treasurer (born 1969)

60 State Street,  Suite 130, Boston,  Massachusetts  02109. Mr. Conroy is a Vice
President  and Senior Client  Service  Manager of FDI, and an officer of certain
investment companies distributed by FDI or its affiliates.  From January 1995 to
June 1998,  Mr. Conroy was the Assistant  Vice President and Manager of Treasury
Services an  Administration.  From April 1993 to January 1995,  Mr. Conroy was a
Senior Fund Accountant at Investors Bank & Trust Company.

Joseph F. Tower, III, Vice President and Assistant Treasurer (born 1962)

60 State  Street,  Suite 1300,  Boston,  Massachusetts  02109.  Mr. Tower is the
Executive  Vice  President,   Treasurer  and  Chief  Financial  Officer,   Chief
Administrative Officer and Director of FDI; Senior Vice President, Treasurer and
Chief Financial Officer,  Chief  Administrative  Officer and Director of Premier
Mutual, and an officer of certain  investment  companies advised or administered
by Morgan, Dreyfus and Waterhouse or their respective affiliates. Prior to April
1997,  Mr.  Tower was  Senior  Vice  President,  Treasurer  and Chief  Financial
Officer,  Chief  Administrative  Officer and Director of FDI.  From July 1988 to
November 1993, Mr. Tower was Financial Manager of The Boston Company, Inc.

John A. Farnsworth, Trustee (born 1941)

One  California  Street,  Suite  1950,  San  Francisco,  California  94111.  Mr.
Farnsworth is a partner of Pearson,  Caldwell &  Farnsworth,  Inc., an executive
search  consulting firm. From May 1988 to September 1991, Mr. Farnsworth was the
Managing Partner of the San Francisco office of Ward Howell International, Inc.,
an executive  recruiting firm. From May 1987 until May 1988, Mr.  Farnsworth was
Managing  Director of Jeffrey Casdin & Company,  an investment  management  firm
specializing  in  biotechnology  companies.  From May 1984  until May 1987,  Mr.
Farnsworth  served as a Senior Vice President of Bank of America and head of the
U.S. Private Banking Division.

                                      B-24

<PAGE>


Andrew Cox, Trustee (born 1944)

750 Vine  Street,  Denver,  Colorado  80206.  Since June 1988,  Mr. Cox has been
engaged as an independent investment consultant.  From September 1976 until June
1988,  Mr.  Cox was a Vice  President  of the  Founders  Group of Mutual  Funds,
Denver,  Colorado,  and Portfolio Manager or Co-Portfolio  Manager of several of
the mutual funds in the Founders Group.

Cecilia H. Herbert, Trustee (born 1949)

2636 Vallejo Street,  San Francisco,  California 94123. Ms. Herbert was Managing
Director of Morgan  Guaranty  Trust  Company.  From 1983 to 1991 she was General
Manager of the bank's San Francisco  office,  with  responsibility  for lending,
corporate finance and investment  banking.  Ms. Herbert is a member of the Board
of  Schools  of the  Sacred  Heart,  and is a member of the  Archdiocese  of San
Francisco Finance Council, where she chairs the Investment Committee.

R. Stephen Doyle, Chairman of the Board of Trustees (born 1939)+

101 California  Street,  San Francisco,  California 94111. R. Stephen Doyle, the
founder  of  Montgomery  Asset  Management,  began his  career in the  financial
services industry in 1974. Before starting  Montgomery Asset Management in 1990,
Mr.  Doyle was a General  Partner  and  member of the  Management  Committee  at
Montgomery  Securities with specific  responsibility  for private placements and
venture capital. Prior to joining Montgomery Securities,  Mr. Doyle was at E. F.
Hutton  & Co.  as a Vice  President  with  responsibility  for both  retail  and
institutional  accounts.  Mr. Doyle was also with Connecticut General Insurance,
where he served as a Consultant to New York Stock  Exchange  Member Firms in the
area of financial planning.

         The  officers  of the  Trust,  and  the  Trustees  who  are  considered
"interested  persons" of the Trust,  receive no  compensation  directly from the
Trust for performing the duties of their  offices.  However,  those officers and
Trustees  who are  officers or partners  of the Manager or the  Distributor  may
receive  remuneration  indirectly  because the Manager will receive a management
fee from the Portfolios and Funds  Distributor,  Inc., will receive  commissions
for executing  portfolio  transactions for the Portfolios.  The Trustees who are
not affiliated  with the Manager or the  Distributor  receive an annual retainer
and fees and expenses for each regular  Board  meeting  attended.  The aggregate
compensation  to be paid by the Trust to each of the Trustees  during the fiscal
year ending June 30, 2000, and the aggregate  compensation to be paid to each of
the  Trustees  during  the  fiscal  year  ending  June 30,  2000,  by all of the
registered  investment  companies  to  which  the  Manager  provides  investment
advisory services, are set forth below.

<TABLE>
                                                     Fiscal Year Ended June 30, 1999
                                 -------------------------------------------------------------------------
<CAPTION>
                                                                                   Total Compensation From
                                       Aggregate          Pension or Retirement      the Trust and Fund
                                 Compensation from The   Benefits Accrued as Part          Complex
  Name of Trustee                  Montgomery Funds         of Fund Expenses*       (2 additional Trusts)
- ----------------------------------------------------------------------------------------------------------
<S>                                     <C>                        <C>                     <C>
  R. Stephen Doyle                       None                      --                       None
  John A. Farnsworth                    $35,000                    --                      $55,000
  Andrew Cox                            $35,000                    --                      $55,000
  Cecilia H. Herbert                    $35,000                    --                      $55,000

<FN>
- -------------------
+ Trustee deemed an "interest person" of the Funds as defined in the Investment Company Act.

                                      B-25

<PAGE>


* The Trusts do not maintain pension or retirement plans.
</FN>
</TABLE>


         Shares of the Portfolios are all sold without a sales load.  Therefore,
there is no  existing  arrangement  to reduce or  eliminate  any sales loads for
Trustees and other affiliated persons of the Trust.


                    INVESTMENT MANAGEMENT AND OTHER SERVICES

         Investment Management Services. As stated in the Prospectus, investment
management   services  are  provided  to  the  Portfolios  by  Montgomery  Asset
Management LLC (the "Manager"),  pursuant to an Investment  Management Agreement
between  the  Manager  and  The  Montgomery  Funds  dated  July  31,  1997  (the
"Agreement").

         The Agreement is in effect with respect to the Portfolios for two years
after each  Portfolio's  inclusion  in its Trust's  Agreement  (on or around its
beginning of public  operations) and then continue for periods not exceeding one
year so long as such continuation is approved at least annually by (1) the Board
of the  Trust  or the  vote  of a  majority  of the  outstanding  shares  of the
Portfolios, and (2) a majority of the Trustees who are not interested persons of
any party to the  Agreement,  in each case by a vote cast in person at a meeting
called  for the  purpose  of  voting  on such  approval.  The  Agreement  may be
terminated at any time,  without penalty,  by the Portfolios or the Manager upon
60 days' written notice,  and are  automatically  terminated in the event of its
assignment as defined in the Investment Company Act.

<TABLE>
         For services  performed  under the  Agreement,  each Portfolio pays the
Manager a management  fee (accrued daily but paid when requested by the Manager)
based upon the average daily net assets of the Portfolio at the following annual
rates:

<CAPTION>
PORTFOLIO                                                            AVERAGE DAILY NET ASSETS                  ANNUAL RATE

<S>                                                                 <C>                                           <C>
                                                                    First $500 million                            1.00%
Montgomery U.S. Select 20 Portfolio (formerly Growth 20 Portfolio)  Next $500 million                             0.90%
                                                                    Over $1 billion                               0.80%

                                                                    First $500 million                            1.10%
Montgomery International 20 Portfolio                               Next $500 million                             1.00%
                                                                    Over $1 billion                               0.90%
</TABLE>

         As noted in the  Prospectus,  the  Manager  has agreed in an  Operating
Expense  Agreement  with the Trust to reduce some or all of its  management  fee
(and to reimburse other Portfolio expenses) if necessary to keep total operating
expenses  (excluding  interest,  taxes,  dividend  expenses  and Rule 12b-1 Plan
fees), expressed on an annualized basis, at or below 1.40% of the U.S. Select 20
Portfolio's  average net assets,  and at or below 1.65% of the  International 20
Portfolio's average net assets.

         The Operating Expense Agreement has a 10-year rolling term. The Manager
also may  voluntarily  reduce  additional  amounts to increase the return to the
Portfolios'  investors.  Any  reductions  made by the  Manager  in its  fees are
subject to  reimbursement  by the  Portfolios  within the following  three years
provided  the  Portfolios  are

                                      B-26

<PAGE>


able to effect such  reimbursement  and remain in compliance  with the foregoing
expense  limitations.  The Manager generally seeks  reimbursement for the oldest
reductions  and waivers  before  payment by the Portfolios for fees and expenses
for the current year.

         Operating  expenses for purposes of the Agreement include the Manager's
management fee but do not include any taxes,  interest,  brokerage  commissions,
Rule  12b-1  fees,   expenses   incurred  in  connection   with  any  merger  or
reorganization or extraordinary expenses such as litigation.

