<PAGE>
THE COMMERCE FUNDS
SUPPLEMENT DATED JANUARY 1, 1997
TO PROSPECTUS DATED MARCH 1, 1996
Effective January 1, 1997, The Commerce Funds will begin offering a second
class of shares, designated as Service Shares. Service Shares will be offered
to retail investors as described in a separate Prospectus. Service Shares and
Institutional Shares represent equal pro rata interests in a Fund, except that
(i) Service Shares will bear the expenses incurred under The Commerce Funds'
Distribution Plan and Shareholder Services Plan applicable to Service Shares
at annual rates not to exceed 0.25% and 0.25%, respectively, of average daily
net assets of Service Shares of the Short-Term Government, Bond, Balanced,
Growth, Aggressive Growth and International Equity Funds and (ii) each class
will have different exchange privileges and shareholder servicing. The
differences in expenses paid by the respective funds will affect performance.
As of January 1, 1997, the class of shares offered by the accompanying
Prospectus has been designated as Institutional Shares and will be offered to
institutional investors. For information regarding Service Shares, please call
The Commerce Funds at 1-800-305-2140. Current shareholders of the
Institutional Class can continue to purchase additional shares of the
Institutional Class.
EXCHANGE OPTION
Effective, January 1, 1997, the exchange option for investments in a money
market fund has been changed from Financial Square Treasury, Prime and Tax-
Free Money Market Funds to the Goldman Sachs--Institutional Liquid Assets
Prime Obligations Portfolio.
SALES CHARGE
Effective January 1, 1997, the maximum front-end sales charge is 2.00% on
purchases of Institutional Shares of the Short-Term Government Fund and the
sales charge schedule has been changed to the following:
<TABLE>
<CAPTION>
MAXIMUM
DEALER'S
REALLOWANCE
AS A % OF AS A % OF AS A % OF
OFFERING NET ASSET OFFERING
PRICE VALUE PRICE PER
AMOUNT OF PURCHASE PER SHARE PER SHARE SHARE*
------------------ --------- --------- -----------
<S> <C> <C> <C>
Less than $500,000............................. 2.00% 2.04% 1.80%
$500,001 but less $1,000,000................... 1.00% 1.01% 0.90%
$1,000,001 or more............................. 0.00% 0.00% 0.00%
</TABLE>
- --------
*Dealer's reallowance may be changed periodically.
FINANCIAL HIGHLIGHTS
The following replaces the "FINANCIAL HIGHLIGHTS" on page 6.
FINANCIAL HIGHLIGHTS
SELECTED DATA OF INSTITUTIONAL SHARES OUTSTANDING
DURING THE SEMI-ANNUAL PERIOD ENDED APRIL 30, 1996
INSTITUTIONAL SHARES
The financial highlights presented below set forth certain information
concerning the investment results for the Institutional Shares of each Fund
for the semi-annual period ended April 30, 1996. The following data with
respect to an Institutional Share outstanding during the period ended April
30, 1996 has been derived from unaudited financial statements prepared by The
Commerce Funds. This information should be read in conjunction with the
financial statements and related notes incorporated by reference and attached
to the Statement of Additional Information. These reports also contain
performance information and may be obtained free of charge by contacting The
Commerce Funds at the address or telephone number on page 29 of the
Prospectus.
<PAGE>
THE COMMERCE FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS SHAREHOLDERS
------------------------------------- -----------------------
NET
REALIZED
AND NET
UNREALIZED ASSET
NET ASSET GAIN VALUE,
VALUE, NET (LOSS) ON FROM NET FROM NET END
BEGINNING INVESTMENT INVEST- INVESTMENT REALIZED GAIN OF TOTAL
OF PERIOD INCOME MENTS(b) INCOME ON INVESTMENTS PERIOD RETURN(c)
--------- ---------- ----------- ---------- -------------- ------ --------
SHORT-TERM GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Six months ended
(unaudited):
4/30/96......... $18.83 $0.55 $(0.29) $(0.55) $(0.22) $18.32 1.36%
12/12/94(a) to
10/31/95........ 18.00 1.06 0.83 (1.06) -- 18.83 10.72
<CAPTION>
BOND FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Six months ended
(unaudited):
4/30/96......... 19.61 0.59 (0.58) (0.59) (0.26) 18.77 (0.02)
12/12/94(a) to
10/31/95........ 18.00 1.12 1.61 (1.12) -- 19.61 15.59
<CAPTION>
BALANCED FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Six months ended
(unaudited):
4/30/96......... 22.10 0.25 1.45 (0.25) (0.66) 22.89 7.82
12/12/94(a) to
10/31/95........ 18.00 0.59 4.06 (0.55) -- 22.10 26.14
<CAPTION>
RATIOS
ASSUMING
NO WAIVER OF
FEES OR
ENTERPRISE
REIMBURSEMENTS
-----------------------
RATIO RATIO
RATIO OF NET RATIO OF NET
OF NET INVESTMENT NET OF INVESTMENT
EXPENSES INCOME AVERAGE ASSETS AT EXPENSES INCOME TO
TO AVERAGE TO AVERAGE PORTFOLIO COMMIS- END TO AVERAGE AVERAGE
NET NET TURNOVER SION OF PERIOD NET NET
ASSETS(d) ASSETS(d) RATE RATE (IN 000'S) ASSETS(d) ASSETS(d)
---------- ---------- --------- ------- ---------- ---------- ----------
SHORT-TERM GOVERNMENT FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Six months ended
(unaudited):
4/30/96......... 0.68% 5.88% 0% -- $27,128 1.05% 5.51%
12/12/94(a) to
10/31/95........ 0.68 6.38 158 -- 20,211 1.14 5.92
<CAPTION>
BOND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Six months ended
(unaudited):
4/30/96......... 0.84 6.10 11 -- 115,068 0.84 6.10
12/12/94(a) to
10/31/95........ 0.88 6.64 58 -- 98,504 0.88 6.64
<CAPTION>
BALANCED FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Six months ended
(unaudited):
4/30/96......... 1.13 2.30 23 $0.0835 58,454 1.41 2.02
12/12/94(a) to
10/31/95........ 1.13 3.28 59 -- 48,329 1.45 2.96
</TABLE>
- ----------
(a) Commencement of operations.