         The Agreement was approved with respect to the  Portfolios by the Board
at duly called meetings. In considering the Agreement, the Trustees specifically
considered  and  approved  the  provision  that  permits  the  Manager  to  seek
reimbursement  of any reduction made to its management fee within the three-year
period.  The Manager's  ability to request  reimbursement  is subject to various
conditions.  First, any  reimbursement is subject to the Portfolios'  ability to
effect such  reimbursement  and remain in  compliance  with  applicable  expense
limitations in place at that time. Second, the Manager must specifically request
the  reimbursement   from  the  Board.   Third,  the  Board  must  approve  such
reimbursement as appropriate and not inconsistent with the best interests of the
Portfolios and the  shareholders  at the time such  reimbursement  is requested.
Because of these substantial contingencies, the potential reimbursements will be
accounted for as contingent  liabilities  that are not recordable on the balance
sheet of the Portfolios until collection is probable; but the full amount of the
potential  liability  will  appear in a footnote  to the  Portfolios'  financial
statements.  At such time as it appears probable that the Portfolios are able to
effect such  reimbursement,  that the Manager intends to seek such reimbursement
and that the Board of  Trustees  has or is likely to approve the payment of such
reimbursement,  the amount of the reimbursement will be accrued as an expense of
the Portfolios for that current period.

         Information  regarding  advisory  fees actually paid to the Manager has
not been provided since the Portfolios were launch on December 31, 1999.

         The Manager also may act as an investment  adviser or  administrator to
other persons, entities, and corporations, including other investment companies.
Please refer to the table above,  which indicates  officers and trustees who are
affiliated  persons  of the Trust  and who are also  affiliated  persons  of the
Manager.

         The Trusts and the  Manager  have  adopted  respective  Codes of Ethics
pursuant  to  Section  17(j)  of the  Investment  Company  Act  and  Rule  17j-1
thereunder  (collectively,  the  "Codes of  Ethics").  Both the  Trusts  and the
Manager intend to revise their  respective Codes of Ethics,  as appropriate,  to
conform  with  certain  new  provisions  of Rule  17j-1 as adopted by the SEC on
October 29,  1999.  Currently,  the Codes of Ethics for both the Manager and the
Trusts permit  personnel  subject to such Codes to buy and sell  securities  for
their individual account, unless such securities at the time of such purchase or
sale; (i) are being  considered  for purchase or sale by a Fund;  (ii) are being
purchased  or sold by a Fund;  or (iii) were  purchased or sold by a Fund within
the most recent 15 days.

         The use of the name  "Montgomery"  by the Trust and by the Portfolio is
pursuant to the consent of the  Manager,  which may be  withdrawn if the Manager
ceases to be the Manager of the Portfolios.

         The Distributor.  Funds Distributor, Inc., the Distributor, may provide
certain administrative  services to the Portfolios on behalf of the Manager. The
Distributor  will also  perform  investment  banking,  investment  advisory  and
brokerage  services for persons other than the Portfolios,  including issuers of
securities in which the Portfolios  may invest.  These  activities  from time to
time may result in a conflict of interests of the Distributor  with those of the
Portfolios,  and may restrict the ability of the Distributor to provide services
to the Portfolios.

         Referral  Arrangements.  The Distributor  from time to time compensates
other  parties  for the  solicitation  of  additional  investments  by  existing
shareholders  or new  shareholder  accounts.  The  Portfolios  will not pay this
compensation out of their assets unless they have adopted a Rule 12b-1 plan. The
Distributor pays  compensation  only to those who have a written  agreement with
the  Distributor or the Manager.  The only agreement  currently in place is with
Round Hill Securities,  Inc. ("Round Hill") and relates to a very limited number
of its registered representatives.  The Distributor currently pays Round Hill at
the annual rate of 0.25%

                                      B-27

<PAGE>


of average daily assets  introduced and maintained in customer accounts of these
representatives.   The  Distributor  also  may  reimburse  certain  solicitation
expenses.

         The Custodian.  The Chase Manhattan Bank serves as principal  Custodian
of the Portfolios'  assets,  which are maintained at the Custodian's office at 4
Chase MetroTech  Center,  Brooklyn,  New York,  11245, and at the offices of its
branches and agencies  throughout  the world.  The Board has  delegated  various
foreign  custody  responsibilities  to the  Custodian,  as the "Foreign  Custody
Manager" for the Portfolios to the extent permitted by Rule 17f-5. The Custodian
has entered into  agreements  with foreign  sub-custodians  in  accordance  with
delegation  instructions  approved by the Board pursuant to Rule 17f-5 under the
Investment Company Act. The Custodian, its branches and sub-custodians generally
hold  certificates  for the  securities  in their  custody,  but may, in certain
cases,  have book records with  domestic  and foreign  securities  depositories,
which in turn have book records  with the transfer  agents of the issuers of the
securities.  Compensation  for the  services  of the  Custodian  is  based  on a
schedule of charges agreed on from time to time.

         Administrative  and Other Services.  Montgomery Asset  Management,  LLC
("MAM")  serves  as  the  Administrator  to  the  Portfolio  a  pursuant  to  an
Administrative Services Agreement among the Trusts and MAM (the "Agreement"). In
approving  the  Agreement,  the Board of the Trust,  including a majority of the
independent Trustees, recognizes that the Agreement involves an affiliate of the
Trust;  however, it has made separate  determinations  that, among other things,
the nature and quality of the services rendered under the Agreement are at least
equal to the nature and  quality of the  service  that would be  provided  by an
unaffiliated entity.  Subject to the control of the Trust and the supervision of
the Board of the  Trust,  the  Administrator  performs  the  following  types of
services for the Portfolios:  (i) furnish performance,  statistical and research
data; (ii) prepare and file various reports required by federal, state and other
applicable  laws and  regulations;  (iii)  prepare  and print of all  documents,
prospectuses and reports to shareholders; (iv) prepare financial statements; (v)
prepare agendas, notices and minutes for each meeting of the Board; (vi) develop
and monitor  compliance  procedures;  (vii)  monitor Blue Sky filings and (viii)
manage legal  services.  For its services  performed  under the Agreement,  each
Portfolio pays the Administrator an  administrative  fee based upon a percentage
of the  average  daily net  assets of each  Portfolio.  The fee may vary from an
annual  rate of 0.07% to  0.04%  depending  on the  Portfolio  and the  level of
assets.

         Chase Global  Funds  Services  Company  ("Chase"),  73 Fremont  Street,
Boston,  Massachusetts 02108, serves as the  Sub-Administrator to the Portfolios
pursuant to a Mutual Funds Service Agreement (the "Sub-Agreement") between Chase
and MAM.  Subject  to the  control,  direction  and  supervision  of MAM and the
Trusts,  Chase  assists  MAM  in  providing   administrative   services  to  the
Portfolios.   As  compensation  for  the  services   rendered  pursuant  to  the
Sub-Agreement,  MAM pays  Chase an annual  sub-administrative  fee based  upon a
percentage  of the  average  net  assets  in the  aggregate  of the  Trust,  The
Montgomery Funds II and The Montgomery Funds III. The  sub-administrative fee is
paid  monthly  for the  month or  portion  of the  month  Chase  assists  MAM in
providing  administrative  services to the Portfolios.  This fee is based on all
assets of the Trust and  related  trusts or funds and is equal to an annual rate
of  0.01625% of the first $3  billion,  plus  0.0125% of the next $2 billion and
0.0075% of amounts over $5 billion. The  sub-administrative fee paid to Chase is
paid from the administrative fees paid to MAM by the Portfolio.  Chase succeeded
First Data Corporation as sub-administrator.

         Chase also serves as Fund Accountant to the Trusts pursuant to a Mutual
Funds Service Agreement ("Fund Accounting  Agreement")  entered into between the
Trust and Chase on May 3, 1999. By entering into the Fund Accounting  Agreement,
Chase also succeeds First Data  Corporation as Fund  Accountant to the Trust.

                                      B-28

<PAGE>


As Fund Accountant,  Chase provides the Trust with various services,  including,
but  are  not  limited  to:  (i)  maintaining  the  books  and  records  for the
Portfolios' assets,  (ii) calculating net asset values of the Portfolios,  (iii)
accounting  for dividends and  distributions  made by the  Portfolios,  and (iv)
assisting the Portfolios' independent auditors with respect to the annual audit.
This fee is based on all assets of the Trust and related  trusts or funds and is
equal to an annual rate of 0.04875% of the first $3 billion, plus 0.0375% of the
next $2 billion and 0.0225% of amounts over $5 billion.

         Information  regarding  administrative and accounting fees has not been
provided since the Portfolios were launch on December 31, 1999.


                       EXECUTION OF PORTFOLIO TRANSACTIONS

         In all purchases and sales of securities for the Portfolio, the primary
consideration is to obtain the most favorable price and execution available. The
Manager  determines  which  securities  are  to be  purchased  and  sold  by the
Portfolio  and which  broker-dealers  are  eligible to execute  the  Portfolio's
portfolio  transactions,  subject  to the  instructions  of,  and review by, the
Portfolio and its Board. Purchases and sales of securities within the U.S. other
than on a  securities  exchange  will  generally  be  executed  directly  with a
"market-maker"  unless, in the opinion of the Manager or the Portfolio, a better
price  and  execution  can  otherwise  be  obtained  by using a  broker  for the
transaction.

         Purchases of portfolio  securities  for the Portfolio  also may be made
directly from issuers or from  underwriters.  Where possible,  purchase and sale
transactions will be effected through dealers (including banks) which specialize
in the types of securities  which the Portfolio  will be holding,  unless better
executions  are available  elsewhere.  Dealers and  underwriters  usually act as
principals  for their own account.  Purchases from  underwriters  will include a
concession paid by the issuer to the underwriter and purchases from dealers will
include the spread  between the bid and the asked price.  If the  execution  and
price offered by more than one dealer or underwriter are  comparable,  the order
may be allocated to a dealer or underwriter that has provided  research or other
services as discussed below.

         In  placing  portfolio  transactions,  the  Manager  will  use its best
efforts to choose a  broker-dealer  capable of providing the services  necessary
generally to obtain the most favorable price and execution  available.  The full
range and quality of  services  available  will be  considered  in making  these
determinations,  such as the  firm's  ability  to  execute  trades in a specific
market required by the Portfolio, such as in an emerging market, the size of the
order,  the  difficulty of  execution,  the  operational  facilities of the firm
involved,  the  firm's  risk in  positioning  a block of  securities,  and other
factors.

         Provided  the Trust's  officers  are  satisfied  that the  Portfolio is
receiving the most favorable price and execution available, the Manager may also
consider  the sale of the  Portfolio's  shares as a factor in the  selection  of
broker-dealers  to  execute  their  portfolio  transactions.  The  placement  of
portfolio  transactions with  broker-dealers who sell shares of the Portfolio is
subject to rules adopted by NASD Regulation, Inc.

         While the  Portfolio's  general  policy is to seek  first to obtain the
most favorable  price and execution  available in selecting a  broker-dealer  to
execute  portfolio  transactions,  weight may also be given to the  ability of a
broker-dealer  to furnish  brokerage,  research and statistical  services to the
Portfolio or to the Manager, even if the specific services were not imputed just
to the  Portfolio and may be lawfully and  appropriately  used by the Manager in
advising other clients.  The Manager  considers  such  information,  which is in
addition  to, and not in lieu of, the  services  required to be  performed by it
under the  Agreement,  to be useful in varying  degrees,  but of

                                      B-29

<PAGE>


indeterminable value. In negotiating any commissions with a broker or evaluating
the spread to be paid to a dealer,  the  Portfolio  may  therefore  pay a higher
commission  or  spread  than  would be the case if no weight  were  given to the
furnishing  of these  supplemental  services,  provided  that the amount of such
commission or spread has been  determined in good faith by the Portfolio and the
Manager  to be  reasonable  in  relation  to the value of the  brokerage  and/or
research services provided by such broker-dealer,  which services either produce
a direct  benefit to the  Portfolio  or assist the Manager in  carrying  out its
responsibilities  to the  Portfolio.  The  standard of  reasonableness  is to be
measured in light of the Manager's  overall  responsibilities  to the Portfolio.
The Board reviews all brokerage allocations where services other than best price
and  execution  capabilities  are a factor  to ensure  that the  other  services
provided  meet  the  criteria  outlined  above  and  produce  a  benefit  to the
Portfolio.

         Investment  decisions  for the Portfolio  are made  independently  from
those of other client accounts of the Manager or its affiliates, and suitability
is always a paramount consideration.  Nevertheless, it is possible that at times
the same securities will be acceptable for one or more Portfolios and for one or
more of such client  accounts.  The Manager and its personnel may have interests
in one or more of those client  accounts,  either through  direct  investment or
because  of  management  fees based on gains in the  account.  The  Manager  has
adopted  allocation  procedures to ensure the fair  allocation of securities and
prices  between the Portfolio and the Manager's  various other  accounts.  These
procedures  emphasize the  desirability  of bunching  trades and price averaging
(see below) to achieve  objective  fairness  among  clients  advised by the same
portfolio  manager or  portfolio  team.  Where  trades  cannot be  bunched,  the
procedures   specify   alternatives   designed  to  ensure  that  buy  and  sell
opportunities  are allocated fairly and that, over time, all clients are treated
equitably.  The  Manager's  trade  allocation  procedures  also  seek to  ensure
reasonable  efficiency  in  client  transactions,  and  they  provide  portfolio
managers with reasonable  flexibility to use allocation  methodologies  that are
appropriate to their investment discipline on client accounts.

         To the extent any of the Manager's client accounts and a Portfolio seek
to acquire  the same  security  at the same  general  time  (especially  if that
security is thinly  traded or is a small-cap  stock),  the  Portfolio may not be
able to acquire as large a portion of such  security  as it  desires,  or it may
have to pay a higher price or obtain a lower yield for such security. Similarly,
the  Portfolio  may not be able to  obtain as high a price  for,  or as large an
execution of, an order to sell any particular  security at the same time. If one
or more of such  client  accounts  simultaneously  purchases  or sells  the same
security that the Portfolio is purchasing or selling, each day's transactions in
such  security  generally  will be allocated  between the Portfolio and all such
client accounts in a manner deemed equitable by the Manager, taking into account
the  respective  sizes of the accounts,  the amount being  purchased or sold and
other factors deemed  relevant by the Manager.  In many cases,  the  Portfolio's
transactions are bunched with the transactions for other client accounts.  It is
recognized that in some cases this system could have a detrimental effect on the
price or value of the security  insofar as the Portfolio is concerned.  In other
cases,  however, it is believed that the ability of the Portfolio to participate
in volume transactions may produce better executions for the Portfolio.

         The Manager's sell  discipline  for  investments in issuers is based on
the  premise of a  long-term  investment  horizon;  however,  sudden  changes in
valuation  levels  arising  from,  for  example,  new  macroeconomic   policies,
political  developments,  and industry  conditions could change the assumed time
horizon. Liquidity, volatility, and overall risk of a position are other factors
considered by the Manager in determining the appropriate investment horizon.

         For the Portfolio, sell decisions at the country level are dependent on
the results of the Manager's  asset  allocation  model.  Some  countries  impose
restrictions on  repatriation  of capital and/or  dividends which would

                                      B-30

<PAGE>


lengthen the Manager's assumed time horizon in those countries. In addition, the
rapid pace of privatization  and initial public offerings creates a flood of new
opportunities which must continually be assessed against current holdings.

         At the company  level,  sell  decisions  are  influenced by a number of
factors including  current stock valuation  relative to the estimated fair value
range,  or a high P/E  relative  to  expected  growth.  Negative  changes in the
relevant industry sector, or a reduction in international  competitiveness and a
declining financial flexibility may also signal a sell.

         Information regarding brokerage commissions has not been provided since
the Portfolio was launched on December 31, 1999.

         The   Portfolios   do  not  direct   brokerage  or  effect   securities
transactions  through brokers in accordance with any formula, nor do they effect
securities  transactions  through such brokers  solely for selling shares of the
Portfolios.  However,  brokers who execute  brokerage  transactions as described
above may from time to time effect  purchases  of shares of the  Portfolios  for
their customers.

         Depending on the Manager's  view of market  conditions,  the Portfolios
may or may not  purchase  securities  with the  expectation  of holding  them to
maturity,  although its general  policy is to hold  securities to maturity.  The
Portfolios may,  however,  sell securities prior to maturity to meet redemptions
or as a result of a revised management evaluation of the issuer.


                 ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

         The Trust reserves the right in its sole  discretion to (i) suspend the
continued  offering of Portfolios'  shares,  and (ii) reject  purchase orders in
whole or in part when in the  judgment  of the Manager or the  Distributor  such
suspension or rejection is in the best interest of the Portfolios.

         When in the  judgment of the Manager it is in the best  interests  of a
Portfolio,  an investor may purchase shares of a Portfolio by tendering  payment
in-kind in the form of  securities,  provided that any such tendered  securities
are  readily  marketable  (e.g.,  the  Portfolio  will  not  acquire  restricted
securities),  their  acquisition is consistent with that Portfolio's  investment
objective and policies,  and the tendered securities are otherwise acceptable to
the Manager. Such securities are acquired by that Portfolio only for the purpose
of  investment  and not for resale.  For the purposes of sales of shares of that
Portfolio for such  securities,  the tendered  securities shall be valued at the
identical time and in the identical manner that the portfolio securities of that
Portfolio are valued for the purpose of calculating  the net asset value of that
Portfolio's  shares.  A  shareholder  who  purchases  shares of a  Portfolio  by
tendering payment for the shares in the form of other securities may be required
to  recognize  gain or loss for income tax purposes on the  difference,  if any,
between the adjusted basis of the securities  tendered to that Portfolio and the
purchase price of that Portfolio's shares acquired by the shareholder.

         Payments to shareholders  for shares of a Portfolio  redeemed  directly
from that Portfolio will be made as promptly as possible but no later than three
days after receipt by the Transfer Agent of the written  request in proper form,
with the appropriate documentation as stated in the Prospectus, except that that
Portfolio  may suspend the right of  redemption  or postpone the date of payment
during any period  when (i) trading on the New York Stock  Exchange  ("NYSE") is
restricted  as  determined  by the SEC or the  NYSE is  closed  for  other  than
weekends and holidays;  (ii) an emergency  exists as determined by the SEC (upon
application  by that  Portfolio  pursuant  to  Section  22(e) of the  Investment
Company Act) making disposal of portfolio  securities or valuation

                                      B-31

<PAGE>


of net assets of the Portfolio  not  reasonably  practicable;  or (iii) for such
other  period  as the SEC may  permit  for the  protection  of that  Portfolio's
shareholders.

         The  Portfolios  intend  to pay  cash  (U.S.  dollars)  for all  shares
redeemed,  but, under abnormal  conditions that make payment in cash unwise, the
Portfolios  may make payment partly in its portfolio  securities  with a current
amortized cost or market value, as appropriate,  equal to the redemption  price.
Although  the  Portfolios  do not  anticipate  that they will make any part of a
redemption  payment in  securities,  if such payment were made,  an investor may
incur  brokerage  costs in converting  such  securities  to cash.  The Trust has
elected to be governed  by the  provisions  of Rule 18f-1  under the  Investment
Company  Act,  which  require that the  Portfolios  pay in cash all requests for
redemption by any shareholder of record limited in amount,  however,  during any
90-day  period to the lesser of  $250,000  or 1% of the value of the Trust's net
assets at the beginning of such period.

         The value of shares on  redemption  or  repurchase  may be more or less
than the  investor's  cost,  depending  upon the market  value of a  Portfolio's
portfolio securities at the time of redemption or repurchase.