(b) Includes the balancing effect of calculating per share amounts.
(c) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. Total return would be reduced if sales charges were taken
into account.
(d) Annualized.
<PAGE>
THE COMMERCE FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS SHAREHOLDERS
------------------------------------------ ---------------------------
NET NET REALIZED
REALIZED AND
AND UNREALIZED NET RATIO
UNREALIZED GAIN ON ASSET OF NET
NET ASSET GAIN FOREIGN VALUE, EXPENSES
VALUE, NET (LOSS) ON CURRENCY FROM NET FROM NET END TO AVERAGE
BEGINNING INVESTMENT INVEST- RELATED INVESTMENT REALIZED GAIN OF TOTAL NET
OF PERIOD INCOME MENTS(b) TRANSACTIONS(b) INCOME ON INVESTMENTS PERIOD RETURN(c) ASSETS(d)
--------- ---------- ----------- -------------- ---------- -------------- ------ -------- -----------
GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Six months ended (unaudited):
4/30/96......... $24.68 $0.08 $2.76 -- $(0.08) $(1.13) $26.31 11.79% 1.08%
12/12/94(a) to
10/31/95........ 18.00 0.15 6.68 -- (0.15) -- 24.68 38.06 1.11
<CAPTION>
AGGRESSIVE GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Six months ended (unaudited):
4/30/96......... 25.30 (0.01) 3.59 -- -- (0.68) 28.20 14.39 1.20
12/12/94(a) to
10/31/95........ 18.00 (0.04) 7.34 -- -- -- 25.30 40.56 1.32
<CAPTION>
INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Six months ended (unaudited):
4/30/96......... 18.64 0.10 2.78 (0.56) (0.08) (0.07) 20.81 12.48 1.72
12/12/94(a) to
10/31/95........ 18.00 0.12 0.95 (0.40) (0.03) -- 18.64 3.73 1.81
<CAPTION>
RATIOS
ASSUMING
NO WAIVER OF
FEES OR
ENTERPRISE
REIMBURSEMENTS
-----------------------
RATIO RATIO
OF NET RATIO OF NET
INVESTMENT NET OF INVESTMENT
INCOME (LOSS) AVERAGE ASSETS AT EXPENSES INCOME TO
TO AVERAGE PORTFOLIO COMMIS- END TO AVERAGE AVERAGE
NET TURNOVER SION OF PERIOD NET NET
ASSETS(d) RATE RATE (IN 000'S) ASSETS(d) ASSETS(d)
------------- --------- ------- ---------- ---------- ----------
GROWTH FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Six months ended (unaudited):
4/30/96......... 0.62% 15% $0.0768 $163,475 1.08% 0.62%
12/12/94(a) to
10/31/95........ 0.81 33 -- 141,735 1.11 0.81
<CAPTION>
AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Six months ended (unaudited):
4/30/96......... (0.20) 32% 0.0808 64,601 1.20 (0.20)
12/12/94(a) to
10/31/95........ (0.29) 59 -- 41,665 1.32 (0.29)
<CAPTION>
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Six months ended (unaudited):
4/30/96......... 1.05 13% 0.0208 40,744 2.60 0.17
12/12/94(a) to
10/31/95........ 1.06 25 -- 21,014 3.50 (0.63)
</TABLE>
- ----------
(a) Commencement of operations.
(b) Includes the balancing effect of calculating per share amounts.
(c) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. Total return would be reduced if a sales charge were taken
into account.
(d) Annualized.