         Retirement  Plans.  Shares of the Portfolios are available for purchase
by any retirement plan,  including Keogh plans,  401(k) plans,  403(b) plans and
individual retirement accounts ("IRAs").

         For individuals  who wish to purchase shares of the Portfolios  through
an IRA,  there is  available  through  the  Portfolios  a  prototype  individual
retirement  account and custody  agreement.  The custody agreement provides that
DST  Systems,  Inc.  will act as  custodian  under  the plan,  and will  furnish
custodial  services for an annual  maintenance fee per participating  account of
$10.  (These fees are in addition to the normal  custodian  charges  paid by the
Portfolios and will be deducted automatically from each Participant's  account.)
For further details,  including the right to appoint a successor custodian,  see
the plan and custody agreements and the IRA Disclosure  Statement as provided by
the Portfolios. An IRA that invests in shares of the Portfolios may also be used
by employers who have adopted a Simplified Employee Pension Plan. Individuals or
employers who wish to invest in shares of the Portfolios  under a  custodianship
with another bank or trust company must make individual  arrangements  with such
institution. Information about Roth IRAs is also available from those materials.

         It is  advisable  for  an  investor  considering  the  funding  of  any
retirement plan to consult with an attorney or to obtain advice from a competent
retirement plan  consultant  with respect to the  requirements of such plans and
the tax aspects thereof.


                        DETERMINATION OF NET ASSET VALUE

         The net asset  value  per  share of each  Portfolio  is  calculated  as
follows:  all liabilities incurred or accrued are deducted from the valuation of
total assets, which includes accrued but undistributed income; the resulting net
assets are divided by the number of shares of the Portfolio  outstanding  at the
time of the valuation  and the result  (adjusted to the nearest cent) is the net
asset value per share.

         As noted in the  Prospectus,  the net  asset  value of  shares  of each
Portfolio  generally  will be  determined  at least  once  daily as of 4:00 P.M.
eastern time (or earlier when trading closes  earlier),  on each day the NYSE is
open for trading.  It is expected  that the NYSE will be closed on Saturdays and
Sundays and for New Year's Day,  Martin Luther King Day,  Presidents'  Day, Good
Friday,  Memorial  Day,  Independence  Day,  Labor  Day,  Thanksgiving  Day  and
Christmas.  The  Portfolios  may, but do not expect to,  determine the net asset
values of

                                      B-32

<PAGE>


their  shares  on any day when the  NYSE is not  open  for  trading  if there is
sufficient trading in its portfolio securities on such days to affect materially
per-share net asset value.

         Generally,   trading  in  and   valuation  of  foreign   securities  is
substantially  completed  each day at  various  times  prior to the close of the
NYSE. In addition,  trading in and valuation of foreign  securities may not take
place on every day in which the NYSE is open for trading.  Furthermore,  trading
takes place in various foreign markets on days in which the NYSE is not open for
trading  and on which the  Portfolios'  net  asset  values  are not  calculated.
Occasionally,  events affecting the values of such securities in U.S. dollars on
a day on which a Portfolio  calculates its net asset value may occur between the
times when such securities are valued and the close of the NYSE that will not be
reflected  in the  computation  of that  Portfolio's  net asset value unless the
Board or its  delegates  deem that such events would  materially  affect the net
asset value, in which case an adjustment would be made.

         Generally, a Portfolio's  investments are valued at market value or, in
the absence of a market value,  at fair value as determined in good faith by the
Manager and the Trust's Pricing Committee pursuant to procedures  approved by or
under the direction of the Board.

         A Portfolio's equity  securities,  including ADRs, EDRs and GDRs, which
are  traded on  securities  exchanges  are  valued at the last sale price on the
exchange on which such securities are traded, as of the close of business on the
day the securities are being valued or, lacking any reported  sales, at the mean
between the last  available  bid and asked  price.  Equity  securities  that are
traded on more than one exchange are valued on the  exchange  determined  by the
Manager to be the  primary  market.  Securities  traded in the  over-the-counter
market are valued at the mean  between  the last  available  bid and asked price
prior  to the  time  of  valuation.  Securities  and  assets  for  which  market
quotations are not readily available (including  restricted securities which are
subject to  limitations as to their sale) are valued at fair value as determined
in good faith by or under the direction of the Board.

         Short-term debt obligations  with remaining  maturities in excess of 60
days are  valued at  current  market  prices,  as  discussed  above.  Short-term
securities  with 60 days or less  remaining to maturity are,  unless  conditions
indicate otherwise,  amortized to maturity based on their cost to a Portfolio if
acquired within 60 days of maturity or, if already held by that Portfolio on the
60th day, based on the value determined on the 61st day.

         Corporate debt  securities  and U.S.  government  securities  held by a
Portfolio  are valued on the basis of  valuations  provided  by dealers in those
instruments,  by an independent  pricing service, or at fair value as determined
in good faith by procedures  approved by the Board. Any such pricing service, in
determining  value,  will use  information  with respect to  transactions in the
securities  being  valued,  quotations  from  dealers,  market  transactions  in
comparable securities, analyses and evaluations of various relationships between
securities and yield-to-maturity information.

         An option that is written by a  Portfolio  is  generally  valued at the
last sale price or, in the absence of the last sale price, the last offer price.
An option that is purchased by a Portfolio is generally  valued at the last sale
price or, in the absence of the last sale price,  the last bid price.  The value
of a futures contract equals the unrealized gain or loss on the contract that is
determined  by marking the contract to the current  settlement  price for a like
contract  on the  valuation  date  of the  futures  contract  if the  securities
underlying the futures contract experience  significant price fluctuations after
the  determination  of the settlement  price.  When a settlement price cannot be
used,  futures contracts will be valued at their fair market value as determined
by or under the direction of the Board.

                                      B-33

<PAGE>


         If any securities held by a Portfolio are restricted as to resale or do
not have  readily  available  market  quotations,  the  Manager  and the Trust's
Pricing Committees determine their fair value,  following procedures approved by
the Board.  The  Trustees  periodically  review such  valuations  and  valuation
procedures.  The fair value of such  securities  is generally  determined as the
amount  which a Portfolio  could  reasonably  expect to realize  from an orderly
disposition of such securities  over a reasonable  period of time. The valuation
procedures  applied  in any  specific  instance  are likely to vary from case to
case. However, consideration is generally given to the financial position of the
issuer and other  fundamental  analytical data relating to the investment and to
the nature of the  restrictions on disposition of the securities  (including any
registration expenses that might be borne by a Portfolio in connection with such
disposition).  In addition, specific factors are also generally considered, such
as the cost of the investment,  the market value of any unrestricted  securities
of the same class (both at the time of purchase  and at the time of  valuation),
the size of the holding,  the prices of any recent  transactions  or offers with
respect to such  securities and any available  analysts'  reports  regarding the
issuer.

         Any  assets or  liabilities  initially  expressed  in terms of  foreign
currencies are translated  into U.S.  dollars at the official  exchange rate or,
alternatively,  at the  mean  of the  current  bid  and  asked  prices  of  such
currencies against the U.S. dollar last quoted by a major bank that is a regular
participant in the foreign  exchange market or on the basis of a pricing service
that takes into account the quotes  provided by a number of such major banks. If
neither of these  alternatives  is available or both are deemed not to provide a
suitable  methodology for converting a foreign currency into U.S.  dollars,  the
Board in good faith will establish a conversion rate for such currency.

         All other  assets of the  Portfolios  are valued in such  manner as the
Board in good faith deem appropriate to reflect their fair value.


                              PRINCIPAL UNDERWRITER

         The Distributor,  Funds Distributor, Inc., 60 State Street, Suite 1300,
Boston,  Massachusetts 02109, also acts as the Portfolios' principal underwriter
in a continuous  public offering of the Portfolios'  shares.  The Distributor is
currently  registered as a broker-dealer with the SEC and in all 50 states, is a
member of most of the  principal  securities  exchanges  in the  U.S.,  and is a
member of the National Association of Securities Dealers,  Inc. The Underwriting
Agreement  between  the  Portfolios  and the  Distributor  is in effect  for the
Portfolios for the same periods as the  Agreement,  and shall continue in effect
thereafter  for periods not exceeding one year if approved at least  annually by
(i)  the  appropriate  Board  or the  vote  of a  majority  of  the  outstanding
securities of the  Portfolios  (as defined in the  Investment  Company Act), and
(ii) a  majority  of the  Trustees  who are not  interested  persons of any such
party, in each case by a vote cast in person at a meeting called for the purpose
of voting on such  approval.  The  Underwriting  Agreement  with  respect to the
Portfolios  may be  terminated  without  penalty by the parties  thereto upon 60
days'  written  notice  and is  automatically  terminated  in the  event  of its
assignment as defined in the Investment  Company Act. There are no  underwriting
commissions paid with respect to sales of the Portfolios'  shares. The Principal
Underwriter  has not been paid any  underwriting  commissions  for  underwriting
securities of the Portfolios during the Portfolios' last three fiscal years.

                                      B-34

<PAGE>


                             PERFORMANCE INFORMATION

         As noted in the  Prospectus,  the  Portfolios  may,  from time to time,
quote various performance figures in advertisements and other  communications to
illustrate  its  past  performance.   Performance  figures  will  be  calculated
separately for different classes of shares.

         Average  Annual  Total  Return.  Total  return  may be  stated  for any
relevant  period  as  specified  in  the  advertisement  or  communication.  Any
statements of total return for a Portfolio will be accompanied by information on
that Portfolio's  average annual  compounded rate of return over the most recent
four  calendar  quarters  and the  period  from that  Portfolio's  inception  of
operations.  A Portfolio may also  advertise  aggregate and average total return
information over different periods of time. A Portfolio's  "average annual total
return"  figures  are  computed  according  to a formula  prescribed  by the SEC
expressed as follows:

                                 P(1 + T)n = ERV

         Where:            P    =  a hypothetical initial payment of $1,000.
                           T    =  average annual total return.
                           n    =  number of years.
                           ERV  =  Ending  Redeemable  Value  of a  hypothetical
                                   $1,000  investment made at the beginning of a
                                   1-, 5- or  10-year  period at the end of each
                                   respective  period  (or  fractional   portion
                                   thereof),   assuming   reinvestment   of  all
                                   dividends  and   distributions  and  complete
                                   redemption of the hypothetical  investment at
                                   the end of the measuring period.

         Aggregate  Total  Return.  The  Portfolio's  "aggregate  total  return"
figures  represent  the  cumulative  change in the value of an investment in the
Portfolio for the specified period and are computed by the following formula:

                                     ERV - P
                                     -------
                                        P

         Where:            P   =   a hypothetical initial payment of $1,000.
                           ERV =   Ending  Redeemable  Value  of a  hypothetical
                                   $1,000  investment made at the beginning of a
                                   l-, 5- or 10-year  period at the end of a l-,
                                   5- or 10-year period (or  fractional  portion
                                   thereof),   assuming   reinvestment   of  all
                                   dividends  and   distributions  and  complete
                                   redemption of the hypothetical  investment at
                                   the end of the measuring period.

         A Portfolio's  performance  will vary from time to time  depending upon
market conditions,  the composition of its portfolio and its operating expenses.
Consequently,   any  given  performance   quotation  should  not  be  considered
representative  of that Portfolio's  performance for any specified period in the
future. In addition,  because  performance will fluctuate,  it may not provide a
basis for comparing an  investment in a Portfolio  with certain bank deposits or
other investments that pay a fixed yield for a stated period of time.  Investors
comparing a  Portfolio's  performance  with that of other  investment  companies
should  give  consideration  to the  quality  and  maturity  of  the  respective
investment companies' portfolio securities.

         The  information   regarding  average  annual  total  returns  for  the
Portfolios has not been provided since the Portfolios  were launched on December
31, 1999.

                                      B-35

<PAGE>


         Comparisons. To help investors better evaluate how an investment in the
Portfolios might satisfy their investment  objectives,  advertisements and other
materials  regarding the Portfolios may discuss various financial  publications.
Materials may also compare  performance (as calculated  above) to performance as
reported by other investments, indices, and averages. Publications,  indices and
averages,  including but not limited to, the following may be used in discussion
of the Portfolios' performance or the investment opportunities it may offer:

         a)       Standard & Poor's 500  Composite  Stock Index,  one or more of
                  the Morgan Stanley Capital  International  Indices, and one or
                  more of the International Finance Corporation Indices.

         b)       Bank Rate Monitor--A weekly  publication which reports various
                  bank  investments,  such  as  certificate  of  deposit  rates,
                  average savings account rates and average loan rates.

         c)       Lipper  Mutual  Fund  Performance  Analysis  and Lipper  Fixed
                  Income  Fund  Performance  Analysis--A  ranking  service  that
                  measures total return and average current yield for the mutual
                  fund  industry and ranks  individual  mutual fund  performance
                  over  specified  time  periods  assuming  reinvestment  of all
                  distributions, exclusive of any applicable sales charges.

         d)       Donoghue's  Money  Fund  Report--Industry  averages  for 7-day
                  annualized and  compounded  yields of taxable,  tax-free,  and
                  government money funds.

         e)       Salomon  Brothers Bond Market  Roundup--A  weekly  publication
                  which reviews yield spread changes in the major sectors of the
                  money,   government  agency,   futures,   options,   mortgage,
                  corporate, Yankee, Eurodollar,  municipal, and preferred stock
                  markets.  This publication also summarizes  changes in banking
                  statistics and reserve aggregates.

         f)       Lehman Brothers  indices--Lehman Brothers fixed-income indices
                  may be used for appropriate comparisons.

         g)       other  indices--including   Consumer  Price  Index,  Ibbotson,
                  Micropal, CNBC/Financial News Composite Index, MSCI EAFE Index
                  (Morgan Stanley Capital  International,  Europe,  Australasia,
                  Far East Index--a  capitalization-weighted index that includes
                  all  developed   world  markets  except  for  those  in  North
                  America), Datastream, Worldscope, NASDAQ, Russell 2000 and IFC
                  Emerging Markets Database.

         In addition,  one or more portfolio  managers or other employees of the
Manager may be interviewed by print media, such as by the Wall Street Journal or
Business Week, or electronic news media, and such interviews may be reprinted or
excerpted for the purpose of advertising regarding the Portfolios.

         In assessing such  comparisons of performance,  an investor should keep
in mind that the  composition  of the  investments  in the reported  indices and
averages is not  identical to a  Portfolio's  portfolios,  that the averages are
generally  unmanaged,  and that the items included in the  calculations  of such
averages  may  not be  identical  to the  formulae  used by  that  Portfolio  to
calculate its figures.

         The Portfolios may also publish its relative  rankings as determined by
independent mutual fund ranking services like Lipper Analytical  Services,  Inc.
and Morningstar, Inc.

                                      B-36

<PAGE>


         Investors  should note that the  investment  results of the  Portfolios
will fluctuate over time, and any  presentation of the Portfolios'  total return
for  any  period  should  not be  considered  as a  representation  of  what  an
investment  may earn or what an  investor's  total  return  may be in any future
period.

         Reasons to Invest in the Portfolios.  From time to time, the Portfolios
may publish or  distribute  information  and reasons  supporting  the  Manager's
belief that the  Portfolios  may be  appropriate  for  investors at a particular
time. The information will generally be based on internally  generated estimates
resulting  from  the  Manager's   research   activities  and  projections   from
independent  sources.  These  sources  may  include,  but  are not  limited  to,
Bloomberg,   Morningstar,   Barings,  WEFA,  consensus  estimates,   Datastream,
Micropal,  I/B/E/S  Consensus  Forecast,  Worldscope and Reuters as well as both
local and international brokerage firms. For example, the Portfolios may suggest
that  certain  countries  or areas may be  particularly  appealing  to investors
because of interest rate movements,  increasing  exports and/or economic growth.
The Portfolios  may, by way of further  example,  present a region as possessing
the fastest  growing  economies and may also present  projected  gross  domestic
product (GDP) for selected economies.

         Research.  The Manager has  developed  its own  tradition  of intensive
research and has made intensive research one of the important characteristics of
the Montgomery Funds style.

         Extensive research into companies that are not well  known--discovering
new  opportunities  for  investment--is  a theme  that  crosses  a number of the
Montgomery  Funds and is reflected in the number of  Montgomery  Funds  oriented
towards smaller capitalization businesses.

         In-depth  research,  however,  goes beyond gaining an  understanding of
unknown  opportunities.  The portfolio  analysts have also developed new ways of
gaining  information  about well-known parts of the domestic market.  The growth
equity  team,  for example,  has  developed  its own  strategy  and  proprietary
database for  analyzing  the growth  potential of U.S.  companies,  often large,
well-known companies.

         From time to time,  advertising  and sales materials for the Montgomery
Funds may include  biographical  information about portfolio managers as well as
commentary by portfolio managers regarding  investment  strategy,  asset growth,
current or past  economic,  political  or  financial  conditions  that may be of
interest to investors.

         Also, from time to time, the Manager may refer to its quality and size,
including  references to its total assets under  management (as of September 30,
1999  approximately  $3.9 billion for retail and institutional  investors in The
Montgomery  Funds) and total  shareholders  invested  in the  Portfolios  (as of
September 30, 1999, around 200,000).


                               GENERAL INFORMATION

         Investors  in the  Portfolios  will  be  informed  of  the  Portfolios'
progress through  periodic  reports.  Financial  statements will be submitted to
shareholders  semi-annually,  at  least  one  of  which  will  be  certified  by
independent  public  accountants.  All expenses  incurred in connection with the
organization of The Montgomery Funds and the registration of shares of the Small
Cap Fund as the initial  series of the Trust have been  assumed by the Small Cap
Fund. Expenses incurred in connection with the establishment and registration of
shares of the  Portfolios  constituting  separate  series of the Trust have been
assumed by the Portfolios.  The Manager has agreed, to the extent necessary,  to
advance  the  organizational  expenses  incurred by the  Portfolios  and will be

                                      B-37

<PAGE>


reimbursed for such expenses during the first fiscal year after  commencement of
the Portfolios' operations, subject to the Portfolios' expense limitation.

         As noted above,  The Chase  Manhattan  Bank (the  "Custodian")  acts as
custodian of the  securities and other assets of the  Portfolios.  The Custodian
does  not  participate  in  decisions  relating  to the  purchase  and  sale  of
securities by the Portfolios.

         DST Systems,  Inc., 333 West 11th Street,  Kansas City, Missouri 64105,
the Portfolios' Master Transfer Agent and Paying Agent.

         _____________________,  333 Market Street,  San  Francisco,  California
94105, is the independent auditor for the Portfolio.

         The  validity  of shares  offered  hereby  has been  passed on by Paul,
Hastings,   Janofsky  &  Walker  LLP,  345  California  Street,  San  Francisco,
California 94104.

         The   shareholders  of  The  Montgomery  Funds  as  shareholders  of  a
Massachusetts  business  trust  could,  under  certain  circumstances,  be  held
personally  liable  as  partners  for  its  obligations.  However,  the  Trust's
Agreement and Declaration of Trust  ("Declaration of Trust") contains an express
disclaimer of shareholder  liability for acts or  obligations of the Trust.  The
Declaration  of Trust also provides for  indemnification  and  reimbursement  of
expenses  out of the  Portfolios'  assets for any  shareholder  held  personally
liable for  obligations  of the  Portfolios or Trust.  The  Declaration of Trust
provides  that the Trust shall,  upon  request,  assume the defense of any claim
made against any  shareholder  for any act or  obligation  of the  Portfolios or
Trust and  satisfy  any  judgment  thereon.  All such  rights are limited to the
assets of the  Portfolios.  The  Declaration of Trust further  provides that the
Trust may maintain  appropriate  insurance  (for example,  fidelity  bonding and
errors  and  omissions   insurance)  for  the  protection  of  the  Trust,   its
shareholders,  Trustees,  officers,  employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of the Trust as an investment
company as distinguished from an operating company would not likely give rise to
liabilities  in excess of the  Portfolio's  total  assets.  Thus,  the risk of a
shareholder  incurring  financial  loss on account of  shareholder  liability is
extremely  remote because it is limited to the unlikely  circumstances  in which
both inadequate  insurance exists and the Portfolio itself is unable to meet its
obligations.

         Among the Board's powers enumerated in the Agreement and Declaration of
Trust is the authority to terminate the Trust or any of its series,  or to merge
or  consolidate  the Trust or one or more of its series  with  another  trust or
company without the need to seek shareholder approval of any such action.

<TABLE>
         As of February  29,  2000,  to the  knowledge  of the  Portfolios,  the
following  shareholders  owned of record 5% or more of the outstanding shares of
the respective Portfolios:

<CAPTION>
NAME OF FUND/NAME AND ADDRESS OF RECORD OWNER                           NUMBER OF SHARES OWNED   PERCENT OF SHARES
- ---------------------------------------------                           ----------------------   -----------------
<S>                                                                            <C>                    <C>
U.S. Select 20 Portfolio (formerly Growth 20 Portfolio)

Charles Schwab & Co., Inc.                                                     103,432                52.70%
101 Montgomery Street
San Francisco, CA 94104-4122

                                                       B-38

<PAGE>


NAME OF FUND/NAME AND ADDRESS OF RECORD OWNER                           NUMBER OF SHARES OWNED   PERCENT OF SHARES
- ---------------------------------------------                           ----------------------   -----------------
Lieber Family Limited Partnership                                               24,975                12.72%
510 Little John Lane
Houston, TX 77024-5719

E*TRADE Securities, Inc.                                                        19,704                10.04%
A/C 2115-7466
Brian J. Corcoran
P.O. Box 989030
W. Sacramento, CA 95798-9030

Mark Geist                                                                      12,297                 6.27%
456 Oakshire Place
Alamo, CA 94507-2332

Inv. Fiduciary Trust Co. Cust.                                                  11,343                 5.78%
IRA R/O Franklin S. Tuck
204 Taylor Road
Bel Tiburon, CA 94920-1012

Inv. Fiduciary Trust Co. IRA R/O                                                10,975                 5.59%
Mark Geist
456 Oakshire Place
Alamo, CA 94507-2332


International 20 Portfolio

Charles Schwab & Co., Inc.                                                     106,097                56.61%
101 Montgomery Street
San Francisco, CA 94104-4122

Lieber Family Limited Partnership                                               25,202                13.45%
510 Little John Lane
Houston, TX 77024-5719

E*TRADE Securities, Inc.                                                        19,531                10.42%
A/C 2115-7466
Brian J. Corcoran
P.O. Box 989030
W. Sacramento, CA 95798-9030

Mark Geist                                                                      10,000                 5.34%
456 Oakshire Place
Alamo, CA 94507-2332
</TABLE>

                                                       B-39

<PAGE>


         As of February,  the  Trustees  and Officers of the Trust,  as a group,
owned more than 1% of the outstanding shares of each Fund.

         The Trust is registered  with the SEC as a  non-diversified  management
investment  company,  although each Fund is a  diversified  series of the Trust.
Such a registration  does not involve  supervision of the management or policies
of the Funds. The Prospectuses and this Statement of Additional Information omit
certain of the information  contained in the  Registration  Statement filed with
the SEC. Copies of the Registration  Statement may be obtained from the SEC upon
payment of the prescribed fee.


                              FINANCIAL STATEMENTS

         There  are  no  financial  statements  for  the  Portfolios  since  the
Portfolios were launched on December 31, 1999.

                                      B-40
<PAGE>


                                    Appendix

         Description  ratings  for  Standard  & Poor's  Ratings  Group  ("S&P");
Moody's Investors Service,  Inc.,  ("Moody's"),  Fitch Investors  Service,  L.P.
("Fitch") and Duff & Phelps Credit Rating Co. ("Duff & Phelps").


Standard & Poor's Rating Group

Bond Ratings

         AAA      Bonds  rated  AAA have the  highest  rating  assigned  by S&P.
                  Capacity to pay  interest  and repay  principal  is  extremely
                  strong.

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

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

         BBB      Bonds rated BBB are regarded as having an adequate capacity to
                  pay  interest  and  repay  principal.  Whereas  they  normally
                  exhibit  adequate  protection  parameters,   adverse  economic
                  conditions or changing  circumstances  are more likely to lead
                  to a weakened capacity to pay interest and repay principal for
                  bonds  in  this  category  than  for  bonds  in  higher  rated
                  categories.

         BB       Bonds rated BB have less  near-term  vulnerability  to default
                  than other  speculative grade debt.  However,  they face major
                  ongoing   uncertainties  or  exposure  to  adverse   business,
                  financial   or  economic   conditions   which  could  lead  to
                  inadequate  capacity to meet  timely  interest  and  principal
                  payments.

         B        Bonds  rated B have a greater  vulnerability  to  default  but
                  presently  have the  capacity to meet  interest  payments  and
                  principal repayments.  Adverse business, financial or economic
                  conditions  would likely impair capacity or willingness to pay
                  interest and repay principal.

         CCC      Bonds rated CCC have a current  identifiable  vulnerability to
                  default and are dependent upon favorable  business,  financial
                  and economic  conditions  to meet timely  payments of interest
                  and repayment of principal.  In the event of adverse business,
                  financial or economic conditions,  they are not likely to have
                  the capacity to pay interest and repay principal.

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

         C        The  rating C is  typically  applied to debt  subordinated  to
                  senior debt which is  assigned an actual or implied  CCC- debt
                  rating.

         D        Bonds rated D are in default,  and payment of interest  and/or
                  repayment of principal is in arrears.

                                      B-41

<PAGE>


                  S&P's letter ratings may be modified by the addition of a plus
         (+) or a minus  (-) sign  designation,  which is used to show  relative
         standing within the major rating  categories,  except in the AAA (Prime
         Grade) category.

Commercial Paper Ratings

         An  S&P  commercial  paper  rating  is  a  current  assessment  of  the
         likelihood of timely payment of debt having an original  maturity of no
         more than 365 days.  Issues assigned an A rating are regarded as having
         the greatest  capacity for timely payment.  Issues in this category are
         delineated  with the numbers 1, 2 and 3 to indicate the relative degree
         of safety.

         A-1      This designation indicates that the degree of safety regarding
                  timely payment is either  overwhelming  or very strong.  Those
                  issues    determined    to   possess    overwhelming    safety
                  characteristics are denoted with a plus (+) designation.

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

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

         B        Issues  carrying this  designation are regarded as having only
                  speculative capacity for timely payment.

         C        This  designation is assigned to short-term  obligations  with
                  doubtful capacity for payment.

         D        Issues carrying this  designation are in default,  and payment
                  of interest and/or repayment of principal is in arrears.

Moody's Investors Service, Inc.

Bond Ratings

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

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

                                      B-42

<PAGE>


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

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

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

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

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

         Ca       Bonds  which  are  rated  Ca  present  obligations  which  are
                  speculative in a high degree. Such issues are often in default
                  or have other marked shortcomings.

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

         Moody's  applies the  numerical  modifiers 1, 2 and 3 to show  relative
         standing within the major rating categories, except in the Aaa category
         and in the  categories  below B. The modifier 1 indicates a ranking for
         the  security in the higher end of a rating  category;  the  modifier 2
         indicates a mid-range  ranking;  and the modifier 3 indicates a ranking
         in the lower end of a rating category.

Commercial Paper Ratings

         The  rating  Prime-1  (P-1)  is the  highest  commercial  paper  rating
         assigned by Moody's. Issuers of P-1 paper must have a superior capacity
         for repayment of short-term promissory obligations, and ordinarily will
         be  evidenced  by  leading   market   positions  in  well   established
         industries,  high  rates  of  return  on funds  employed,  conservative
         capitalization  structures  with  moderate  reliance  on debt and ample
         asset protection, broad margins in earnings coverage of fixed financial
         charges and high internal cash generation,  and well established access
         to a range of  financial  markets  and  assured  sources  of  alternate
         liquidity.

         Issuers (or related supporting institutions) rated Prime-2 (P-2) have a
         strong  capacity for  repayment of short-term  promissory  obligations.
         This ordinarily will be evidenced by many of the characteristics  cited

                                      B-43

<PAGE>


         above but to a lesser  degree.  Earnings  trends and  coverage  ratios,
         while  sound,  will  be  more  subject  to  variation.   Capitalization
         characteristics,  while  still  appropriate,  may be more  affected  by
         external conditions. Ample alternate liquidity is maintained.

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

         Issuers (or  related  supporting  institutions)  rated Not Prime do not
         fall within any of the Prime rating categories.

Fitch Investors Service, L.P.

Bond Ratings

         The ratings  represent  Fitch's  assessment of the issuer's  ability to
         meet the  obligations  of a specific  debt issue or class of debt.  The
         ratings  take into  consideration  special  features of the issue,  its
         relationship to other obligations of the issuer,  the current financial
         condition and operative performance of the issuer and of any guarantor,
         as well as the political and economic environment that might affect the
         issuer's future financial strength and credit quality.

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

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

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

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

         BB       Bonds  rated  BB are  considered  speculative.  The  obligor's
                  ability to pay  interest and repay  principal  may be affected
                  over time by adverse economic changes.  However,  business and

                                      B-44

<PAGE>


                  financial  alternatives  can be identified  which could assist
                  the obligor in satisfying its debt service requirements.

         B        Bonds rated B are considered highly  speculative.  While bonds
                  in this class are currently meeting debt service requirements,
                  the  probability of continued  timely payment of principal and
                  interest  reflects the obligor's  limited margin of safety and
                  the  need  for  reasonable   business  and  economic  activity
                  throughout the life of the issue.

         CCC      Bonds  rated CCC have  certain  identifiable  characteristics,
                  which,  if not remedied,  may lead to default.  The ability to
                  meet  obligations   requires  an  advantageous   business  and
                  economic environment.

         CC       Bonds rated CC are minimally protected.  Default in payment of
                  interest and/or principal seems probable over time.

         C        Bonds rated C are in  imminent  default in payment of interest
                  or principal.

         DDD, DD and D

                  Bonds  rated DDD,  DD and D are in actual  default of interest
                  and/or   principal   payments.   Such   bonds  are   extremely
                  speculative  and  should  be  valued  on the  basis  of  their
                  ultimate  recovery value in liquidation or  reorganization  of
                  the obligor. DDD represents the highest potential for recovery
                  on these  bonds and D  represents  the  lowest  potential  for
                  recovery.

         Plus (+) and minus (-) signs are used with a rating  symbol to indicate
         the relative position of a credit within the rating category.  Plus and
         minus signs,  however,  are not used in the AAA category covering 12-36
         months.

Short-Term Ratings

         Fitch's  short-term  ratings apply to debt obligations that are payable
         on demand or have original  maturities of up to three years,  including
         commercial  paper,  certificates  of deposit,  medium-term  notes,  and
         municipal and investment notes.

         Although  the  credit  analysis  is  similar  to  Fitch's  bond  rating
         analysis,  the  short-term  rating  places  greater  emphasis than bond
         ratings on the  existence of  liquidity  necessary to meet the issuer's
         obligations in a timely manner.

         F-1+     Exceptionally  strong  credit  quality.  Issues  assigned this
                  rating  are  regarded  as  having  the  strongest   degree  of
                  assurance for timely payment.

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

         F-2      Good  credit  quality.  Issues  carrying  this  rating  have a
                  satisfactory degree of assurance for timely payments,  but the
                  margin  of  safety  is  not  as  great  as the  F-l+  and  F-1
                  categories.

                                      B-45

<PAGE>


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

         F-S      Weak  credit   quality.   Issues  assigned  this  rating  have
                  characteristics  suggesting a minimal  degree of assurance for
                  timely payment and are vulnerable to near-term adverse changes
                  in financial and economic conditions.

         D        Default. Issues assigned this rating are in actual or imminent
                  payment default.

Duff & Phelps Credit Rating Co.

Bond Ratings

         AAA      Bonds rated AAA are  considered  highest credit  quality.  The
                  risk factors are negligible, being only slightly more than for
                  risk-free U.S. Treasury debt.

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

         A        Bonds rated A have  protection  factors  which are average but
                  adequate.  However, risk factors are more variable and greater
                  in periods of economic stress.

         BBB      Bonds  rated  BBB  are   considered   to  have  below  average
                  protection factors but still considered sufficient for prudent
                  investment.  There may be considerable variability in risk for
                  bonds in this category during economic cycles.

         BB       Bonds  rated BB are below  investment  grade but are deemed by
                  Duff as  likely  to meet  obligations  when  due.  Present  or
                  prospective  financial  protection factors fluctuate according
                  to industry  conditions or company  fortunes.  Overall quality
                  may move up or down frequently within the category.

         B        Bonds rated B are below  investment grade and possess the risk
                  that  obligations   will  not  be  met  when  due.   Financial
                  protection factors will fluctuate widely according to economic
                  cycles, industry conditions and/or company fortunes. Potential
                  exists for  frequent  changes in quality  rating  within  this
                  category or into a higher or lower quality rating grade.

         CCC      Bonds rated CCC are well below  investment  grade  securities.
                  Such bonds may be in default or have considerable  uncertainty
                  as to timely payment of interest,  preferred  dividends and/or
                  principal.  Protection  factors  are  narrow  and  risk can be
                  substantial with unfavorable  economic or industry  conditions
                  and/or with unfavorable company developments.

         DD       Defaulted  debt   obligations.   Issuer  has  failed  to  meet
                  scheduled principal and/or interest payments.

         Plus (+) and minus (-) signs are used with a rating symbol (except AAA)
         to  indicate  the  relative  position  of a credit  within  the  rating
         category.

                                      B-46

<PAGE>


Commercial Paper Ratings

         Duff-1   The  rating  Duff-1 is the  highest  commercial  paper  rating
                  assigned  by Duff.  Paper  rated  Duff-1 is regarded as having
                  very high certainty of timely payment with excellent liquidity
                  factors  which are supported by ample asset  protection.  Risk
                  factors are minor.

         Duff-2   Paper rated  Duff-2 is regarded  as having good  certainty  of
                  timely  payment,  good  access to  capital  markets  and sound
                  liquidity factors and company  fundamentals.  Risk factors are
                  small.

         Duff-3   Paper  rated   Duff-3  is  regarded  as  having   satisfactory
                  liquidity  and other  protection  factors.  Risk  factors  are
                  larger and  subject to more  variation.  Nevertheless,  timely
                  payment is expected.

         Duff-4   Paper  rated   Duff-4  is   regarded  as  having   speculative
                  investment  characteristics.  Liquidity is not  sufficient  to
                  insure against  disruption in debt service.  Operating factors
                  and  market  access  may  be  subject  to  a  high  degree  of
                  variation.

         Duff-5   Paper  rated  Duff-5 is in  default.  The issuer has failed to
                  meet scheduled principal and/or interest payments.

                                      B-47

<PAGE>



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

                                     PART C

                                OTHER INFORMATION

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



<PAGE>


                              THE MONTGOMERY FUNDS

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

                                    FORM N-1A

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

                                     PART C

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



Item 23.   Exhibits

         (a)      Amended and Restated  Agreement  and  Declaration  of Trust as
                  incorporated by reference to  Post-Effective  Amendment No. 61
                  to the Registration  Statement as filed with the Commission on
                  October 29, 1998 ("Post-Effective Amendment No. 61").

         (b)      Amended and Restated  By-Laws is  incorporated by reference to
                  Post-Effective Amendment No. 61.

         (c)      Instruments   Defining   Rights  of  Security   Holder  -  Not
                  applicable.

         (d)      Investment Advisory Contracts - Form of Investment  Management
                  Agreement  is  incorporated  by  reference  to  Post-Effective
                  Amendment No. 52 to the  Registration  Statement as filed with
                  the Commission on July 31, 1997 ("Post-Effective Amendment No.
                  52").

         (e)      Form of Underwriting Agreement is incorporated by reference to
                  Post-Effective Amendment No. 52.

         (f)      Bonus or Profit Sharing Contracts - Not applicable.

         (g)      Form of Custody  Agreement  is  incorporated  by  reference to
                  Post-Effective Amendment No. 61.

         (h)      Other Material Contracts:

                  (1)    Form   of   Administrative    Services   Agreement   is
                         incorporated by reference to  Post-Effective  Amendment
                         No. 52.

                  (2)    Form of Shareholder  Services Plan is  incorporated  by
                         reference to Post-Effective Amendment No. 61.

         (i)      Opinion of Counsel as to legality of shares - Filed herewith.

         (j)      Other   Opinions:   Independent   Auditors'   Consent   -  Not
                  applicable.

         (k)      Omitted Financial Statements - Not applicable.

         (l)      Initial  Capital  Agreements:   Letter  of  Understanding  re:
                  Initial Shares is incorporated by reference to  Post-Effective
                  Amendment No. 61.

         (m)      Rule 12b-1  Plan:  Form of Share  Marketing  Plan (Rule  12b-1
                  Plan) is incorporated by reference to Post-Effective Amendment
                  No. 52.

         (n)      Financial Data Schedule - Not applicable.



<PAGE>


         (o)      18f-3 Plan - Form of Amended and Restated  Multiple Class Plan
                  is incorporated by reference to  Post-Effective  Amendment No.
                  61.

         (p)      Codes of Ethics is incorporated by reference to Post-Effective
                  Amendment No. 73.

Item 24.   Persons Controlled by or Under Common Control with the Fund

           Montgomery  Asset  Management,  LLC,  a  Delaware  limited  liability
company,  is the manager of each  series of the  Registrant,  of The  Montgomery
Funds II, a Delaware business trust, and of The Montgomery Funds III, a Delaware
business trust. Montgomery Asset Management,  LLC is a subsidiary of Commerzbank
AG based in Frankfurt,  Germany. The Registrant, The Montgomery Funds II and The
Montgomery  Funds III are deemed to be under the common control of each of those
two entities.

Item 25.   Indemnification

           Article VII of the Agreement and  Declaration  of Trust  empowers the
Trustees of the Trust,  to the full extent  permitted  by law, to purchase  with
Trust assets  insurance for  indemnification  from  liability and to pay for all
expenses  reasonably  incurred  or paid or  expected  to be paid by a Trustee or
officer in connection with any claim,  action, suit or proceeding in which he or
she becomes  involved by virtue of his or her capacity or former  capacity  with
the Trust.

           Article VI of the By-Laws of the Trust  provides that the Trust shall
indemnify  any person who was or is a party or is  threatened to be made a party
to any proceeding by reason of the fact that such person is and other amounts or
was an agent of the Trust, against expenses,  judgments,  fines,  settlement and
other  amounts  actually  and  reasonable   incurred  in  connection  with  such
proceeding if that person acted in good faith and reasonably believed his or her
conduct to be in the best  interests of the Trust.  Indemnification  will not be
provided  in certain  circumstances,  however,  including  instances  of willful
misfeasance,  bad faith, gross negligence,  and reckless disregard of the duties
involved in the conduct of the particular office involved.

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

Item 26.   Business and Other Connections of the Investment Adviser

            Effective July 31, 1997, Montgomery Asset Management, L.P. completed
the sale of substantially all of its assets to the current  investment  manager,
Montgomery Asset Management,  LLC ("MAM, LLC"), a subsidiary of Commerzbank A.G.
Information  about the officers and directors of MAM, LLC is provided below. The
address for the  following  persons is 101  California  Street,  San  Francisco,
California 94111.

           R. Stephen Doyle                 Chairman of the Board of Directors
           Mark B. Geist                    Chief Executive Officer of MAM, LLC
           F. Scott Tuck                    President of MAM, LLC



<PAGE>


           The following  directors of MAM, LLC also are officers of Commerzbank
AG. The  address  for the  following  persons  is Neue  Mainzer  Strasse  32-36,
Frankfurt am Main, Germany.

           Heinz Josef Hockmann             Director of MAM, LLC
           Dietrich-Kurt Frowein            Director of MAM, LLC
           Andreas Kleffel                  Director of MAM, LLC

Item 27.   Principal Underwriter

         (a)      Funds Distributor,  Inc. (the "Distributor") acts as principal
                  underwriter for the following investment companies.

                  American Century California Tax-Free and Municipal Funds
                  American Century Capital Portfolios, Inc.
                  American Century Government Income Trust
                  American Century International Bond Funds
                  American Century Investment Trust
                  American Century Municipal Trust
                  American Century Mutual Funds, Inc.
                  American Century Premium Reserves, Inc.
                  American Century Quantitative Equity Funds
                  American Century Strategic Asset Allocations, Inc.
                  American Century Target Maturities Trust
                  American Century Variable Portfolios, Inc.
                  American Century World Mutual Funds, Inc.
                  BJB Investment Funds
                  The Brinson Funds
                  Dresdner RCM Capital Funds, Inc.
                  Dresdner RCM Equity Funds, Inc.
                  Founders Funds, Inc.
                  Harris Insight Funds Trust
                  HT Insight Funds, Inc. d/b/a Harris Insight Funds
                  J.P. Morgan Institutional Funds
                  J.P. Morgan Funds
                  JPM Series Trust
                  JPM Series Trust II
                  LaSalle Partners Funds, Inc.
                  Kobrick-Cendant Investment Trust
                  Merrimac Series
                  Monetta Fund, Inc.
                  Monetta Trust
                  The Montgomery Funds
                  The Montgomery Funds II
                  The Munder Framlington Funds Trust
                  The Munder Funds Trust
                  The Munder Funds, Inc.
                  National Investors Cash Management Fund, Inc.
                  Orbitex Group of Funds
                  SG Cowen Funds, Inc.
                  SG Cowen Income + Growth Fund, Inc.
                  SG Cowen Standby Reserve Fund, Inc.
                  SG Cowen Standby Tax-Exempt Reserve Fund, Inc.
                  SG Cowen Series Funds, Inc.



<PAGE>


                  St. Clair Funds, Inc.
                  The Skyline Funds
                  Waterhouse Investors Family of Funds, Inc.
                  WEBS Index Fund, Inc.

                  The Distributor is registered with the Securities and Exchange
                  Commission as a broker-dealer  and is a member of the National
                  Association  of  Securities  Dealers.   Funds  Distributor  is
                  located at 60 State Street, Suite 1300, Boston,  Massachusetts
                  02109.   Funds   Distributor  is  an  indirect   wholly  owned
                  subsidiary  of Boston  Institutional  Group,  Inc.,  a holding
                  company  all of  whose  outstanding  shares  are  owned by key
                  employees.

<TABLE>
         (b)      The following is a list of the executive  officers,  directors
                  and partners of Funds Distributor, Inc.

<S>                                                                  <C>
                 Director, President and Chief Executive Officer     Marie E. Connolly
                 Executive Vice President                            George A. Rio
                 Executive Vice President                            Donald R. Roberson
                 Executive Vice President                            William S. Nichols
                 Senior Vice President, General Counsel, Chief       Margaret W. Chambers
                     Compliance Officer, Secretary and Clerk
                 Senior Vice President                               Michael S. Petrucelli
                 Director, Senior Vice President, Treasurer and      Joseph F. Tower, III
                     Chief Financial Officer
                 Senior Vice President                               Paula R. David
                 Senior Vice President                               Allen B. Closser
                 Senior Vice President                               Bernard A. Whalen
                 Chairman and Director                               William J. Nutt
</TABLE>


         (c)      Not Applicable.

Item 28.   Location of Accounts and Records.

           The accounts,  books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended (the "Investment
Company  Act") will be kept by the  Registrant's  Transfer  Agent,  DST Systems,
Inc., P.O. Box 1004 Baltimore, Kansas City, Missouri 64105, except those records
relating  to  portfolio  transactions  and the  basic  organizational  and Trust
documents of the Registrant (see Subsections (2)(iii),  (4), (5), (6), (7), (9),
(10) and (11) of Rule  31a-1(b)),  which will be kept by the  Registrant  at 101
California Street, San Francisco, California 94111.

Item 29.   Management Services.

           There are no  management-related  service  contracts not discussed in
Parts A and B.

Item 30.   Undertakings.

         (a)      Not applicable.

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



<PAGE>


         (c)      Registrant  has undertaken to comply with Section 16(a) of the
                  Investment  Company Act which requires the prompt convening of
                  a meeting of  shareholders  to elect trustees to fill existing
                  vacancies in the  Registrant's  Board of Trustees in the event
                  that less than a majority of the trustees have been elected to
                  such position by shareholders.  Registrant has also undertaken
                  promptly to call a meeting of shareholders  for the purpose of
                  voting upon the question of removal of any Trustee or Trustees
                  when  requested  in writing to do so by the record  holders of
                  not  less  than 10  percent  of the  Registrant's  outstanding
                  shares and to assist its  shareholders in  communicating  with
                  other  shareholders  in accordance  with the  requirements  of
                  Section 16(c) of the Investment Company Act.


<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment  Company Act of 1940, as amended,  the  Registrant  certifies
that it meets all the requirements for effectiveness of this Amendment  pursuant
to Rule  485(b)  under the  Securities  Act of 1933,  as  amended,  and that the
Registrant has duly caused this Amendment to Registration Statement to be signed
on its behalf by the undersigned,  thereunto duly authorized, in the City of San
Francisco, the State of California, on this 6th day of April, 2000.


                                          THE MONTGOMERY FUNDS


                                          By: George A. Rio*
                                              --------------
                                              George A. Rio
                                              President and Principal Executive
                                              Officer; Treasurer and Principal
                                              Financial and Accounting Officer


         Pursuant  to the  requirements  of the  Securities  Act of  1933,  this
Amendment to  Registrant's  Registration  Statement has been signed below by the
following persons in the capacities and on the dates indicated.

George A. Rio*               President and                       April 7, 2000
- --------------               Principal Executive Officer,
George A. Rio                Treasurer and Principal
                             Financial and Accounting
                             Officer


R. Stephen Doyle *           Chairman of the                     April 7, 2000
- ------------------           Board of Trustees
R. Stephen Doyle


Andrew Cox *                 Trustee                             April 7, 2000
- ------------
Andrew Cox

Cecilia H. Herbert *         Trustee                             April 7, 2000
- --------------------
Cecilia H. Herbert

John A. Farnsworth *         Trustee                             April 7, 2000
- --------------------
John A. Farnsworth


* By: /s/ Julie Allecta
      -------------------
         Julie  Allecta,  Attorney-in-Fact
         pursuant to Powers of Attorney previously filed.







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

                                 Exhibit 23 (i)

             Consent and Opinion of Counsel as to Legality of Shares
- --------------------------------------------------------------------------------


<PAGE>


                                 Law Offices of
                      Paul, Hastings, Janofsky & Walker LLP
       A Limited Liability Partnership Including Professional Corporations
                              345 California Street
                      San Francisco, California 94104-2635
                            Telephone (415) 835-1600
                            Facsimile (415) 217-5333
                              Internet www.phjw.com

                                  April 6, 2000


Montgomery Asset Management, LLC
101 California Street
San Francisco, California 94111

         Re:      The Montgomery Funds (the "Registrant")

Ladies and Gentlemen:

                  We hereby  consent to the  continued  use in the  Registrant's
Registration Statement,  until its withdrawal,  of our opinion given on December
28,  1999  (the  "Prior  Opinion")  respecting  the  legality  of the  shares of
beneficial interest for the following series of The Montgomery Funds: Montgomery
U.S.  Select  20  Portfolio  (formerly   Montgomery  Growth  20  Portfolio)  and
Montgomery International 20 Portfolio.

                  The Prior  Opinion  was filed as an exhibit to  Post-Effective
Amendment No. 70 filed with the Commission on December 30, 1999.

                                                 Very truly yours,

                                       Paul, Hastings, Janofsky & Walker LLP




© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission