COMMERCE FUNDS, 485BPOS, 2000-02-25

COMMERCE FUNDS
485BPOS, 2000-02-25

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<PAGE>

As filed with the Securities and Exchange Commission on February 25, 2000
Securities Act File No. 33-80966
Investment Company Act File No. 811-8598
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No ___ [ ]

Post-Effective Amendment No. 10 [X]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 11

____________________________

The Commerce Funds
(Exact Name of Registrant as Specified in Charter)

4900 Sears Tower
Chicago, IL 60606
(Address of Principal Executive Offices)

Registrant's Telephone Number:
800-995-6365

W. Bruce McConnel, III
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania 19103-6996
(Name and Address of Agent for Service)

It is proposed that this filing will become effective (check appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)
[x] on March 1, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Title of Securities Being Registered: None
<PAGE>

[Front Cover - Institutional Shares]

The Commerce Funds
Institutional Shares Prospectus
March 1, 2000

The MidCap Fund
The Growth Fund
The Growth and Income Fund
The International Equity Fund
The Balanced Fund
The Short-Term Government Fund
The Bond Fund
The National Tax-Free Intermediate Bond Fund
The Missouri Tax-Free Intermediate Bond Fund

These securities have not been approved or disapproved by the Securities and
Exchange Commission, nor has the Securities and Exchange Commission passed upon
the accuracy or adequacy of this prospectus. Any representation to the contrary
is a criminal offense.

[Commerce Funds bar logo]

<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
Overview of Each Fund
MidCap 4
Growth 7
Growth and Income 11
International Equity 15
Balanced 20
Short-Term Government 25
Bond 30
National Tax-Free Intermediate Bond 35
Missouri Tax-Free Intermediate Bond 40
Investment Securities and Practices 45
Account Policies and Features 54
Buying Institutional Shares 54
Redeeming Institutional Shares 58
General Policies 60
Business of the Commerce Funds 62
Tax Information 62
Service Providers 64
</TABLE>

The Commerce Funds PAGE 1
----------------------------.
<PAGE>

The Commerce Funds

The Commerce Funds consists of nine investment portfolios, each of which has a
separate pool of assets with separate investment objectives and policies. This
Prospectus offers Institutional Shares of all nine investment portfolios.

The MidCap Fund seeks long-term capital appreciation.

The Growth Fund seeks capital appreciation and, secondarily, current income and
dividend growth potential.

The Growth and Income Fund seeks both capital appreciation and current income.

The International Equity Fund seeks total return with an emphasis on growth of
capital.

The Balanced Fund seeks total return through a balance of capital appreciation
and current income consistent with preservation of capital.

The Short-Term Government Fund seeks current income consistent with
preservation of principal.

The Bond Fund seeks total return through current income and, secondarily,
capital appreciation.

The National Tax-Free Intermediate Bond Fund seeks current income exempt from
federal income tax as is consistent with the preservation of capital.

The Missouri Tax-Free Intermediate Bond Fund seeks current income exempt from
federal and, to the extent possible, from Missouri income taxes, as is
consistent with the preservation of capital.

What These Funds Are Not:
An investment in any of these Funds is not a bank deposit. Your investment is
not insured or guaranteed by the FDIC or any other agency of the government.

PAGE 2 The Commerce Funds
. --------------------------
<PAGE>

This Prospectus describes the Institutional Shares of each Fund. Institutional
Shares are offered primarily to:

. investors maintaining accounts at bank trust departments or trust companies,
for funds held within those accounts, including institutions affiliated with
Commerce Bancshares, Inc. and its subsidiaries (for example, Commerce Bank
Investment Management Group clients), and individuals who have named a bank
affiliated with Commerce Bancshares, Inc., as their primary personal
representative or co-personal representative under will;

. participants in employer-sponsored defined contribution plans when such plans
offer The Commerce Funds as one of their investment options;

. any investor who has been a continuous shareholder in The Commerce Funds
since January 1, 1997 or before;

. employees, directors, advisory directors, officers and retirees (as well as
their spouses and legal dependents) of Commerce Bancshares, Inc., Goldman,
Sachs & Co., State Street Bank and Trust Company and National Financial Data
Services, Inc. or their subsidiaries or affiliates; and

. financial planners, broker/dealers and their clients.

The Commerce Funds is also authorized to issue an additional class of shares,
Services Shares, in each of the MidCap Fund, Growth Fund, Growth and Income
Fund, International Equity Fund, Balanced Fund, Short-Term Government Fund and
Bond Fund. Service Shares are offered primarily to:

. individuals, corporations or other entities, purchasing for their own
accounts or for the accounts of others, and to qualified banks, savings and
loan associations, and broker/dealers on behalf of their customers; and

. financial planners and their clients.

The Commerce Funds PAGE 3
----------------------------.
<PAGE>

MidCap Fund
- -------------------------------------------------------------------------

Paul D. Cox, CFA and Portfolio Manager

. Joined the Investment Management Group of Commerce Bank in 1989
. Fund manager since Fund inception

. Director of Equity Management for Commerce Bank's Investment Management
Group

. 20 years of experience

Please see the table on p.45 for more detailed information about the investment
practices of the MidCap Fund and the risks associated with those practices.

[GRAPHIC]
Investment Objective
---------------------------------------

Seeks long-term capital appreciation.

[GRAPHIC]
Primary Investment Strategies
---------------------------------------

. Invests, under normal market conditions, at least 65% of its total assets in
equity securities, primarily common stocks.
. Invests in stocks of companies with medium-sized market capitalizations (less
than $10 billion) and the potential for above-average earnings growth. The
Fund invests in companies exclusively in anticipation of capital gains.
. Seeks long-term capital appreciation by investing in companies that exhibit
high rates of profitability, earnings growth and corporate re-investment.

[GRAPHIC]
Primary Risks of Investing in the Fund
---------------------------------------

Investment Risk: The value of your investment in this Fund may go up or down,
which means that you could lose money.
Small Company Stock Risk: Investing in securities of smaller companies may be
riskier than investing in larger, more established companies. Smaller companies
are more vulnerable to adverse developments because of more limited product
lines, markets or financial resources. Also, smaller company stocks may trade
less often and in limited volume compared to stocks trading on a national
securities exchange. Security prices of small company stocks may be more
volatile than the prices of larger company stocks. As a result, this Fund's net
asset value may be subject to rapid and substantial changes if it invests in
small company stocks.

Market Risk: General economic conditions and/or the activities of individual
companies may cause the value of the securities in the Fund to increase or
decrease. The Fund's net asset value may fluctuate with movements in the equity
market.
Management Risk: A strategy used by the Adviser may fail to produce the
intended results.

An investment in the Fund is not a deposit of Commerce Bank and is not insured
or guaranteed by the FDIC or any other governmental agency.

PAGE 4 The Commerce Funds
.----------------------------
<PAGE>

- --------------------------------------------------------------------------------
[GRAPHIC]
MidCap Fund Past Performance (formerly the Aggressive Growth Fund)
------------------------------------------------------------------

The chart and table below provide some indication of the risks of investing in
the Fund by showing its annual returns and long-term performance. The bar chart
shows the Fund's performance from calendar year to calendar year since its
inception. The table compares the Fund's performance over time to that of a
broad-based securities market index. Both charts assume reinvestment of
dividends and distributions. As with all mutual funds, how this Fund performed
in the past is not a prediction of how it will perform in the future.

Year-by-Year Total Return as of 12/31 Each Year

[GRAPH]

1999 25.84%
1998 17.27%
1997 20.56%
1996 12.46%
1995 38.71%

(percentage)

Best Calendar Quarter: 21.92%, 4th Quarter 1998
Worst Calendar Quarter: -15.95%, 3rd Quarter 1998

Average Annual Total Return as of 12/31/99

<TABLE>
<CAPTION>
Since Inception
1 Year 3 Years 5 Years (12/12/94)
<S> <C> <C> <C> <C>
MidCap Fund 25.84% 21.17% 22.64% 23.72%
S&P 400 Mid-Cap Index* 14.73% 21.81% 23.04% 23.78%
</TABLE>
* The S&P 400 Mid-Cap Index is a capitalization-weighted index that measures
the performance of the mid-range sector of the U.S. stock market. The Index
figures do not reflect any fees or expenses.
[GRAPHIC]
Fees and Expenses
-----------------------------------------------------------

<TABLE>
<CAPTION>
MidCap Fund (1)
Institutional Shares
<S> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Charge (load) Imposed on Reinvested
Distributions None
Maximum Deferred Sales Charge (load) Imposed on
Redemptions None
Redemption Fees None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 0.75%
Other Expenses (2) 0.39%
-----
Total Annual Fund Operating Expenses 1.14%
=====
</TABLE>
continued

The Commerce Funds PAGE 5
----------------------------.
<PAGE>

MidCap Fund (continued)
- --------------------------------------------------------------------------------
(1) Formerly the Aggressive Growth Fund.

(2) "Other Expenses" include shareholder servicing fees of up to 0.25%,
annualized, of the average daily net assets of Shares held under the
Shareholder Administrative Services Plan.

Example: The following example is intended to help you compare the cost of
investing in this Fund with the cost of investing in other mutual funds. It
makes the following assumptions: you invest $10,000 in the Fund for the time
periods indicated, your investment has a 5% return each year, and the Fund's
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
$116 $362 $628 $1,386
</TABLE>

MidCap Fund(a) Financial Highlights
-----------------------------------------------------------

[GRAPHIC]

The following table describes the Fund's performance since its inception. The
total return figures show how much you would have earned (or lost) on an
investment in the Fund during each time period, assuming you had reinvested all
dividends and distributions. Some of the information reflects financial results
for a single Fund share. The information has been audited by KPMG LLP, the
Funds' independent accountants. Their report, along with the Fund's financial
statements, is incorporated by reference in the Funds' Statement of Additional
Information (available upon request).

<TABLE>
<CAPTION>
Year Ended 10/31 12/12/94
---------------------------------------- (inception)
Institutional Shares 1999 1998 1997 1996 to 10/31/95
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 32.57 $ 33.02 $ 28.06 $ 25.30 $ 18.00
Income from investment
operations:
Net investment income
loss (0.23)(c) (0.13) (0.13) (0.07) (0.04)
Net realized and
unrealized gain(b) 9.34(c) 1.48 5.38 3.51 7.34
Distributions to
shareholders:
From net realized gains (1.61) (1.80) (0.29) (0.68) --
Net asset value, end of
period $ 40.07 $ 32.57 $ 33.02 $ 28.06 $ 25.30
Total return(d) 28.96% 3.96% 18.88% 13.78% 40.56%
Net assets at end of
period (in 000's) $143,892 $139,035 $112,442 $74,641 $41,665
Ratio of net expenses to
average net assets 1.14% 1.16% 1.23% 1.22% 1.32%(e)
Ratio of net investment
loss to average net
assets (0.63)% (0.58)% (0.61)% (0.37)% (0.29)%(e)
Portfolio turnover rate 98% 76% 89% 71% 59%
</TABLE>
(a) Formerly the Aggressive Growth Fund.
(b) Includes the balancing effect of calculating per share amounts.

(d) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.

(e) Annualized.

PAGE 6 The Commerce Funds
.----------------------------
<PAGE>

Growth Fund
- --------------------------------------------------------------------------------

Joseph C. Williams III, CFA and Portfolio Manager

. Joined Commerce Bank in 1975
. Fund manager since Fund inception

. 23 years of experience

Please see the table on p.45 for more detailed information about the investment
practices of the Growth Fund and the risks associated with those practices.

[GRAPHIC]
Investment Objectives
---------------------------------------

Seeks capital appreciation and, secondarily, current income and dividend growth
potential.

[GRAPHIC]
Primary Investment Strategies
---------------------------------------

. Invests principally in stocks of companies that have shown and are expected
to show above-average growth in earnings and return on equity. It also
invests in stocks that show the potential to achieve dividend growth superior
to that of the S&P 500 Index, although the Fund does not invest exclusively
in companies that pay a dividend. The Fund's Adviser believes that investing
in companies with strong earnings and return on equity growth will lead to
future capital appreciation.

. Generally purchases common stock of companies with market capitalizations
over $750 million. The average capitalization of companies whose stocks were
held by the Fund as of December 31, 1999 was $104 billion.
. Invests, under normal market conditions, at least 65% of total assets in
equity securities, primarily common stock.

. Anticipates using 45 to 60 stocks to achieve a diversified portfolio.

[GRAPHIC]
Primary Risks of Investing in the Fund
---------------------------------------

Management Risk: A strategy used by the Adviser may fail to produce the
intended results.

An investment in the Fund is not a deposit of Commerce Bank and is not insured
or guaranteed by the FDIC or any other governmental agency.

The Commerce Funds PAGE 7
----------------------------.
<PAGE>

Growth Fund (continued)
- -------------------------------------------------------------------------
[GRAPHIC]
Growth Fund Past Performance
-----------------------------------------------------------

Year-by-Year Total Returns as of 12/31 Each Year

[GRAPH]

1999 14.70%
1998 28.69%
1997 28.05%
1996 22.44%
1995 39.09%

(percentage)

Best Calendar Quarter: 25.02%, 4th Quarter 1998
Worst Calendar Quarter: -14.55%, 3rd Quarter 1998

Average Annual Total Return as of 12/31/99

<TABLE>
<CAPTION>
Since Inception
1 Year 3 Years 5 Years (12/12/94)
<S> <C> <C> <C> <C>
Growth Fund 14.70% 23.64% 26.34% 27.10%
S&P 500 Index* 21.04% 27.56% 28.54% 28.91%
</TABLE>
* The S&P 500 Index is an unmanaged index that emphasizes large capitalization
companies. The Index figures do not reflect any fees or expenses.

PAGE 8 The Commerce Funds
.----------------------------
<PAGE>

- --------------------------------------------------------------------------------
[GRAPHIC]
Fees and Expenses
-----------------------------------------------------------

The following table shows the fees and expenses that you would pay directly or
indirectly if you invested in this Fund. Shareholder Fees are paid directly
from your account. Total Annual Fund Operating Expenses are deducted from the
Fund's assets, not from your account, so they affect the share price of the
Fund.
<TABLE>
<CAPTION>
Growth Fund
Institutional Shares
<S> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Charge (load) Imposed on Reinvested
Distributions None
Maximum Deferred Sales Charge (load) Imposed on
Redemptions None
Redemption Fees None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 0.75%
Other Expenses (1) 0.33%
-----
Total Annual Fund Operating Expenses (2) 1.08%
=====
</TABLE>

(1) "Other Expenses" include shareholder servicing fees of up to 0.25%,
annualized, of the average daily net assets of Shares held under the
Shareholder Administrative Services Plan.
(2) The Adviser intends to voluntarily reimburse expenses, excluding interest,
taxes and extraordinary expenses, during the current year to the extent
necessary for the Growth Fund to maintain Total Annual Fund Operating
Expenses of not more than 1.13% of average daily net assets. The Adviser
reserves the right to discontinue the expense reimbursement at any time.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
$110 $343 $595 $1,317
</TABLE>

continued

The Commerce Funds PAGE 9
----------------------------.
<PAGE>

Growth Fund (continued)
- --------------------------------------------------------------------------------

[GRAPHIC]
Growth Fund Financial Highlights
-----------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended 10/31 12/12/94
-------------------------------------- (inception)
Institutional Shares 1999 1998 1997 1996 to 10/31/95
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 37.37 $ 34.54 $ 28.95 $ 24.68 $ 18.00
Income from investment
operations:
Net investment income (0.05) 0.07 0.19 0.19 0.15
Net realized and
unrealized gain(a) 6.40 5.06 7.51 5.40 6.68
Distributions to
shareholders:
From net investment
income (0.01) (0.06) (0.19) (0.19) (0.15)
From net realized gains (5.47) (2.24) (1.92) (1.13) --
Net asset value, end of
period $ 38.24 $ 37.37 $ 34.54 $ 28.95 $ 24.68
Total return(b) 18.24% 15.38% 28.12% 23.43% 38.06%
Net assets at end of
period (in 000's) $445,923 $409,797 $343,773 $208,908 $141,735
Ratio of net expenses to
average net assets 1.08% 1.08% 1.11% 1.08% 1.11%(c)
Ratio of net investment
income to average net
assets (0.12)% 0.20% 0.60% 0.72% 0.81%(c)
Portfolio turnover rate 35% 53% 32% 36% 33%
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Annualized.

PAGE 10 The Commerce Funds
.-----------------------------
<PAGE>

Growth and Income Fund
- --------------------------------------------------------------------------------

John Bartlett, CFA and Portfolio Manager

. Joined Commerce Bank in 1991
. Fund manager since Fund inception

. Director of Economic & Market Strategy for Commerce Bank's Investment
Management Group

. 22 years of experience

Please see the table onp.45 for moredetailed informationabout the investment
practices of the Growth and Income Fund and the risks associated with those
practices.
[GRAPHIC]
Investment Objectives
---------------------------------------

Seeks capital appreciation and current income.

[GRAPHIC]
Primary Investment Strategies
---------------------------------------

. Invests, under normal market conditions, at least 65% of total assets in
equity securities, primarily common stock.
. To achieve capital appreciation and current income, the Fund looks for
companies whose stock is selling below fair value compared to its future
potential and has the potential to provide a higher current yield (current
income) than that of the S&P 500 Index. The Fund seeks a higher return than
the market index over time as the stocks it purchases rise in price to more
normal valuations.

. Generally purchases common stock of companies with market capitalizations
over $500 million. The average capitalization of companies whose stocks were
held by the Fund was $46.5 billion as of December 31, 1999. This compares to
an average capitalization of $71.8 billion for the S&P 500 Index on the same
date.

. Anticipates using 50 to 70 stocks to achieve a diversified portfolio.

[GRAPHIC]
Primary Risks of Investing in the Fund
---------------------------------------

Investment Risk: The value of your investment in this Fund may go up or down,
which means that you could lose money. The types of stocks held by the Fund may
not perform as well as other types of stocks.
Market Risk: General economic conditions and/or the activities of individual
companies may cause the value of the securities in the Fund to increase or
decrease. The Fund's net asset value may fluctuate with movements in the equity
market.
Management Risk: A strategy used by the Adviser may fail to produce the
intended results.

An investment in the Fund is not a deposit of Commerce Bank, N.A. (Commerce
Bank), and is not insured or guaranteed by the FDIC or any other governmental
agency.

The Commerce Funds PAGE 11
---------------
.
<PAGE>

Growth and Income Fund (continued)
- -------------------------------------------------------------------------
[GRAPHIC]
Growth and Income Fund Past Performance
-----------------------------------------------------------

The chart and table below provide some indication of the risks of investing in
the Fund by showing its annual returns and long-term performance. The bar chart
shows the Fund's performance from calendar year to calendar year since its
inception (for each complete calendar year of the Fund's existence). The table
compares the Fund's performance over time to that of broad-based securities
market indices. Both charts assume reinvestment of dividends and distributions.
As with all mutual funds, how this Fund performed in the past is not a
prediction of how it will perform in the future. The Fund's performance
reflects expense limitations in effect. If expense limitations were not in
place, the Fund's performance would have been reduced.

Year-by-Year Total Returns as of 12/31 Each Year

[GRAPH]

1999 -2.98%
1998 -1.02%

(percentage)

Best Calendar Quarter: 13.94%, 4th Quarter 1998
Worst Calendar Quarter: -19.74%, 3rd Quarter 1998

Average Annual Total Return as of 12/31/99

<TABLE>
<CAPTION>
Since Inception
1 Year 3 Years (3/3/97)
<S> <C> <C> <C>
Growth and Income
Fund -2.98% N/A 8.19%
S&P 500 Index* 21.04% N/A 26.32%
Russell 1000 Value
Index** 7.34% N/A 17.17%
</TABLE>
* The S&P 500 Index is an unmanaged index that emphasizes large capitalization
companies.
** The Russell 1000 Value Index measures the performance of the 1,000 largest
U.S. companies based on total market capitalization, with lower price-to-
book ratios and lower forecasted growth values.
The Index figures do not reflect any fees or expenses.

PAGE 12 The Commerce Funds
.-----------------------------
<PAGE>

- --------------------------------------------------------------------------------
[GRAPHIC]
Fees and Expenses
-----------------------------------------------------------

<TABLE>
<CAPTION>
Growth and Income Fund
Institutional Shares
<S> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Charge (load) Imposed on Reinvested
Distributions None
Maximum Deferred Sales Charge (load) Imposed on
Redemptions None
Redemption Fees None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 0.75%
Other Expenses (1) 0.40%
-----
Total Annual Fund Operating Expenses (2) 1.15%
=====
</TABLE>

(1) "Other Expenses" include shareholder servicing fees of up to 0.25%,
annualized, of the average daily net assets of Shares held under the
Shareholder Administrative Services Plan.
(2) The Adviser intends to voluntarily reimburse expenses, excluding interest,
taxes and extraordinary expenses, during the current year to the extent
necessary for the Growth and Income Fund to maintain Total Annual Fund
Operating Expenses of not more than 1.20% of average daily net assets. The
Adviser reserves the right to discontinue the expense reimbursement at any
time.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
$117 $365 $633 $1,398
</TABLE>

continued

The Commerce Funds PAGE 13
-----------------------------.
<PAGE>

Growth and Income Fund (continued)
- --------------------------------------------------------------------------------
[GRAPHIC]
Growth and Income Fund Financial Highlights
-----------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended
10/31
---------------- 3/3/97(a) through
Institutional Shares 1999 1998 10/31/97
<S> <C> <C> <C>
Net asset value, beginning of period $ 21.72 $ 21.82 $ 18.00
Income from investment operations:
Net investment income 0.15 0.18 0.15
Net realized and unrealized gain (loss)(b) (0.09) (0.05) 3.80
Distributions to shareholders:
From net investment income (0.15) (0.19) (0.13)
From net realized gains (0.23) (0.04) --
Net asset value, end of period $ 21.40 $ 21.72 $ 21.82
Total return(c) 0.29% 0.53% 22.00%
Net assets at end of period (in 000's) $74,591 $92,625 $45,173
Ratio of net expenses to average net assets 1.15% 1.16% 1.20%(d)
Ratio of net investment income to average
net assets 0.67% 0.82% 1.30%(d)
Ratios assuming no expense reimbursements:
Ratio of expenses to average net assets 1.15% 1.16% 2.02%(d)
Ratio of net investment income to average
net assets 0.67% 0.82% 0.48%(d)
Portfolio turnover rate 64% 55% 5%
</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 and a complete redemption
of the investment at the net asset value at the end of the period.
(d) Annualized.

PAGE 14 The Commerce Funds
.-----------------------------
<PAGE>

International Equity Fund
- --------------------------------------------------------------------------------

The International Equity Fund is sub-advised by Rowe Price-Fleming
International, Inc.

The Fund has an Investment Advisory Group that has day-to-day responsibility
for managing the portfolio and developing and executing the Fund's investment
program.

Please see the table on p.45 for more detailed information about the investment
practices of the International Equity Fund and the risks associated with those
practices.
[GRAPHIC]
Investment Objective
-------------------------------------------------------------------------

Seeks total return with an emphasis on capital growth.

[GRAPHIC]
Primary Investment Strategies
---------------------------------------

. Invests at least 65% of total assets in common stocks of established
companies that conduct their principal activities or are located outside the
United States or whose securities are traded in foreign markets.
. The Fund will be invested in any of the non-U.S. regions of the global equity
markets, including (but not limited to) the Far East (including Japan) and
Europe (including the UK). The Fund will invest in emerging markets, such as
Latin America, on an opportunistic basis.
. Focuses on purchasing securities of large and, to a lesser extent, medium-
sized companies, although stocks may be purchased without regard to a
company's market capitalization. Stocks of medium-sized companies will be
purchased on an opportunistic basis.

. Focuses on investing in stocks with superior growth prospects at a reasonable
price. The Fund believes that investing in such companies will produce solid
performance relative to recognized international indices.
. May also invest in other types of securities, including convertibles,
warrants, preferred stocks, corporate and government debt, futures, and
options.
. May invest freely in securities of foreign issuers in the form of sponsored
and unsponsored American Depository Receipts and European Depository Receipts.

[GRAPHIC]
Primary Risks of Investing in the Fund
---------------------------------------

Investment Risk: The value of your investment in this Fund may go up or down,
which means that you could lose money. International funds, in general, have
volatile net asset values. The Fund may not be an appropriate investment if you
cannot bear financially the loss of at least a significant portion of your
investment.

continued

The Commerce Funds PAGE 15
-----------------------------.
<PAGE>

International Equity Fund (continued)
- -------------------------------------------------------------------------

Market Risk: General economic conditions and/or the activities of individual
companies may cause the value of the securities in the Fund to increase or
decrease. The Fund's net asset value may fluctuate with movements in the
various international equity markets.
Management Risk: A strategy used by the Sub-Adviser may fail to produce the
intended results.

Currency Risk: This refers to a decline in the value of a foreign currency
versus the U.S. dollar, which reduces the dollar value of securities
denominated in that currency. The overall impact on the Fund's holdings can be
significant and long-lasting depending on the currencies represented in the
portfolio, how each one appreciates or depreciates in relation to the U.S.
dollar, and whether currency positions are hedged. Under normal conditions, the
Fund does not engage in extensive foreign currency hedging programs. Further,
exchange rate movements are unpredictable and it is not possible to effectively
hedge the currency risks of many developing countries.

Foreign Risk: Foreign securities can be riskier and more volatile than U.S.
securities. Adverse political, social and economic developments in foreign
countries or changes in the value of foreign currency can make it harder for
the portfolio to sell its securities and could reduce the value of your shares.
Changes in or the lack of tax, accounting and regulatory standards and
difficulties in obtaining information about foreign companies can negatively
affect investment decisions. Also, the costs of investing abroad are usually
higher than those of investing within the United States.

Emerging Market Risk: To the extent that the Fund has investments in emerging
market countries, it will potentially be subject to abrupt and severe price
declines. Investments in these countries are much riskier than those in mature
countries.

Futures/Options Risk: To the extent the Fund uses futures and options, it is
exposed to additional volatility and potential losses.

An investment in the Fund is not a deposit of Commerce Bank and is not insured
or guaranteed by the FDIC or any other governmental agency.

PAGE 16 The Commerce Funds
.-----------------------------
<PAGE>

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

[GRAPHIC]
International Equity Fund Past Performance
-----------------------------------------------------------

Year-by-Year Total Returns as of 12/31 Each Year

[GRAPH]

1999 31.87%
1998 15.52%
1997 1.88%
1996 14.57%
1995 6.74%

(percentage)

Best Calendar Quarter: 22.77%, 4th Quarter 1999
Worst Calendar Quarter: -13.31%, 3rd Quarter 1998

Average Annual Total Return as of 12/31/99

<TABLE>
<CAPTION>
Since Inception
1 Year 3 Years 5 Years (12/12/94)
<S> <C> <C> <C> <C>
International Equity Fund 31.87% 15.78% 13.67% 13.75%
MSCI EAFE Index* 27.29% 16.06% 13.14% 13.14%
</TABLE>
* The MSCI EAFE Index is an unmanaged index composed of a sample of companies
representative of the market structure of 20 European and Pacific Basin
countries. The Index figures do not reflect any fees or expenses.

continued

The Commerce Funds PAGE 17
-----------------------------.
<PAGE>

International Equity Fund (continued)
- -------------------------------------------------------------------------
[GRAPHIC]
Fees and Expenses
-----------------------------------------------------------

<TABLE>
<CAPTION>
International Equity Fund
Institutional Shares
<S> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Charge (load) Imposed on Reinvested
Distributions None
Maximum Deferred Sales Charge (load) Imposed on
Redemptions None
Redemption Fees None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees (*) 1.50%
Other Expenses (1) 0.44%
-----
Total Annual Fund Operating Expenses 1.94%
Less: Fee Waiver 0.56%
-----
Net Annual Fund Operating Expenses(*) 1.38%
=====
</TABLE>

(*) The Adviser has contractually agreed to waive a portion of its management
fees at least until October 31, 2000. As a result of this fee waiver,
Management Fees will be approximately 0.94% of average daily net assets.
Net Annual Operating Expenses are restated based on current expenses for
fiscal year 2000.

(1) "Other Expenses" include shareholder servicing fees of up to 0.25%,
annualized, of the average daily net assets of Shares held under the
Shareholder Administrative Services Plan.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
$140 $437 $755 $1,657
</TABLE>

PAGE 18 The Commerce Funds
---------------
.
<PAGE>

- --------------------------------------------------------------------------------
[GRAPHIC]
International Equity Fund Financial Highlights
-----------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended 10/31 12/12/94
------------------------------------ (inception)
Institutional Shares 1999 1998 1997 1996 to 10/31/95
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 23.00 $ 22.10 $ 20.96 $ 18.64 $ 18.00
Income from investment
operations:
Net investment income 0.09 0.10 0.06 0.11 0.12
Net realized and unrealized
gain(a) 4.40 1.45 1.42 2.35 0.55
Distributions to
shareholders:
From net investment income (0.10) (0.08) (0.10) (0.07) (0.03)
From net realized gains -- (0.57) (0.24) (0.07) --
Net asset value, end of
period $ 27.39 $ 23.00 $ 22.10 $ 20.96 $ 18.64
Total return(b) 19.58% 7.16% 7.15% 13.25% 3.73%
Net assets at end of period
(in 000's) $128,018 $101,161 $78,273 $51,589 $21,014
Ratio of net expenses to
average net assets 1.53% 1.62% 1.72% 1.72% 1.81%(c)
Ratio of net investment
income to average
net assets 0.40% 0.46% 0.35% 0.74% 1.06%(c)
Ratios assuming no voluntary
waiver of fees or expense
limitations:
Ratio of expenses to
average net assets 2.07% 2.14% 2.23% 2.64% 3.50%(c)
Ratio of net investment
loss to average net assets (0.14)% (0.06)% (0.16)% (0.18)% (0.63)%(c)
Portfolio turnover rate 32% 22% 22% 21% 25%
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment of the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Annualized.

The Commerce Funds PAGE 19
-----------------------------.
<PAGE>

Balanced Fund
- -------------------------------------------------------------------------

Scott M. Colbert, CFA and Portfolio Manager

. Joined Commerce Bank in 1993
. Fund manager since Fund inception

. Director of Fixed-Income Management for Commerce Bank's Investment Management
Group

. 13 years of experience

Joseph C. Williams III, CFA and Portfolio Manager

. Joined Commerce Bank in 1975
. Fund manager since Fund inception

. 23 years of experience

Please see the table on p.45 for more detailed information about the investment
practices of the Balanced Fund and the risks associated with those practices.

[GRAPHIC]
Investment Objective
---------------------------------------

Seek total return through a balance of capital appreciation and current income,
consistent with preservation of capital.

[GRAPHIC]
Primary Investment Strategies
---------------------------------------

The Fund pursues its objective through investment in stocks, bonds, and cash
equivalents. The actual mix of equity and fixed-income securities will vary;
however, under normal conditions, the Fund intends to invest 60% of its total
assets in stocks and 40% in bonds. Investment in stocks could range as high as
75% of the total assets and as low as 42%.

Equity Investment Strategies
. Normally invests the equity portion in common stocks, preferred stocks, and
securities or bonds that are convertible into common or preferred stocks.
. Utilizes a broadly diversified portfolio with both value (low price/book and
price/earnings ratios) and growth characteristics to achieve capital
appreciation and current income.

Fixed-Income Investment Strategies
. Security Types: Normally invests the fixed-income portion of the Fund in
investment-grade corporate bonds, U.S. Government obligations, mortgage-
backed securities and asset-backed securities. Up to 65% of the fixed-income
portfolio may be invested in mortgage-backed and asset-backed securities.
. Credit Quality: Except for temporary defensive periods, the Fund's market-
weighted average credit rating will be at least AA-/Aa3 as rated by S&P,
Moody's or the equivalent rating of another nationally recognized statistical
rating organization.

. Maturity Distribution: To achieve capital appreciation, the Fund intends to
keep the duration of the fixed-income portfolio to within 30% of the Lehman
Brothers Aggregate Bond Index although the Fund has no restriction on the
maximum or minimum duration of any individual security it holds. For example,
if the duration of the Lehman Brothers Aggregate Bond Index were 4.5 years,
the Fund's fixed-income assets would have a duration between 3.15 years and
5.85 years. Duration is a linear measure of interest rate risk. For example,
a portfolio with a duration of 2 years would lose 2% of its value if interest
rates rose by 1%, or it

PAGE 20 The Commerce Funds
.-----------------------------
<PAGE>

- --------------------------------------------------------------------------------
would gain 2% if interest rates declined by 2%. A portfolio with a duration of
4 years would be twice as volatile as a portfolio with a duration of 2 years.
. Actively manages credit and sector allocations to enhance returns relative to
the unmanaged benchmark.

[GRAPHIC]
Primary Risks of Investing in the Fund
-----------------------------------------------------------

Investment Risk: The value of your investment in this Fund may go up or down,
which means that you could lose money.
Market Risk: General economic conditions and/or the activities of individual
companies may cause the value of the securities in the Fund to increase or
decrease.
Interest Rate Risk: Generally, the market value of fixed-income securities in
the Fund can be expected to go up when interest rates go down and to go down
when interest rates go up. Longer-term bonds and zero coupon bonds are usually
more sensitive to interest rate changes than shorter-term bonds. In general,
the longer the average maturity of bonds in the Fund, the more the Fund's share
price will go up or down in response to interest rate changes.
Management Risk: A strategy used by the Adviser may fail to produce the
intended results.
Credit Risk: An issuer of bonds may default on its obligation to pay interest
and repay principal. A bond's credit rating could be downgraded. The Fund could
lose money in either of these instances.
Asset-Backed Risk: Asset-backed securities may involve certain risks not
presented by other securities. These risks include a greater risk of default
during periods of economic downturn than other securities. Also, asset-backed
securities may be less liquid and therefore more difficult to value and
liquidate, if necessary.
Mortgage-Backed Risk: In addition to prepayment, call and extension risks,
mortgage-backed securities may be subject to special risks, including price
volatility, liquidity, and enhanced sensitivity to interest rates.
Call Risk: An issuer may exercise its right to pay principal on an obligation
held by a Fund (such as a mortgage-backed or asset-backed security) earlier
than expected. This may happen when interest rates decline. Under these
circumstances, a Fund may be unable to recoup all of its initial investment and
will also suffer from having to reinvest in lower yielding securities.
Extension Risk: An issuer may exercise its right to pay principal on an
obligation held by a Fund (such as a mortgage-backed or asset-backed security)
later than expected. This may happen when interest rates rise. Under these
circumstances, the value of the obligation will decrease and a Fund will also
suffer from the inability to invest in higher-yielding securities.
Prepayment Risk: Prepayment of the underlying mortgage collateral of some
fixed-income securities may result in a decreased rate of return and a decline
in value of the securities.

An investment in the Fund is not a deposit of Commerce Bank and is not insured
or guaranteed by the FDIC or any other governmental agency.
continued

The Commerce Funds PAGE 21
-----------------------------.
<PAGE>

Balanced Fund (continued)
- -------------------------------------------------------------------------
[GRAPHIC]
Balanced Fund Past Performance
-----------------------------------------------------------

Year-by-Year Total Returns as of 12/31 Each Year

[GRAPH]

1999 5.19% (percentage)
1998 13.21%
1997 20.81%
1996 12.96%
1995 28.94%

Best Calendar Quarter: 11.53%, 4th Quarter 1998
Worst Calendar Quarter: -8.27%, 3rd Quarter 1998

Average Annual Total Return as of 12/31/99

<TABLE>
<CAPTION>
Since Inception
1 Year 3 Years 5 Years (12/12/94)
<S> <C> <C> <C> <C>
Balanced Fund 5.19% 12.89% 15.94% 16.17%
S&P 500 Index* 21.04% 27.56% 28.54% 28.91%
Lehman Bros. Aggregate Index** -.82% 5.73% 7.73% 7.70%
60% S&P 500/40% Lehman Bros. Aggregate 12.00% 18.76% 20.07% 20.27%
Bond Index***
</TABLE>

* The Standard & Poor's 500 Index is an unmanaged index that emphasizes large
capitalization companies.
** The Lehman Brothers Aggregate Bond Index is a broad market-weighted index
comprised of three major classes of investment grade bonds with maturities
greater than one year.
***The 60% S&P 500/40% Lehman Brothers Aggregate Bond Index is a composite of
the S&P 500 Index (with income) (weighted at 60%) and the Lehman Brothers
Aggregate Bond Index (weighted at 40%).
The Index figures do not reflect any fees or expenses.

PAGE 22 The Commerce Funds
.-----------------------------
<PAGE>

- --------------------------------------------------------------------------------
[GRAPHIC]
Fees and Expenses
-----------------------------------------------------------

<TABLE>
<CAPTION>
Balanced Fund
Institutional Shares
<S> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (load) imposed on Purchases (as a
percentage of offering price) None
Maximum Sales Charge (load) imposed on Reinvested
Distributions None
Maximum Deferred Sales Charge (load) imposed on
Redemptions None
Redemption Fees None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 1.00%
Other Expenses(1) 0.46%
-----
Total Annual Fund Operating Expenses 1.46%
Less: Fee Waiver and Expense Reimbursement 0.43%
-----
Net Annual Fund Operating Expenses(2) 1.03%
=====
</TABLE>

(1) "Other Expenses" include shareholder servicing fees of up to 0.25%,
annualized, of the average daily net assets of Shares held under the
Shareholder Administrative Services Plan.

(2) Effective March 1, 2000, the Adviser has contractually agreed to reduce or
limit the Total Annual Fund Operating Expenses, excluding interest, taxes
and extraordinary expenses, at least until October 31, 2000, such that the
Net Annual Fund Operating Expenses are expected to be 1.03% for fiscal year
2000.
<TABLE>
<S> <C>
===
</TABLE>

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
$105 $328 $569 $1,259
</TABLE>

continued

The Commerce Funds PAGE 23
---------------
.
<PAGE>

Balanced Fund (continued)
- --------------------------------------------------------------------------------

[GRAPHIC]
Balanced Fund Financial Highlights
-----------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended 10/31 12/12/94
------------------------------------- (inception)
Institutional Shares 1999 1998 1997 1996 to 10/31/95
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 27.04 $ 26.67 $ 24.00 $ 22.10 $ 18.00
Income from investment
operations:
Net investment income 0.70 0.59 0.59 0.54 0.59
Net realized and
unrealized gain(a) 1.22 1.67 3.93 2.56 4.06
Distributions to
shareholders:
From net investment income (0.69) (0.59) (0.59) (0.54) (0.55)
From net realized gains (2.98) (1.30) (1.26) (0.66) --
Net asset value, end of
period $ 25.29 $ 27.04 $ 26.67 $ 24.00 $ 22.10
Total return(b) 7.60% 8.68% 19.92% 14.45% 26.14%
Net assets at end of period
(in 000's) $124,245 $123,717 $105,782 $69,880 $48,329
Ratio of net expenses to
average net assets 1.13% 1.13% 1.13% 1.13% 1.13%(c)
Ratio of net investment
income to average
net assets 2.71% 2.20% 2.44% 2.47% 3.28%(c)
Ratios assuming no
voluntary waiver of fees
or expense limitations:
Ratio of expenses to
average net assets 1.49% 1.49% 1.53% 1.45% 1.45%(c)
Ratio of net investment
income to average net
assets 2.35% 1.84% 2.04% 2.15% 2.96%(c)
Portfolio turnover rate 11% 68% 31% 58% 59%
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Annualized.

PAGE 24 The Commerce Funds
.-----------------------------
<PAGE>

Short-Term Government Fund
- --------------------------------------------------------------------------------

Scott M. Colbert, CFA and Portfolio Manager

. Joined Commerce Bank in 1993
. Fund manager since Fund inception

. Director of Fixed-Income Management for Commerce Bank's Investment Management
Group

. 13 years of experience

Please see the table on p.45 for more detailed information about the investment
practices of the Short-Term Government Fund and the risks associated with those
practices.
[GRAPHIC]
Investment Objective
---------------------------------------

Seeks current income consistent with preservation of principal.

[GRAPHIC]
Primary Investment Strategies
---------------------------------------

The Fund employs the following strategies in an effort to achieve current
income and principal preservation:

. Security Types: Invests primarily in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, (including U.S. Treasury
bills, notes and bonds) and government mortgage-backed securities (pools of
mortgage loans sold to investors by various governmental agencies). May also
purchase other mortgage-backed securities, which are sold to investors by
private issuers.

. Maturity Distribution: Emphasizes purchasing short-term bonds. The Fund
invests at least 65% of its total assets in securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, and government
mortgage-backed securities that have average lives or remaining maturities of
five years or less.

. Actively manages maturities to take advantage of changes in interest rates.
The dollar-weighted average maturity of the Fund's investments will not
exceed three years.

[GRAPHIC]
Primary Risks of Investing in the Fund
---------------------------------------

Investment Risk: The value of your investment in this Fund may go up or down,
which means that you could lose money.
Interest Rate Risk: Generally, the market value of fixed-income securities in
the Fund can be expected to go up when interest rates go down and to go down
when interest rates go up. Longer-term bonds and zero coupon bonds are usually
more sensitive to interest rate changes than shorter-term bonds. In general,
the longer the average maturity of bonds in the Fund, the more the Fund's share
price will go up or down in response to interest rate changes.

continued

The Commerce Funds PAGE 25
-----------------------------.
<PAGE>

Short-Term Government Fund (continued)
- -------------------------------------------------------------------------

Market Risk: General economic conditions and/or the activities of individual
companies may cause the value of the securities in the Fund to increase or
decrease.
Credit Risk: An issuer of fixed-income securities could default on its
obligation to pay interest and repay principal. A bond's credit rating could be
downgraded. A Fund could lose money in either of these instances.
Management Risk: A strategy used by the Adviser could fail to produce the
intended results.

Call Risk: An issuer may exercise its right to pay principal on an obligation
held by the Fund (such as a mortgage-backed or asset-backed security) earlier
than expected. This may happen when interest rates decline. Under these
circumstances, the Fund may be unable to recoup all of its initial investment
and will also suffer from having to reinvest in lower yielding securities.
Extension Risk: An issuer may exercise its right to pay principal on an
obligation held by the Fund (such as a mortgage-backed or asset-backed
security) later than expected. This may happen when interest rates rise. Under
these circumstances, the value of the obligation will decrease and the Fund
will also suffer from the inability to invest in higher-yielding securities.

Mortgage-Backed Risk: In addition to prepayment, call and extension risks,
mortgage-backed securities, especially collateralized mortgage-backed
securities, may be subject to special risks, including price volatility,
liquidity, and enhanced sensitivity to interest rates.

Prepayment Risk: Prepayment of the underlying mortgage collateral of some
fixed-income securities may result in a decreased rate of return and a decline
in value of the securities.
Government Securities Risk: The U.S. Government may not provide financial
support to U.S. Government agencies, instrumentalities or sponsored enterprises
if it is not obligated to do so.
Maturity Risk: The Fund will not necessarily hold its securities to maturity,
which could result in a loss of principal.

An investment in the Fund is not a deposit of Commerce Bank and is not insured
or guaranteed by the FDIC or any other governmental agency.

PAGE 26 The Commerce Funds
.-----------------------------
<PAGE>

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

[GRAPHIC]
Short-Term Government Fund Past Performance
-----------------------------------------------------------
The chart and table below provide some indication of the risks of investing in
the Fund by showing its annual returns and long-term performance. The bar chart
shows the Fund's performance from calendar year to calendar year since its
inception. The table compares the Fund's performance over time to that of a
broad-based securities market index. Both charts assume reinvestment of
dividends and distributions. As with all mutual funds, how this Fund performed
in the past is not a prediction of how it will perform in the future. The
Fund's performance reflects expense limitations in effect. If expense
limitations were not in place, the Fund's performance would have been reduced.

Year-by-Year Total Returns as of 12/31 Each Year

[GRAPH]

1999 2.03%
1998 7.14%
1997 6.58%
1996 3.78%
1995 12.58%

(percentage)

Best Calendar Quarter: 4.13%, 2nd Quarter 1995
Worst Calendar Quarter: -0.42%, 1st Quarter 1996

Average Annual Total Return as of 12/31/99

<TABLE>
<CAPTION>
Since Inception
1 Year 3 Years 5 Years (12/12/94)
<S> <C> <C> <C> <C>
Short-Term Government Fund 2.03% 5.22% 6.36% 6.34%
Salomon Brothers 1-5 Year
Treasury/Gov't. Index* 2.01% 5.58% 6.75% 6.73%
</TABLE>

* The Salomon Brothers 1-5 Year Treasury/Government Sponsored Index is
comprised of Treasury securities with a minimum principal amount of $1
billion and U.S. Government securities with a minimum principal amount of
$100 million. The securities range in maturity from one to five years. The
Index figures do not reflect any fees or expenses.

continued

The Commerce Funds PAGE 27
-----------------------------.
<PAGE>

Short-Term Government Fund (continued)
- -------------------------------------------------------------------------
[GRAPHIC]
Fees and Expenses
-----------------------------------------------------------

<TABLE>
<CAPTION>
Short-
Term Government Fund
Institutional Shares
<S> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Charge (load) Imposed on Reinvested
Distributions None
Maximum Deferred Sales Charge (load) Imposed on
Redemptions None
Redemption Fees None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 0.50%
Other Expenses (1) 0.42%
----
Total Annual Fund Operating Expenses 0.92%
Less: Fee Waiver and Expense Reimbursement 0.24%
----
Net Annual Fund Operating Expense (2) 0.68%
====
</TABLE>

(1) "Other Expenses" include shareholder servicing fees of up to 0.25%,
annualized, of the average daily net assets of Shares held under the
Shareholder Administrative Services Plan.

(2) The Adviser has contractually agreed to reduce or limit the Total Annual
Fund Operating Expenses, including interest, taxes and extraordinary
expenses, at least until October 31, 2000, to 0.68% of the Fund's average
daily net assets.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
$69 $218 $379 $847
</TABLE>

PAGE 28 The Commerce Funds
.--------------------------
<PAGE>

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

Short-Term Government Fund Financial Highlights
-----------------------------------------------------------

[GRAPHIC]
The following table describes the Fund's performance since its inception. The
total return figures show how much you would have earned (or lost) on an
investment in the Fund during each time period, assuming you had reinvested all
dividends and distributions. Some of the information reflects financial results
for a single Fund share.

The information has been audited by KPMG LLP, the Funds' independent
accountants. Their report, along with the Fund's financial statements, is
incorporated by reference in the Funds' Statement of Additional Information
(available upon request).

<TABLE>
<CAPTION>
Year Ended 10/31 12/12/94
----------------------------------- (inception)
Institutional Shares 1999 1998 1997 1996 through 10/31/95
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 18.78 $ 18.47 $ 18.43 $ 18.83 $ 18.00
Income from investment
operations:
Net investment income 1.04 1.10 1.11 1.09 1.06
Net realized and
unrealized gain
(loss)(a) (0.71) 0.32 0.04 (0.18) 0.83
Distribution to
shareholders:
From net investment
income (1.04) (1.11) (1.11) (1.09) (1.06)
From net realized gains (0.01) -- -- (0.22) --
Net asset value, end of
period $ 18.06 $ 18.78 $ 18.47 $ 18.43 $ 18.83
Total return(b) 1.83% 7.94% 6.45% 5.02% 10.72%
Net assets at end of
period $116,163 $69,538 $48,840 $33,839 $20,211
Ratio of net expenses to
average net assets 0.68% 0.68% 0.68% 0.68% 0.68%(c)
Ratio of net investment
income (loss) to
average net assets 5.65% 5.90% 6.04% 5.90% 6.38%(c)
Ratios assuming no
voluntary waiver of
fees or expense
limitations:
Ratio of expenses to
average net assets 0.92% 1.04% 1.11% 1.11% 1.14%(c)
Ratio of net investment
income to average net
assets 5.41% 5.55% 5.61% 5.47% 5.92%(c)
Portfolio turnover rate 10% 48% 36% 12% 158%
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Annualized.

The Commerce Funds PAGE 29
-----------------------------.
<PAGE>

Bond Fund
- -------------------------------------------------------------------------
Scott M. Colbert, CFA and Portfolio Manager
. Joined Commerce Bank in 1993
. Fund manager since Fund inception

. Director of Fixed-Income Management for Commerce Bank's Investment Management
Group

. 13 years of experience

Duration is a linear measure of interest rate risk. For example, a portfolio
with a duration of 2 years would lose 2% of its value if interest rates rose by
1%, or it would gain 2% if interest rates declined by 2%. A portfolio with a
duration of 4 years would be twice as volatile as a portfolio with a duration
of 2 years.

Please see the table on p.45 for more detailed information about the investment
practices of the Bond Fund and the risks associated with those practices.
[GRAPHIC]
Investment Objective
---------------------------------------

Seeks total return through current income and, secondarily, capital
appreciation.

[GRAPHIC]
Primary Investment Strategies
---------------------------------------

. Credit Quality: Invests at least 65% of its total assets in fixed-income
securities (bonds) rated at the time of purchase A- or better by one of the
four major ratings services or considered by the Adviser to be of equivalent
quality. The market-weighted average credit rating of the Fund's entire
portfolio will be AA-/Aa3 or better.
. Security Types: In seeking current income and capital appreciation, the Fund
invests in a diversified portfolio of investment-grade corporate debt
obligations and obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. The Fund may invest up to 65% of its total
assets in mortgage-backed and asset-backed securities.
. Maturity Distribution: To achieve capital appreciation, the Fund's average
effective duration will be within 30% of the duration of the Lehman Brothers
Aggregate Bond Index, although the Fund has no restriction on the maximum or
minimum duration of any individual security it holds. For example, if the
duration of the Lehman Aggregate Bond Index were 4.5 years, the Fund's assets
would have a duration of between 3.15 years and 5.85 years.

[GRAPHIC]
Primary Risks of Investing in the Fund
---------------------------------------

PAGE 30 The Commerce Funds
.-----------------------------
<PAGE>

- --------------------------------------------------------------------------------
assets in obligations rated BBB or Baa by certain ratings services. These
obligations are considered to have speculative characteristics and are riskier
than higher-rated obligations.
Management Risk: A strategy used by the Adviser may fail to produce the
intended results.
Mortgage-Backed Risk: Mortgage-backed securities, especially collateralized
mortgage-backed securities, may be subject to additional risks, including price
volatility, liquidity, and enhanced sensitivity to interest rates.

Asset-Backed Risk: Asset-backed securities may involve certain risks not
presented by other securities. These risks include a greater risk of default
during periods of economic downturn than other securities. Also, asset-backed
securities may be less liquid than other securities and therefore more
difficult to value and liquidate, if necessary.
Call Risk: An issuer may exercise its right to pay principal on an obligation
held by the Fund (such as a mortgage-backed or asset-backed security) earlier
than expected. This may happen when interest rates decline. Under these
circumstances, the Fund may be unable to recoup all of its initial investment
and will also suffer from having to reinvest in lower yielding securities.
Extension Risk: An issuer may exercise its right to pay principal on an
obligation held by the Fund (such as a mortgage-backed or asset-backed
security) later than expected. This may happen when interest rates rise. Under
these circumstances, the value of the obligation will decrease and the Fund
will also suffer from the inability to invest in higher-yielding securities.
Prepayment Risk: Prepayment of the underlying mortgage collateral of some
fixed-income securities may result in a decreased rate of return and a decline
in value of the securities.
Maturity Risk: The Fund will not necessarily hold its securities to maturity,
which could result in loss of principal.

An investment in the Fund is not a deposit of Commerce Bank and is not insured
or guaranteed by the FDIC or any other governmental agency.

continued

The Commerce Funds PAGE 31
-----------------------------.
<PAGE>

Bond Fund (continued)
- -------------------------------------------------------------------------
[GRAPHIC]
Bond Fund Past Performance
-----------------------------------------------------------

The chart and table below provide some indication of the risks of investing in
the Fund by showing its annual returns and long-term performance. The bar chart
shows the Fund's performance from calendar year to year since its inception.
The table compares the Fund's performance over time to that of a broad-based
securities market index. Both charts assume reinvestment of dividends and
distributions. As with all mutual funds, how this Fund performed in the past is
not a prediction of how it will perform in the future. The Fund's performance
reflects expense limitations in effect. If expense limitations were not in
place, the Fund's performance would have been reduced.

Year-by-Year Total Returns as of 12/31 Each Year

[GRAPH]

1999 -.97%
1998 8.22%
1997 9.04%
1996 2.22%
1995 19.31%

(percentage)

Best Calendar Quarter: 6.80%, 2nd Quarter 1995
Worst Calendar Quarter: -2.48%, 1st Quarter 1996

Average Annual Total Return as of 12/31/99

<TABLE>
<CAPTION>
Since Inception
1 Year 3 Years 5 Years (12/12/94)
<S> <C> <C> <C> <C>
Bond Fund -.97% 5.33% 7.34% 7.27%
Lehman Bros. Aggregate Bond Index* -.82% 5.73% 7.73% 7.70%
</TABLE>
* The Lehman Brothers Aggregate Bond Index is a broad market-weighted index
comprised of three major classes of investment-grade bonds with maturities
greater than one year. The Index figures do not reflect any fees or expenses.

PAGE 32 The Commerce Funds
.-----------------------------
<PAGE>

- --------------------------------------------------------------------------------
[GRAPHIC]
Fees and Expenses
-----------------------------------------------------------

<TABLE>
<CAPTION>
Bond Fund
Institutional Shares
<S> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Charge (load) Imposed on Reinvested
Distributions None
Maximum Deferred Sales Charge (load) Imposed on
Redemptions None
Redemption Fees None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 0.50%
Other Expenses (1) 0.31%
-----
Total Annual Fund Operating Expenses (2) 0.81%
=====
</TABLE>

(1) "Other Expenses" include shareholder servicing fees of up to 0.25%,
annualized, of the average daily net assets of Shares held under the
Shareholder Administrative Services Plan.
(2) The Adviser intends to voluntarily reimburse expenses, excluding interest,
taxes and extraordinary expenses, during the current year to the extent
necessary for the Bond Fund to maintain Total Annual Fund Operating
Expenses of not more than 0.88% of average daily net assets. The Adviser
reserves the right to discontinue the expense reimbursement at any time.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
$83 $259 $450 $1,002
</TABLE>

continued

The Commerce Funds PAGE 33
-----------------------------.
<PAGE>

Bond Fund (continued)
- --------------------------------------------------------------------------------

[GRAPHIC]
Bond Fund Financial Highlights
-----------------------------------------------------------

The following table describes the Fund's performance for the periods indicated.
The total return figures show how much you would have earned (or lost) on an
investment in the Fund during each time period, assuming you had reinvested all
dividends and distributions. Some of the information reflects financial results
for a single Fund share. The information has been audited by KPMG LLP, the
Funds' independent accountants. Their report, along with the Fund's financial
statements, is incorporated by reference in the Funds' Statement of Additional
Information (available upon request).

<TABLE>
<CAPTION>
Year Ended 10/31 12/12/94
-------------------------------------- (inception)
Institutional Shares 1999 1998 1997 1996 Through 10/31/95
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 19.84 $ 19.43 $ 19.07 $ 19.61 $ 18.00
Income from investment
operations:
Net investment income 1.16 1.15 1.17 1.16 1.12
Net realized and
unrealized gain
(loss)(a) (1.04) 0.41 0.39 (0.28) 1.61
Distributions to
shareholders:
From net investment
income (1.16) (1.15) (1.18) (1.16) (1.12)
From net realized gains (0.23) -- (0.02) (0.26) --
Net asset value, end of
period $ 18.57 $ 19.84 $ 19.43 $ 19.07 $ 19.61
Total return(b) 0.59% 8.27% 8.50% 4.71% 15.59%
Net assets at end of
period (in 000's) $374,121 $305,396 $217,803 $151,205 $98,504
Ratio of net expenses to
average net assets 0.81% 0.83% 0.85% 0.84% 0.88%(c)
Ratio of net investment
income to average net
assets 6.05% 5.86% 6.14% 6.10% 6.64%(c)
Portfolio turnover rate 16% 30% 19% 31% 58%
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, and a complete redemption of
the investment at the net asset value at the end of the period.
(c) Annualized.

PAGE 34 The Commerce Funds
. ---------------------------

<PAGE>

National Tax-Free Intermediate Bond Fund
- --------------------------------------------------------------------------------

Brian P. Musielak, Portfolio Manager

. Joined Commerce Bank in 1995
. Fund manager since 1999

. 5 years of experience

Please see the table on p.45 for more detailed information about the investment
practices of the National Tax-Free Intermediate Bond Fund and the risks
associated with those practices.

[GRAPHIC]
Investment Objective
---------------------------------------

Seeks current income exempt from federal income tax consistent with the
preservation of capital.

[GRAPHIC]
Primary Investment Strategies
---------------------------------------

The Fund employs the following strategies in an effort to achieve current
income and capital preservation:
. Security Types: Intends to invest primarily (at least 80%) in investment-
grade municipal bonds issued by or on behalf of the states, territories and
possessions of the United States, the District of Columbia and their
respective authorities, agencies, instrumentalities and political
subdivisions, the interest on which, in the opinion of bond counsel, is
exempt from regular federal income and federal alternative minimum taxes.
. Up to 20% of the Fund's net assets may be invested in municipal obligations
that are not exempt from regular federal income tax.
. Credit Quality: The market-weighted average credit rating of the Fund's
entire portfolio will be AA or better.
. Maturity Distribution: Actively manages maturities to take advantage of
changes in interest rates. The average weighted effective maturity of the
Fund's portfolio securities will be three to ten years, under normal market
conditions.

. The average effective duration of the Fund will be within 30% of the duration
of the Merrill Lynch Municipal Intermediate Index, although the Fund has no
restriction as to the maximum or minimum duration of any individual security
it holds. For example, if the duration of the Merrill Lynch Municipal
Intermediate Index were 5.4 years, the Fund's assets would have a duration of
between 3.78 years and 7.02 years.
. Strives to minimize net realized capital gains.

continued

The Commerce Funds PAGE 35
-----------------------------.
<PAGE>

National Tax-Free Intermediate Bond Fund (continued)
- -------------------------------------------------------------------------
[GRAPHIC]
Primary Risks of Investing in the Fund
-----------------------------------------------------------

An investment in the Fund is not a deposit of Commerce Bank and is not insured
or guaranteed by the FDIC or any other governmental agency.

PAGE 36 The Commerce Funds
.-----------------------------
<PAGE>

- --------------------------------------------------------------------------------
[GRAPHIC]
National Tax-Free Intermediate Bond Fund Past Performance
-----------------------------------------------------------

The chart and table below provide some indication of the risks of investing in
the Fund by showing its annual returns and long-term performance. The bar chart
shows the Fund's performance from calendar year to year since its inception.
The table compares the Fund's performance over time to that of a broad-based
securities market index. Both charts assume reinvestment of dividends and
distributions. As with all mutual funds, how this Fund performed in the past is
not a prediction of how it will perform in the future. The Fund's performance
reflects expense limitations in effect. If expense limitations were not in
place, the Fund's performance would have been reduced.

Year-by-Year Total Returns as of 12/31 Each Year

[GRAPH]

1999 -1.12%
1998 5.56%
1997 6.54%
1996 2.97%

(percentage)

Best Calendar Quarter: 2.88%, 3rd Quarter 1998

Worst Calendar Quarter: -1.68%, 2nd Quarter 1999

Average Annual Total Return as of 12/31/99

<TABLE>
<CAPTION>
Since Inception
1 Year 3 Years (2/21/95)
<S> <C> <C> <C>
National Tax-Free
Intermediate Bond
Fund -1.12% 3.60% 4.44%
Merrill Lynch
Municipal
Intermediate Index* -0.01% 4.60% 5.84%
</TABLE>

* The Merrill Lynch Municipal Intermediate Index is comprised of investment
grade municipal securities ranging from 1 to 12 years in maturity. The Index
figures do not reflect any fees or expenses.

continued

The Commerce Funds PAGE 37
-----------------------------.
<PAGE>

National Tax-Free Intermediate Bond Fund (continued)
- -------------------------------------------------------------------------

[GRAPHIC]
Fees and Expenses
-----------------------------------------------------------

<TABLE>
<CAPTION>
National Tax-Free
Intermediate Bond Fund
Institutional Shares
<S> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Charge (load) Imposed on Reinvested
Distributions None
Maximum Deferred Sales Charge (load) Imposed on
Redemptions None
Redemption Fees None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 0.50%
Other Expenses 0.43%
----
Total Annual Fund Operating Expenses 0.93%
Less: Fee Waiver and Expense Reimbursement 0.23%
----
Net Annual Fund Operating Expenses (1) 0.70%
====
</TABLE>

(1) The Adviser has contractually agreed to reduce or limit the Total Annual
Fund Operating Expenses, excluding interest, taxes and extraordinary
expenses, at least until October 31, 2000, to 0.70% of the Fund's average
daily net assets.

PAGE 38 The Commerce Funds
.--------------------------
<PAGE>

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

[GRAPHIC]
National Tax-Free Intermediate Bond Fund(a) Financial Highlights
----------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended 10/31 2/21/95(b)
----------------------------------- through
Institutional Shares 1999 1998 1997 1996 10/31/95
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 19.33 $ 18.85 $ 18.46 $ 18.54 $ 18.00
Income from investment
operations:
Net investment income 0.74 0.74 0.72 0.73 0.54
Net realized and unrealized
gain (loss)(c) (0.93) 0.48 0.39 (0.07) 0.54
Distributions to shareholders:
From net investment income (0.74) (0.74) (0.72) (0.73) (0.54)
From net realized gains (0.16) -- -- (0.01) --
Net asset value, end of period $ 18.24 $ 19.33 $ 18.85 $ 18.46 $ 18.54
Total return(d) (1.08)% 6.59% 6.16% 3.60% 6.06%
Net assets at end of period
(in 000's) $40,243 $33,528 $25,281 $17,613 $10,721
Ratio of net expenses to
average net assets 0.70% 0.74% 0.85% 0.85% 0.85%(e)
Ratio of net investment income
to average net assets 3.90% 3.87% 3.89% 3.93% 4.19%(e)
Ratios assuming no voluntary
waiver of fees or expense
limitations:
Ratio of expenses to average
net assets 0.93% 1.04% 1.15% 1.55% 1.90%(e)
Ratio of net investment
income to average net assets 3.67% 3.57% 3.59% 3.23% 3.14%(e)
Portfolio turnover rate 35% 41% 6% 34% 19%
</TABLE>

(a) Formerly the National Tax-Free Bond Fund.
(b) Commencement of operations.
(c) Includes the balancing effect of calculating per share amounts.
(d) Assumes investment at the beginning of the period, reinvestment of all
dividends and distributions, and a complete redemption of the investment at
the net asset value at the end of the period.
(e) Annualized.

The Commerce Funds PAGE 39
-----------------------------.
<PAGE>

Missouri Tax-Free Intermediate Bond Fund
- -------------------------------------------------------------------------

Brian P. Musielak, Portfolio Manager

. Joined Commerce Bank in 1995
. Fund manager since 1999

. 5 years of experience

Please see the table on p.45 for more detailed information about the investment
practices of the Missouri Tax-Free Intermediate Bond Fund and the risks
associated with those practices.
[GRAPHIC]
Investment Objective
---------------------------------------

Seeks current income exempt from federal and, to the extent possible, from
Missouri income taxes, as is consistent with the preservation of capital.

[GRAPHIC]
Primary Investment Strategies
---------------------------------------

The Fund employs the following strategies in an effort to achieve current
income and capital preservation:
. Security Types: Normally invests at least 80% of its total assets in
municipal obligations, 65% of which are issued by the State of Missouri and
its political subdivision, as well as certain other governmental issuers.
. Seeks to maximize the proportion of its dividends that are exempt from both
federal and Missouri income tax.
. Strives to minimize net realized capital gains.
. Maturity Distribution: Under normal market conditions, the average weighted
maturity of the Fund's portfolio securities will be three to ten years.
. Credit Quality: Actively manages maturities to take advantage of changes in
interest rates. The market-weighted average credit rating of the Fund's
entire portfolio will be AA or better.

[GRAPHIC]
Primary Risks of Investing in the Fund
---------------------------------------

PAGE 40 The Commerce Funds
.-----------------------------
<PAGE>

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

Credit Risk: An issuer of bonds may default on its obligation to pay interest
and repay principal. Also, a bond's credit rating could be downgraded. The Fund
could lose money in either of these instances.
Management Risk: A strategy used by the Adviser may fail to produce the
intended results.
State-Specific Risk: The Fund invests its assets predominantly in Missouri
Obligations. The actual payment of principal and interest on these obligations
is dependent on the Missouri General Assembly allotting money each fiscal year
for these payments. You should also be aware that provisions of the Missouri
Constitution and other laws could result in certain adverse consequences
affecting Missouri Obligations.
Non-Diversified Risk: The Missouri Tax-Free Intermediate Bond Fund is non-
diversified. Non-diversified funds typically hold fewer securities than
diversified funds do. Consequently, the change in value of any one security may
affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio. In addition, a non-diversified portfolio may be more
susceptible to economic, political and regulatory developments than a
diversified investment portfolio with similar objectives. When a Fund's assets
are concentrated in obligations payable from revenues of similar projects
issued by issuers located in the same state, or in industrial development
bonds, the Fund will be subject to the particular risks (including legal and
economic conditions) relating to such securities to a greater extent than if
its assets were not so concentrated.
Tax Risk: A fund that invests in municipal obligations may be more adversely
impacted by changes in tax rates and policies than other funds. Dividends
derived from interest on obligations of other governmental issuers are exempt
from federal income tax but may be subject to Missouri income tax.
Municipal Obligation Risk: Payment on municipal obligations held by the Fund
relating to certain projects may be secured mortgages or deeds of trust. In the
event of a default, enforcement of a mortgage or deed of trust will be subject
to statutory enforcement procedures and limitations on obtaining deficiency
judgments. Moreover, collection of the proceeds from that foreclosure may be
delayed and the amount of the proceeds received may not be enough to pay the
principal or accrued interest on the defaulted municipal obligations.

An investment in the Fund is not a deposit of Commerce Bank and is not insured
or guaranteed by the FDIC or any other governmental agency.

continued

The Commerce Funds PAGE 41
-----------------------------.
<PAGE>

Missouri Tax-Free Intermediate Bond Fund (continued)
- -------------------------------------------------------------------------
[GRAPHIC]
Missouri Tax-Free Intermediate Bond Fund Past Performance
-----------------------------------------------------------

The chart and table below provide some indication of the risks of investing in
the Fund by showing its annual returns and long-term performance. The bar chart
shows the Fund's performance from calendar year to year since its inception.
The table compares the Fund's performance over time to that of a broad-based
securities market index. Both charts assume reinvestment of dividends and
distributions. As with all mutual funds, how this Fund performed in the past is
not a prediction of how it will perform in the future. The Fund's performance
reflects expense limitations in effect. If expense limitations were not in
place, the Fund's performance would have been reduced.

Year-by-Year Total Returns as of 12/31 Each Year

[GRAPH]

1999 -1.00%
1998 5.41%
1997 6.84%
1996 2.67%

(percentage)

Best Calendar Quarter: 2.70%, 3rd Quarter 1998

Worst Calendar Quarter: -1.43%, 2nd Quarter 1999

Average Annual Total Return as of 12/31/99

<TABLE>
<CAPTION>
Since Inception
1 Year 3 Years (2/21/95)
<S> <C> <C> <C>
Missouri Tax-Free
Intermediate Bond
Fund -1.00% 3.69% 4.34%
Merrill Lynch
Municipal
Intermediate Index* -0.01% 4.60% 5.84%
</TABLE>
* The Merrill Lynch Municipal Intermediate Index is comprised of investment
grade municipal securities ranging from 1 to 12 years in maturity. The Index
figures do not reflect any fees or expenses.

PAGE 42 The Commerce Funds
.-----------------------------
<PAGE>

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

[GRAPHIC]
Fees and Expenses
-----------------------------------------------------------
The following table shows the fees and expenses that you would pay directly or
indirectly if you invested in this Fund. Shareholder Fees are paid directly
from your account. Total Annual Fund Operating Expenses are deducted from the
Fund's assets, not from your account, so they affect the share price of the
Fund.

<TABLE>
<CAPTION>
Missouri Tax-Free
Intermediate Bond Fund
Institutional Shares
<S> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Charge (load) Imposed on Reinvested
Distributions None
Maximum Deferred Sales Charge (load) Imposed on
Redemptions None
Redemption Fees None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 0.50%
Other Expenses 0.42%
-----
Total Annual Fund Operating Expenses 0.92%
Less: Fee Waiver and Expense Reimbursement 0.27%
-----
Net Annual Fund Operating Expenses (1) 0.65%
=====
</TABLE>

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
$66 $208 $362 $810
</TABLE>

continued

The Commerce Funds PAGE 43
---------------
.
<PAGE>

Missouri Tax-Free Intermediate Bond Fund (continued)
- --------------------------------------------------------------------------------

[GRAPHIC]
Missouri Tax-Free Intermediate Bond Fund(a) Financial Highlights
-----------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended 10/31 2/21/95(b)
----------------------------------- through
Institutional Shares 1999 1998 1997 1996 10/31/95
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 19.07 $ 18.61 $ 18.26 $ 18.40 $18.00
Income from investment
operations:
Net investment income 0.73 0.74 0.76 0.76 0.57
Net realized and unrealized
gain (loss)(c) (0.90) 0.47 0.37 (0.14) 0.40
Distributions to shareholders:
From net investment income (0.73) (0.74) (0.76) (0.76) (0.57)
From net realized gains (0.10) (0.01) (0.02) -- --
Net asset value, end of period $ 18.07 $ 19.07 $ 18.61 $ 18.26 $18.40
Total return(d) (0.95)% 6.65% 6.31% 3.43% 5.45%
Net assets at end of period
(in 000s) $42,641 $34,051 $24,434 $17,034 $8,889
Ratio of net expenses to
average net assets 0.65% 0.65% 0.65% 0.65% 0.65%(e)
Ratio of net investment income
to average net assets 3.91% 3.93% 4.14% 4.14% 4.41%(e)
Ratios assuming no voluntary
waiver of fees or expense
limitations:
Ratio of expenses to average
net assets 0.92% 1.03% 1.21% 1.58% 2.12%(e)
Ratio of net investment
income to average net assets 3.64% 3.55% 3.58% 3.21% 2.94%(e)
Portfolio turnover rate 21% 34% 13% 49% 52%
</TABLE>
(a) Formerly the Missouri Tax-Free Bond Fund.
(b) Commencement of operations.
(c) Includes the balancing effect of calculating per share amounts.
(d) Assumes investment at the beginning of the period, reinvestment of all
dividends and distributions and a complete redemption of the investment at
the net asset value at the end of the period.
(e) Annualized.

PAGE 44 The Commerce Funds
.-----------------------------
<PAGE>

Investment Securities and Practices
- --------------------------------------------------------------------------------

This table shows some of the investment methods and securities that the Funds
may use. The Funds' Statement of Additional Information (available on request)
contains a more complete discussion of the securities and practices each Fund
may use, and the risks involved. The Funds' Annual Report shows the securities
and practices each Fund is currently using. We encourage you to obtain and read
a copy of the Statement of Additional Information and the Annual Report should
you have any questions about the Funds' investment policies.

Key:
#t = percent of total assets the Fund may invest
(x) = not permitted
#n = percent of net assets the Fund may invest
e = equity portion of the Fund
f = fixed-income portion of the Fund

a = permitted

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

<TABLE>
<CAPTION>
Growth Internat'l Short- National Missouri
MidCap Growth & Income Equity Balanced Term Gov't Bond Tax-Free Tax-Free
Investment Securities
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
American Depository
Receipts 10t(/2/) 10t(/2/) 10t(/2/) a 10e(/1/) (x) (x) (x) (x)
Asset-Backed Securities (x) (x) (x) (x) 65f(/1/) (x) 65t(/4/) (x) (x)
Convertible Securities a a a a ae (x) a (x) (x)
Corporate Debt
Obligations (x) (x) (x) a af(/1/) (x) a (x) (x)
Emerging Market
Securities (x) (x) (x) a (x) (x) (x) (x) (x)
Equity Securities a a a a ae (x) (x) (x) (x)
European Depository
Receipts (x) (x) (x) a (x) (x) (x) (x) (x)
Foreign Equity
Securities 10t(/2/) 10t(/2/) 10t(/2/) a 10e(/1/) (x) (x) (x) (x)
Foreign Debt and Foreign
Government Securities (x) (x) (x) a 20f(/1/) (x) 20t (x) (x)
Hybrids (x) (x) (x) 10t (x) (x) (x) (x) (x)
Mortgage-Related
Securities (x) (x) (x) (x) 65f(/1/) a(/3/) 65t(/4/) (x) (x)
Municipal Obligations (x) (x) (x) (x) 20f(/1/) (x) 20t a a
Stripped Securities (x) (x) (x) (x) af (x) a (x) (x)
U.S. Government
Obligations a a a a af a(/3/) a a a
Variable and Floating
Rate Instruments a a a a a a a a a
Zero Coupon Bonds a a a a af a a a a
Investment Practices
Cross Hedging of
Currencies (x) (x) (x) a (x) (x) (x) (x) (x)
Foreign Currency
Exchange Contracts (x) (x) (x) a (x) (x) (x) (x) (x)
Futures Contracts &
Related Options a a a a af (x) a a a
Interest Rate Swaps,
Mortgage Swaps, Caps
and Floors (x) (x) (x) (x) af a a a a
Mortgage Dollar Rolls (x) (x) (x) (x) af a a (x) (x)
Options on Foreign
Currencies (x) (x) (x) a (x) (x) (x) (x) (x)
</TABLE>
-----------------------------------------------------------------------------

The Commerce Funds PAGE 45
-----------------------------.
<PAGE>

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

<TABLE>
<CAPTION>
Growth Internat'l Short- National Missouri
MidCap Growth & Income Equity Balanced Term Gov't Bond Tax-Free Tax-Free
Investment Practices
(continued)

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Options on Securities
and Securities Indices 25t 25t 25t 5t 5t 5t 5t 5t(/5/) 5t(/5/)
Repurchase Agreements 33 1/3t 33 1/3t 33 1/3t 33 1/3t 33 1/3t 33 1/3t 33 1/3t 33 1/3t 33 1/3t
Standby Commitments x x x x x x x a a
When-Issued and Forward
Commitments a a a a a a a 25t 25t
</TABLE>
-----------------------------------------------------------------------------

(1) The Balanced Fund may invest up to 65% of the fixed-income portion of
its portfolio in asset-backed and/or mortgage-backed securities, up to
20% of its fixed-income portion in municipal obligations, and up to 20%
of its fixed-income portion in debt obligations of foreign issuers. The
Fund may invest up to 10% of its equity portion in securities issued by
foreign issuers, including ADRs.

(2) The MidCap, Growth and Growth and Income Funds may invest up to 10% of
their total assets in foreign securities, including ADRs.

(3) At least 65% of the Short-Term Government Fund's investments will be in
U.S. Government issued or guaranteed securities (including mortgage-
related securities issued or guaranteed by the U.S. Government) that
have average lives or remaining maturities of five years or less.

(4) The Bond Fund may invest up to 65% of its total assets in asset-backed
and/or mortgage-related securities.

(5) The National Tax-Free Intermediate Bond and Missouri Tax-Free
Intermediate Bond Funds may not purchase put and call options or write
covered call and put options on securities related to foreign
currencies.

PAGE 46 The Commerce Funds
---------------
.
<PAGE>

Risks: The following chart summarizes the types of risks from which loss may
result. More information about risks associated with the Funds is provided
on the following pages and in the Funds' Statement of Additional
Information, which is available on request.

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

<TABLE>
<CAPTION>
Growth Internat'l Short- National Missouri
MidCap Growth & Income Equity Balanced Term Gov't Bond Tax-Free Tax-Free
Risks Associated with
These Investments
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset-Backed Risk X X
Call Risk X X X
Credit Risk X X X X X
Currency Risk X
Emerging Market Risk X
Extension Risk X X X
Euro Risk X
Foreign Risk X
Futures/Options Risk X
Government Securities
Risk X
Interest Rate Risk X X X X X
Investment Risk X X X X X X X X X
Management Risk X X X X X X X X X
Market Risk X X X X X X X X X
Maturity Risk X X
Mortgage-Backed Risk X X X
Municipal Obligation
Risk X X
Non-Diversified Risk X
Prepayment Risk X X X
Small Company Stock Risk X
State-Specific Risk X
Tax Risk X X
Year 2000 Risk X X X X X X X X X
</TABLE>
------------------------------------------------------------------------------

Asset-Backed Risk: Asset-backed securities may involve certain risks not
presented by other securities. These risks include a greater chance of
default during periods of economic downturn than other securities. Also,
asset-backed securities may be less liquid and therefore more difficult to
value and liquidate, if necessary. Ultimately, asset-backed securities are
dependent upon payment of the underlying consumer loans or receivables by
individuals, and the certificate holder frequently has no recourse against
the entity that originated the loans or receivables. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which have given
debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. In addition, default may require
repossession of the personal property of the debtor, which may be difficult
or impossible in some cases. Most issuers of automobile receivables permit
the servicers to return possession of the underlying obligations. If the
servicers were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of

The Commerce Funds PAGE 47
--------------------------

<PAGE>

the holders of the related automobile receivables. In addition, because of the
number of vehicles involved in a typical issuance and technical requirements
under state law, the trustee for the automobile receivables may not have an
effective security interest in all of the obligations backing such receivables.
Therefore, there is a possibility that recoveries of repossessed collateral may
not, in some cases, be able to support payments on these securities.
Call Risk: An issuer may exercise its right to pay principal on an obligation
held by a Fund (such as a mortgage-backed or asset-backed security) earlier
than expected. This may happen when interest rates decline. Under these
circumstances, a Fund may be unable to recoup all of its initial investment and
will also suffer from having to reinvest in lower-yielding securities.
Credit Risk: An issuer of bonds may default on its obligation to pay interest
and repay principal. A bond's credit rating could be downgraded. A Fund could
lose money in either of these instances. The Bond Fund may invest up to 35% of
its assets in obligations rated BBB or Baa by certain ratings services. These
obligations are considered to have speculative characteristics and are riskier
than higher rated obligations.
Currency Risk: Fluctuations in the exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment. A decline in the value
of a foreign currency versus the U.S. dollar reduces the dollar value of
securities denominated in that currency. Exchange rate movements can be large
and unpredictable and can last for extended periods. Absent other events which
could otherwise affect the value of a foreign security (such as a change in the
political climate or an issuer's credit quality), appreciation in the value of
a foreign currency generally can be expected to increase the value of a foreign
currency-denominated security in terms of U.S. dollars. An increase in foreign
interest rates or a decline in the value of the foreign currency relative to
the U.S. dollar generally can be expected to depress the value of a foreign
currency-denominated security.
Although a Fund may invest in securities denominated in foreign currencies, its
portfolio securities and other assets are valued in U.S. dollars. Currency
exchange rates may fluctuate significantly over short periods of time causing,
together with other factors, a Fund's net asset value to fluctuate as well.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also may be affected unpredictably by the intervention or the
failure to intervene by U.S. or foreign governments or central banks, or by
currency controls or political developments in the U.S. or foreign governments
or central banks, or by currency controls or political developments in the U.S.
or abroad. To the extent that a Fund's total assets, adjusted to reflect the
Fund's net position after giving effect to currency transactions, are
denominated in the currencies of foreign countries, the Fund will be more
susceptible to the risk of adverse economic and political developments within
those countries. In addition, the respective net currency positions of the
International Equity Fund may expose it to risks independent of its securities
positions.

PAGE 48 The Commerce Funds
.-----------------------------
<PAGE>

Although the net long and short foreign currency exposure of the International
Equity Fund will not exceed its total asset value, to the extent that the Fund
is fully invested in foreign securities while also maintaining currency
positions, it may be exposed to greater risk than would have if it did not
maintain the currency positions. The Funds investing in foreign securities are
all subject to the possible imposition of exchange control regulations or
freezes on convertibility of currency.
The International Equity Fund may enter into forward currency exchange
contracts in an effort to hedge all or any portion of its portfolio positions.
Specifically, foreign currency contracts may be used for this purpose to reduce
the level of volatility caused by changes in foreign currency exchange rates or
when such transactions are economically appropriate for the reduction of risks
in the ongoing management of the Fund. Although the contracts may be used to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time they tend to limit any potential gain that might be realized
should the value of such currency increase. The Fund may also enter into
foreign currency exchange contracts to seek to increase total return when the
Adviser anticipates that a foreign currency will appreciate or depreciate in
value, but securities denominated in that currency do not present attractive
investment opportunities and are not held by the Fund. In addition, the
International Equity Fund may engage in cross-hedging by using forward
contracts in one currency to hedge against fluctuations in the value of
securities denominated in a different currency if the Adviser believes that
there is a pattern of correlation between the two currencies.

Emerging Market Risk: To the extent that a Fund has investments in emerging
market countries, it will be subject to abrupt and severe price declines. Many
of the economic and political structures of these countries do not compare
favorably with the United States in terms of wealth and stability, and their
financial markets may lack liquidity. Investments in these countries are much
riskier than those in mature countries. The International Equity Fund may
invest its assets in countries with emerging economies or securities markets.
Most of these countries are located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. Political and economic structures in many
of these countries may be undergoing significant evolution and rapid
development, and such countries may lack the social, political and economic
stability characteristic of more developed countries. Some of these countries
may have failed in the past to recognize private property rights and at times
have nationalized or expropriated the assets of private companies. As a result,
the risks of investing in foreign securities, including the risks of
nationalization and expropriation may be heightened. In addition, unanticipated
political or social developments may affect the value of the Fund's investments
in those countries and the availability of additional investments in those
countries. The small size and inexperience of the securities markets in certain
countries and limited volume of trading in securities in those countries may
make the Fund's investments in such countries illiquid and more volatile than
investments in most Western European countries. There may be little financial
or accounting information available with respect to issuers located in certain
of such countries, and it may be difficult as a result to assess the value or
prospects of an investment in such issuers.

The Commerce Funds PAGE 49
-----------------------------.
<PAGE>

Euro Risk: The european common currency, the euro, was introduced on January 1,
1999. The move to a common currency by 11 diverse nations with varying economic
and political systems does carry risks for funds with significant investments
in euro-denominated assets. (The participating nations are Germany, France,
Italy, the Netherlands, Spain, Portugal, Austria, Belgium, Finland, Iceland,
and Luxembourg.) The euro, or the economies of those countries, could be
adversely affected if the European Economic and Monetary Union does not appear
to be working smoothly. On the other hand, the euro may be beneficial over time
by encouraging competition and productivity. Because of the number of countries
using this single currency, a significant portion of the assets held by the
Funds may be denominated in the euro.

Foreign Risk: Foreign securities can be riskier and more volatile than U.S.
securities. Adverse political, social and economic developments in foreign
countries (including the possible seizure or nationalization of foreign
holdings, the possible establishment of exchange controls or the adoption of
other governmental restrictions) or changes in the value of foreign currency
can make it harder for the portfolio to sell its securities and could reduce
the value of your shares. Changes in or the lack of tax, accounting, and
regulatory standards and difficulties in obtaining information about foreign
companies can negatively affect investment decisions. Also, the costs
attributable to investing abroad are usually higher than those of investing in
the United States. These costs include higher transaction and custody costs as
well as the imposition of additional taxes by foreign governments. Foreign
investments also involve risks associated with the level of currency exchange
rates, less market liquidity, more market volatility and political and economic
instability. Additionally foreign banks and foreign branches of domestic banks
are subject to less stringent reserve requirements and to different accounting,
auditing and recordkeeping requirements.

The International Equity, Balanced and Bond Funds may invest in foreign debt
and in the securities of foreign governments. The risks of such investments
include the risk that foreign governments may default on their obligations, may
not respect the integrity of such debt, may attempt to renegotiate the debt at
a lower rate and may not honor investments by U.S. entities or citizens.

The MidCap, Growth, Growth and Income, International Equity and Balanced Funds
may invest in ADRs, some of which may not be sponsored by the issuing
institution. A non-sponsored depository may not be required to disclose
material information that a sponsored depository would be required to provide
under its contractual relationship with the issuer. Accordingly, there may not
be a correlation between such information and the market value of such
securities.

PAGE 50 The Commerce Funds
.-----------------------------
<PAGE>

Futures/Options Risk: To the extent a Fund uses futures and options, it is
exposed to additional volatility and potential losses. Futures (a type of
potentially high-risk derivative) are often used to manage or hedge risk
because they enable the investor to buy or sell an asset in the future at an
agreed-upon price. Options (another type of potentially high-risk derivative)
give the investor the right (where the investor purchases the option), or the
obligation (where the investor writes (sells) the option), to buy or sell an
asset at a predetermined price in the future. Futures and options contracts may
be made or sold for any number of reasons, including: to manage Fund exposure
to changes in securities prices and foreign currencies; as an efficient means
of adjusting Fund overall exposure to certain markets; in an effort to enhance
income; as a cash management tool; to protect the value of portfolio
securities; and to adjust portfolio duration. Call and put options may be
purchased or sold on securities, financial entities, and foreign currencies.

Futures contracts and options may not always be successful hedges; their prices
can be highly volatile; using them could lower fund total return and the
potential loss from the use of futures can exceed the Fund's initial investment
in such contracts.
Government Securities Risk: The U.S. Government may not provide financial
support to U.S. Government agencies, instrumentalities or sponsored enterprises
if it is not obligated to do so by law.

Interest Rate Risk: Generally, the market value of fixed-income securities in a
Fund can be expected to go up when interest rates go down and to go down when
interest rates go up (although many mortgage related securities will have less
potential than other debt securities for capital appreciation during periods of
declining rates). Longer-term bonds and zero coupon bonds are usually more
sensitive to interest rate changes than shorter-term bonds. In general, the
longer the average maturity of bonds in a Fund, the more a Fund's share price
will go up or down in response to interest rate changes.
Investment Risk: The value of your investment in a Fund may go up or down,
which means that you could lose money.
Management Risk: A strategy used by the Adviser may fail to produce the
intended results. The Adviser's assessment of companies whose securities are
held by a Fund may prove incorrect, resulting in losses or poor performance,
even under favorable market and interest rate conditions.
Market Risk: General economic conditions and/or the activities of individual
companies may cause the value of the securities in a Fund to increase or
decrease. A Fund's NAV may fluctuate with movements in the equity markets.
Maturity Risk: A Fund will not necessarily hold its securities to maturity,
which could result in loss of principal.
Mortgage-Backed Risk: In addition to prepayment, call and extension risks,
mortgage-backed securities may be subject to special risks, including price
volatility, liquidity, and enhanced sensitivity to interest rates.
Collateralized mortgage-backed securities (CMOs) may exhibit even more price
volatility and interest rate risk than other mortgage-backed securities. They
may lose liquidity as CMO market makers may choose not to repurchase, or may
offer prices, based on current market conditions, that are unacceptable to the
Fund based on the Adviser's analysis of the market value of the security. The
Bond and

The Commerce Funds PAGE 51
-----------------------------.
<PAGE>

Balanced Funds may purchase "stripped" mortgage-backed securities (SMBS) and
other types of "stripped" securities. SMBS, in particular, are more volatile
and sensitive to interest rate changes than ordinary debt securities, and there
is a greater risk that a Fund's initial investment in these securities may not
be fully recouped.
Municipal Obligation Risk: Payment on municipal obligations held by a Fund
relating to certain projects may be secured mortgages or deeds of trust. In the
event of a default, enforcement of a mortgage or deed of trust will be subject
to statutory enforcement procedures and limitations on obtaining deficiency
judgment. Moreover, collection of the proceeds from that foreclosure may be
delayed and the amount of the proceeds received may not be enough to pay the
principal or accrued interest on the defaulted municipal obligations. The
obligations of the issuer to pay the principal of and interest on a municipal
obligation are subject to the provisions of bankruptcy, insolvency and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Act, and laws, if any, that may be enacted by Congress or state
legislatures extending the time for payment of principal or interest or
imposing other constraints upon the enforcement of such obligations. There is
also the possibility that, as a result of litigation or other conditions, the
power or ability of the issuer to pay when due the principal of or interest on
a municipal obligation may be materially affected. Municipal lease obligations
and certificates of participation are subject to the added risk that the
governmental lessee will fail to appropriate funds to enable it to meet its
payment obligations under the lease. Although these obligations may be secured
by the leased equipment or facilities, the disposition of the property in the
event of non-appropriation or foreclosure might prove difficult, time consuming
and costly, and result in a delay in recovering or the failure to fully recover
a Fund's original investment.
Non-Diversified Risk: The Missouri Tax-Free Intermediate Bond Fund is non-
diversified. Non-diversified funds typically hold fewer securities than
diversified funds do. Consequently, the change in value of any one security may
affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio. In addition, a non-diversified portfolio may be more
susceptible to economic, political and regulatory developments than a
diversified investment portfolio with similar objectives. When a Fund's assets
are concentrated in obligations payable from revenues of similar projects
issued by issuers located in the same state, or in industrial development
bonds, the Fund will be subject to the particular risks (including legal and
economic conditions) relating to such securities to a greater extent than if
its assets were not so concentrated.
Prepayment Risk: Prepayment of the underlying mortgage collateral of some
fixed-income securities may result in a decreased rate of return.
Small Company Stock Risk: Investing in securities of smaller companies may be
riskier than investing in securities of larger, more established companies.
Smaller companies are more vulnerable to adverse developments because of more
limited product lines, markets or financial resources. They often depend on a
smaller, less experienced management group. Also, smaller company stocks may
trade less often and in limited volume compared to stocks trading on a national
securities exchange. Security prices of small company stocks may be more
volatile than the prices of larger company stocks. As a result, a Fund's NAV
may be subject to rapid and substantial changes if it invests in small company
stocks.

PAGE 52 The Commerce Funds
.-----------------------------
<PAGE>

State-Specific Risk: The Missouri Tax-Free Intermediate Bond Fund invests its
assets predominantly in Missouri Obligations. The actual payment of principal
and interest on these obligations is dependent on the Missouri General Assembly
allotting money each fiscal year for these payments. You should also be aware
that provisions of the Missouri Constitution and other laws could result in
certain adverse consequences affecting Missouri Obligations. Increased
urbanization and continued decline in defense appropriations by the U.S.
Congress have had and will continue to have an adverse impact on the State of
Missouri in the forseeable future.
Tax Risk: A Fund that invests in municipal obligations may be more adversely
impacted by changes in tax rates and policies than other Funds. Interest income
on municipal obligations is normally not subject to regular federal income tax.
Any proposed or actual changes in federal income tax rates or exempt statutes
that apply to interest income, therefore, can significantly affect the demand
for and supply, liquidity and marketability of municipal obligations, which
could in turn affect a Fund's ability to buy and sell municipal obligations at
favorable yield and price levels.

Year 2000 Risk: Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used by the Adviser and the Funds' other
service providers do not properly process and calculate date-related
information and dates from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The Adviser has taken and will continue to take steps
to address the Year 2000 Problem with respect to the computer systems that it
uses and to obtain assurance that comparable steps have been taken and will be
taken by the Funds' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Funds as a result of the Year 2000 Problem. The Year 2000 Problem
could also adversely impact a Fund's portfolio holdings and the markets in
which they invest, causing their shares prices to go down.
Risks of Short-Term Investing: For temporary defensive purposes, the Adviser
may decide to suspend the normal investment activities of a Fund by investing
up to 100% of its assets in cash and cash equivalent short-term obligations,
including money market instruments, a term that includes bank obligations,
commercial paper, U.S. Government obligations, foreign government securities
(if permitted) and repurchase agreements. Bank obligations include obligations
of foreign banks or foreign branches of U.S. banks. The Adviser may temporarily
adopt a defensive position to reduce changes in the value of the Fund's shares
that may result from adverse market, economic, political or other conditions.
When the Adviser pursues a temporary defensive strategy, the Funds may not be
following their stated objectives and may not profit from favorable
developments that they would have otherwise profited from if they were pursuing
their normal investment strategies.
Portfolio Turnover: The Funds may buy and sell investments relatively often.
Such a strategy often involves higher expenses, including brokerage
commissions, and may increase the amount of capital gains (and, in particular,
short-term gains) realized by a portfolio. Shareholders must pay tax on such
capital gains.

The Commerce Funds PAGE 53
-----------------------------.
<PAGE>

Account Policies And Features
- --------------------------------------------------------------------------------

The following information is intended to help you understand how to purchase
and redeem shares of The Commerce Funds. It will also explain the features you
can use to customize your Commerce Funds account to meet your needs.

Buying Institutional Shares
- --------------------------------------------------------------------------------

How Are Institutional Shares Priced?
You pay no sales charges (loads) to invest in Institutional Shares of these
Funds. Your share price is each Fund's net asset value (NAV), which is
generally calculated as of the close of trading (usually 4 p.m. Eastern time)
on the New York Stock Exchange (NYSE) every day the NYSE is open. Your order
will be priced at the next NAV calculated after your order is received in good
order by The Commerce Funds' Transfer Agent. Therefore, to receive the NAV of
any given day, The Commerce Funds must accept your order by the close of
regular trading on the NYSE that day. If The Commerce Funds receives and
accepts your order after the NYSE closes, you will receive the NAV that is
calculated on the close of trading on the following day. The Commerce Funds are
open for business on the same days as the NYSE. Each Fund's investments are
valued based on market value, or where market quotations are not readily
available, based on fair value as determined in good faith by the Funds' Board
of Trustees. Certain short-term securities may be valued at amortized cost,
which approximates fair value.

Trading in foreign securities is generally completed before the end of regular
trading on the NYSE and may occur on weekends and U.S. holidays and at other
times when the NYSE is closed. As a result, there may be delays in reflecting
changes in the market values of foreign securities in the calculation of the
NAV for any Fund invested in foreign securities. You may not be able to redeem
or purchase shares of an affected Fund during these times.

How to Calculate NAV

<TABLE>
<S> <C> <C>
NAV = (Value of Assets Attributable to the Class) - (Liabilities Attributable to the Class)
----------------------------------------------------------------------------------------
Number of Outstanding Shares of the Class
</TABLE>

PAGE 54 The Commerce Funds
.-----------------------------
<PAGE>

What Is The Minimum Investment For The Funds?

<TABLE>
<CAPTION>
Initial Additional
Investment Investments
<S> <C> <C>
Regular account $1,000 $250
Automatic investment account $500 $50/month
Individual retirement accounts (except SEP & SIMPLE
IRAs), Keogh plans, corporate retirement plans, public
employer deferred plans, profit sharing plans and
401(k) plans $1,000 $250
SEP and SIMPLE IRAs $50 $50/month
</TABLE>

What Is The Minimum Investment If I Am An Employee Of Commerce Bancshares Or
Another Commerce Funds Service Provider?

For employees, directors, officers and retirees (as well as their legal
dependents) of Commerce Bancshares, Inc., Goldman Sachs & Co., NFDS and State
Street Bank and Trust Company and their subsidiaries or affiliates, the
following investment minimums apply:

<TABLE>
<CAPTION>
Initial Additional
Investment Investment
<S> <C> <C>
Regular account $250 $100
Automatic investment account $100 $25/quarter
Individual retirement accounts (including SEP, SIMPLE
and Roth IRAs) and Keogh plans $100 $25/quarter
</TABLE>

How Do I Buy Institutional Shares?

The following section describes features and gives specific instructions on how
to purchase Institutional Shares directly from The Commerce Funds. The Commerce
Funds has authorized certain dealers to purchase shares of Funds on behalf of
their clients. Some of the account features and instructions described in this
section may not be applicable to clients of these dealers.

1. Consider The Following Features To Customize Your Account:

Making Automatic Investments: The Automatic Investment feature lets you
transfer money from your financial institution account into your Fund account
automatically either on the 1st or the 15th of the month. The Automatic
Investment feature is one way to use dollar cost averaging to invest (see
below). Only accounts at U.S. financial institutions that permit automatic
withdrawals through the Automated Clearing House (ACH) are eligible. Check with
your financial institution to determine eligibility.

Using Dollar Cost Averaging: Dollar cost averaging involves investing a dollar
amount at regular intervals. Because more shares are purchased during periods
with lower share prices and fewer shares are purchased when the price is
higher, your average cost per share may be reduced. In order to be effective,
dollar cost averaging should be followed on a regular basis. You should be
aware, however, that shares bought using dollar cost averaging are made without
regard to their price on the day of investment or to market trends. In
addition, while you may find dollar cost averaging to be beneficial, it will
not

The Commerce Funds PAGE 55
-----------------------------.
<PAGE>

prevent a loss if you ultimately redeem your shares at a price that is lower
than their purchase price. Dollar cost averaging does not assure a profit or
protect against a loss in a declining market. Since dollar cost averaging
involves investment in securities regardless of fluctuating price levels, you
should consider your financial ability to continue to purchase through periods
of low price levels. You can invest through dollar cost averaging on your own
or through the Automatic Investment feature described above.

2. Contact The Commerce Funds To Open Your Account.

[GRAPHIC]
By Mail:
-------------------------------------------------------------------------
Complete an account application. Mail the completed application and a
check payable to The Commerce Funds to:
The Commerce Funds
c/o Shareholder Services

P.O. Box 219525

Kansas City, MO 64121-9525

[GRAPHIC]
In Person
-------------------------------------------------------------------------
You are welcome to stop by a Commerce Bank office location, where a
registered investment representative can assist you in opening an
account.
. Federal regulations require you to provide a certified Taxpayer
Identification Number upon opening or reopening an account.
. If your check used for investment does not clear, a fee may be imposed
by the Transfer Agent. All payments by check must be in U.S. dollars
and must be drawn only on U.S. financial institutions.

How Do I Add To My Commerce Funds Account?

To add to your original investment, you may either mail your additional
investment to the address above or you may use Electronic Funds Transfer:

[GRAPHIC]
By Electronic Funds Transfer:
-----------------------------------------------------------
To use Electronic Funds Transfer, have your bank send your investment
to: Investors Fiduciary Trust Company, with these instructions:
--ABA #101003621
--Account #756-044-3
--Your name and address
--Your social security or tax ID number
--Name of the Fund
--Class of shares
--Your new account number

PAGE 56 The Commerce Funds
.-----------------------------
<PAGE>

What Are My Options For Changing My Investment Within The Commerce Funds?

. Changing Shares From Fund To Fund: As a shareholder, you have the privilege
of exchanging your shares for Institutional Shares of any other Commerce
Fund. Exchanges may also be made with the Goldman Sachs Institutional Liquid
Assets Prime Obligations Portfolio ("Money Market Fund"). Goldman Sachs Asset
Management, a unit of the Investment Management Division of Goldman, Sachs &
Co., serves as investment adviser for the Money Market Fund.

Institutional Shares being exchanged are subject to the minimum initial and
subsequent investment requirements as described above. The Commerce Funds
reserves the right to reject any exchange request and the exchange privilege
may be modified or terminated at any time. At least 60 days' notice of any
material modification or termination of the exchange privilege will be given
to shareholders except where notice is not required under the regulations of
the Securities and Exchange Commission (SEC). Before exchanging your shares,
you should consider carefully the investment objectives, policies, risks and
expenses of the Fund you are acquiring.

. Making Automatic Exchanges: You may request on your account application that
a specified dollar amount of Institutional Shares be automatically exchanged
for Institutional Shares of any other Commerce Fund. These automatic
exchanges may be made on any one day of each month and are subject to the
following conditions: 1) the minimum dollar amount for automatic exchanges
must be at least $250 per month; 2) the value of the account in the
originating Fund must be at least $1,000 after the exchange; 3) the value of
the account in the acquired Fund must equal or exceed the acquired Fund's
minimum initial investment requirement; and 4) the names, addresses and
taxpayer identification number for the shareholder accounts of the exchanged
and acquired Funds must be identical.

. Cross Reinvesting Of Distributions: You may invest dividend or capital gain
distributions from one Fund of the Institutional Class to another Fund of the
Institutional Class. If you elect to reinvest the distributions paid by one
Fund in shares of another Fund of The Commerce Funds, the dividends or
distributions will be treated as received by you for tax purposes. Cross
reinvestment privileges do not apply to the Money Market Fund described under
"Changing Shares From Fund to Fund."

The Commerce Funds PAGE 57
-----------------------------.
<PAGE>

Redeeming Institutional Shares
- --------------------------------------------------------------------------------

You May Sell Shares At Any Time: Your shares will be sold at the NAV next
calculated after your order is accepted by The Commerce Funds' Transfer Agent.
Your order will be processed promptly and you will generally receive the
proceeds within a week. PLEASE NOTE: If the Fund has not yet collected payment
for the shares you are selling, it may delay sending the proceeds for up to 15
business days.

Receipt Of Proceeds From A Sale: Ordinarily, sale proceeds will be disbursed
the next business day following receipt by the Transfer Agent of a properly
completed order. Payment by check will ordinarily be made within seven calendar
days following redemption or you can have your proceeds sent by federal wire to
your financial institution account. Proceeds will normally be wired the
business day after your request to redeem shares is received in good order by
the Transfer Agent. Your request to wire proceeds is subject to the financial
institution's wire charges.

Written requests to sell Institutional Shares must be signed by each
shareholder, including each joint owner. Certain types of redemption requests
will need to include a Signature Guarantee. You may obtain a Signature
Guarantee from most banks or securities dealers. Guarantees from notaries
public will not be accepted.

How Do I Redeem Shares From My Commerce Funds Account?
The following section describes how to redeem shares directly through The
Commerce Funds. The Commerce Funds has authorized certain dealers to redeem
shares of Funds on behalf of their clients. Some of the account features and
instructions described in this section may not be applicable to clients of
these dealers.

1. Consider Using Automated Redemption:

. Making Automatic Withdrawals: If you are a shareholder with an account valued
at $5,000 or more, you may withdraw amounts in multiples of $100 or more from
your account on a monthly, quarterly, semi-annual or annual basis through the
Automatic Withdrawal feature. At your option, you may choose to have your
automatic withdrawal paid either by check or directly deposited into a
financial institution account. Withdrawals paid by check are distributed on
or about the 15th of the month. Direct deposits made to a financial
institution account can be made on any day of the month. To participate in
this feature, supply the necessary information on the account application or
in a subsequent written request. This feature may be suspended should the
value of your account fall below $500.

PAGE 58 The Commerce Funds
.-----------------------------
<PAGE>

2. Contact The Commerce Funds To Redeem Shares From Your Account.
[GRAPHIC]
By Mail:
-----------------------------------------------------------
Write a letter to us that gives the following information:
--names of all account owners
--your account number
--the name of the Fund
--the dollar amount you want to redeem
--what we should do with the proceeds
Each owner, including each joint owner should sign the letter.
Mail your request to:
The Commerce Funds
c/o Shareholder Services

P. O. Box 219525

Kansas City, MO 64121-9525
[GRAPHIC]
By Telephone--Requesting Proceeds Be Wired:
-----------------------------------------------------------
Call The Commerce Funds with your request. Please see "What Are The
Important Things To Consider When Contacting The Commerce Funds by
Telephone?" below for specific instructions. When requesting a
redemption by wire you must be redeeming shares in the amount of $1,000
or more. Also, the Fund must have your financial institution account
information already on file. Proceeds will be wired directly to this
designated account.

[GRAPHIC]
By Telephone--Requesting Proceeds Be Sent By Check:
-----------------------------------------------------------

Call The Commerce Funds at 1-800-995-6365 (8 a.m.- 5 p.m. CST) with your
request. Please see "What Are The Important Things to Consider When
Contacting The Commerce Funds by Telephone?" below for specific
instructions. The check will be made payable to the shareholder(s) of
record and sent to the address listed on your account.

[GRAPHIC]
In Person:
-----------------------------------------------------------
You are welcome to stop by a Commerce Bank office location, where a
registered investment representative can assist you in redeeming shares
from your account.

The Commerce Funds PAGE 59
-----------------------------.
<PAGE>

What Are The Important Things To Consider When Contacting The Commerce Funds By
Telephone?

You may call us at 1-800-995-6365 (8 a.m.- 5 p.m. CST) to explain what you want
to do. To make additions by phone or request electronic transfers or request
redemptions, we need your prior written authorization. If you did not check the
box in Section 6 of your original account application, you must send us a
letter that gives us this authorization.

Telephone purchases will be made at the NAV next determined after the Transfer
Agent receives payment for the transaction. If you should experience difficulty
in redeeming your shares by telephone (e.g., because of unusual market
activity), we urge you to consider redeeming your shares by mail.

You should note that the Transfer Agent may act on a telephone purchase or
redemption request from any person representing himself to be you and
reasonably believed by the Transfer Agent to be genuine. Neither The Commerce
Funds nor any of its service contractors will be liable for any loss or expense
in acting on telephone instructions that are reasonably believed to be genuine.
In attempting to confirm that telephone instructions are genuine, The Commerce
Funds will use all procedures considered reasonable; the Funds may be liable
for any losses if they fail to do so.

General Policies
- --------------------------------------------------------------------------------

Dividend and Distribution Policies: As a Fund shareholder, you are entitled to
any dividends and distributions from net investment income and net realized
capital gains. You may choose one of the following distribution options for
dividends and capital gains:
(1) reinvest all dividend and capital gain distributions in additional
Institutional Shares,

(2) receive dividend distributions in cash and reinvest capital gain
distributions in additional Institutional Shares,

(3) receive all dividend and capital gain distributions in cash, or

(4) have all dividend and capital gain distributions deposited directly
into your designated account at a financial institution.

If you do not select an option when you open an account, all distributions will
automatically be reinvested in additional Institutional Shares of the same
Fund. For your protection, if you elect to have distributions mailed to you and
these cannot be delivered, they will be reinvested in additional Institutional
Shares of the same Fund. To change your distribution option, contact The
Commerce Funds at 1-800-995-6365 (8 a.m.- 5 p.m. CST). The change will become
effective after it is received and processed by the Transfer Agent.

PAGE 60 The Commerce Funds
.-----------------------------
<PAGE>

<TABLE>
<CAPTION>
Monthly Quarterly Annual Net Realized
Fund Dividends* Dividends** Dividends*** Capital Gains****
<S> <C> <C> <C> <C>
MidCap X X
Growth X X
Growth and Income X X
International Equity X X
Balanced X X
Short-Term Government X X
Bond X X
National Tax-Free
Intermediate Bond X X
Missouri Tax-Free
Intermediate Bond X X
</TABLE>
* Monthly dividends are declared daily but are only distributed on or about
the last business day of the month.
** Quarterly dividends are both declared and paid on the calendar quarter
months.
*** Annual dividends are both declared and paid in December.
**** Each Fund declares and distributes net realized capital gains annually
(December).

The Commerce Funds Reserves The Right To:
. Redeem your account involuntarily if, after 60 days' written notice, your
account's value remains below a $500 minimum balance. We will not redeem your
account involuntarily if the value falls below the minimum balance solely as
a result of market conditions. Retirement accounts and certain other accounts
will not be subject to automatic liquidation.

. Suspend or delay the payment of redemption proceeds when the NYSE is closed
(other than for customary weekend and holiday closings), during periods when
trading on the NYSE is restricted as determined by the SEC, during any
emergency as determined by the SEC or during other periods of unusual market
conditions.

. Without notice, stop offering shares of a Fund, reject any purchase order
(including exchanges), or bar an investor who is engaging in excessive
trading from purchasing or exchanging shares of a Fund.

Arrangements With Certain Institutions
Financial institutions or their designees that have entered into agreements
with The Commerce Funds or its agent may enter confirmed purchase orders on
behalf of clients and customers, with payment to follow no later than a Fund's
pricing on the following business day. If payment is not received by the Fund's
Transfer Agent by such time, the financial institution could be held liable for
resulting fees or losses. The Commerce Funds may be deemed to have received a
purchase or redemption order when a financial institution or its designee
accepts the order. Orders received by the Fund in proper form will be priced at
the Fund's NAV next computed after they are accepted by the financial
institution or its designee. Financial institutions are responsible for their
customers and The Commerce Funds for timely transmission of all subscription
and redemption requests, investment information, documentation and money.

The Commerce Funds PAGE 61
-----------------------------.
<PAGE>

Business Of The Commerce Funds
- --------------------------------------------------------------------------------

Shareholder Servicing
Certain financial institutions may charge their customers account fees for
purchasing or redeeming shares of The Commerce Funds. These institutions may
provide shareholder services to their clients that are not available to a
shareholder dealing directly with The Commerce Funds. Each institution is
responsible for notifying its customers regarding its fees and additional or
changed purchase or redemption terms. You should contact your financial
institution for this information.

The Funds have adopted a Shareholder Administrative Services Plan that permits
each Fund to pay up to 0.25% of the average daily net assets of the Shares held
under the plan to third parties for providing shareholder services to the
Shareholder Administrative Services Plan participants. Because these fees are
paid out of each Fund's assets, over time they will increase the cost of your
investment and may cost you more than paying other types of sales charges.

The Commerce Funds will not issue share certificates. The Transfer Agent will
maintain a complete record of your account and will issue you a statement at
least quarterly. You will also be sent confirmations of purchases and
redemptions.

As a shareholder in the Funds, you will receive an Annual Report and a Semi-
Annual Report. To eliminate unnecessary duplication, only one copy of such
reports will be sent to the same mailing address. If you would like a duplicate
copy to be mailed to you, please contact The Commerce Funds at 1-800-995-6365
(8 a.m.-5 p.m. CST).

Tax Information
- --------------------------------------------------------------------------------

The following is a brief summary of the federal income tax consequences of
investing in The Commerce Funds. You may also have to pay state and local taxes
on your investment, and you should always consult with your tax adviser for
specific guidance on your investment in The Commerce Funds.

Taxes On Distributions
The Funds' distributions will generally be taxable to shareholders as ordinary
income and capital gains (which may be taxable at different rates depending on
the length of time the Fund held the relevant assets). You will be subject to
income tax on these distributions regardless of whether they are paid in cash
or reinvested in additional shares. Once a year, The Commerce Funds will send
you a statement showing the types and total amount of distributions you
received during the previous year.

You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In this
case, you would be taxed on the entire amount of the distribution received,
even though, as an economic matter, the distribution simply constitutes a
return of your capital. This is known as "buying into a dividend."

PAGE 62 The Commerce Funds
.-----------------------------
<PAGE>

Taxes On Exchanges And Redemptions
When you redeem or exchange shares in any Fund, you may recognize a gain or
loss for income tax purposes. This gain or loss will be based on the difference
between your tax basis in the shares and the amount you receive for them. To
aid in computing your tax basis, you generally should retain your account
statements for the periods during which you held shares. Any loss realized on
shares held for six months or less will be treated as a long-term capital loss
to the extent of any capital gain dividends that were received with respect to
the shares. The one major exception to these tax rules is that distributions
on, and sales, exchanges and redemptions of, shares held in an IRA (or other
tax qualified plan) will not be currently taxable.

Backup Withholding
By law, The Commerce Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.

International Equity Fund
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to dividends or interest received from sources
in foreign countries. The International Equity Fund may elect to treat a
proportionate amount of such taxes as constituting a distribution to each
shareholder, which would allow each shareholder either (1) to credit such
proportionate amount of taxes against U.S. federal income tax liability or (2)
to take such amount as an itemized deduction.

Tax Consequences Of The National Tax-Free Intermediate Bond And Missouri Tax-
Free Intermediate Bond Funds
The National Tax-Free Intermediate Bond and Missouri Tax-Free Intermediate Bond
Funds' distributions will generally constitute tax-exempt income for
shareholders for federal income tax purposes. It is possible, depending on the
Funds' investments, that a portion of the Funds' distributions could be taxable
to shareholders as ordinary income or capital gains, but the Funds do not
expect that this will be the case. Moreover, although distributions are exempt
for federal income tax purposes, they will generally constitute taxable income
for state and local income tax purposes except that, subject to limitations
that vary depending on the state, distributions from interest paid by a state
or municipal entity may be exempt from tax in that state.

Missouri Taxes: Resident individuals, trusts and estates resident in Missouri,
and corporations within Missouri tax jurisdiction will not be subject to
Missouri income tax on dividends from the Missouri Tax-Free Intermediate Bond
Fund that are derived from interest on obligations of the State of Missouri and
its political subdivisions (to the extent such interest is exempt from federal
income tax) or on obligations issued by the U.S. Government, the Government of
Puerto Rico, the Virgin Islands or Guam. Resident individuals, trusts and
estates and corporations generally will be subject to Missouri income tax on
other dividends received from the Fund, including dividends derived from
interest on obligations of other issuers and all long-term and short-term
capital gains.

The Commerce Funds PAGE 63
-----------------------------.
<PAGE>

Service Providers
- --------------------------------------------------------------------------------

Investment Adviser: Commerce Bank, N.A. (The "Adviser")

Commerce Bank, N.A. serves as Adviser for the Funds, selecting investments and
making purchases and sale orders for securities in each Fund's portfolio.
Commerce Bank, with offices at 8000 Forsyth Boulevard, St. Louis, Missouri
63105 and 1000 Walnut Street, Kansas City, Missouri 64106, is a subsidiary of
Commerce Bancshares, Inc., a registered multi-bank holding company. Commerce
Bank has provided investment management services to The Commerce Funds since
1994, to private and public pension funds, endowments and foundations since
1946 and to individuals since 1906. As of December 31, 1999, the Adviser and
its affiliates had approximately $9.8 billion in assets under management.

<TABLE>
<CAPTION>
Actual Rate
Paid In
Fiscal Year
1999
<S> <C>
MidCap Fund 0.75%
Growth Fund 0.75%
Growth and Income Fund 0.75%
International Equity Fund 0.96%
Balanced Fund 0.66%
Short-Term Government Fund 0.30%
Bond Fund 0.50%
National Tax-Free Intermediate Bond Fund 0.35%
Missouri Tax-Free Intermediate Bond Fund 0.30%
</TABLE>

Any difference between the contractual fees and the actual fees paid by the
Funds reflects that the Adviser did not charge the full amount of the fees to
which it would have been entitled. The Adviser may discontinue or modify its
voluntary waiver in the future at its discretion.

PAGE 64 The Commerce Funds
.-----------------------------
<PAGE>

Fund Managers:

<TABLE>
<CAPTION>
Person Fund(s) Experience
<S> <C> <C>
John Bartlett, CFA, Growth and Income Joined Commerce Bank in
Vice President and Director 1991 Fund manager since
of Economic & Market inception
Strategy 22 years of experience
Scott M. Colbert, CFA, Short-Term Government, Joined Commerce Bank in
Vice President and Director Bond, Fixed-Income 1993 Fund manager since
of Fixed Income Management portion of Balanced inception
13 years of experience
Paul D. Cox, CFA, MidCap Joined Commerce Bank in
Vice President and Director 1989 Fund manager since
of Equity Management inception
20 years of experience
Joseph C. Williams III, CFA, Growth, equity portion Joined Commerce Bank in
Vice President of Balanced 1975 Fund manager since
inception
23 years of experience
Brian P. Musielak, National Tax-Free, Joined Commerce Bank in
Assistant Vice President Missouri Tax-Free 1995 Fund manager since
Intermediate Bond Funds 1999
5 years of experience
</TABLE>

Sub-adviser: Rowe Price-Fleming International, Inc. ("Price-Fleming" Or The
"Sub-adviser")

Rowe Price-Fleming International Inc., a joint venture established in 1979
between T. Rowe Price Associates and the London-based Fleming Group, serves as
Sub-Adviser to the International Equity Fund. Price-Fleming's U.S. office is
located at 100 East Pratt Street, Baltimore, Maryland 21202. As of December 31,
1999, Price-Fleming managed over $42 billion in investments for individual and
institutional accounts.

The Fund has an Investment Advisory Group that has day-to-day responsibility
for managing the portfolio and developing and executing the Fund's investment
program.

For the services provided and expenses assumed under the Sub-Advisory
Agreement, the Adviser will pay the Sub-Adviser a monthly management fee at an
annual rate of 0.75% of the first $20 million of the Fund's average daily net
assets, 0.60% of the next $30 million of average daily net assets, and 0.50% of
average daily net assets above $50 million. When the Fund's assets reach $200
million, the Sub-Adviser has agreed to waive fees in excess of 0.50%, on an
annualized basis, on the average daily net assets of the Fund. For the fiscal
year ended October 31, 1999, Price-Fleming received advisory fees at the
effective annual rate of 0.57% of the International Equity Fund's average daily
net assets.

Administrator: Goldman Sachs Asset Management ("GSAM" Or The "Administrator")

GSAM serves as Administrator of each of the Funds. GSAM is located at 32 Old
Slip, New York, New York 10005. GSAM is a unit of the Investment Management
Division of Goldman, Sachs & Co., the Distributor of the Funds.

The Commerce Funds PAGE 65
-----------------------------.
<PAGE>

Distributor: Goldman, Sachs & Co. ("Goldman" Or The "Distributor")
Shares of each Fund are sold on a continuous basis by Goldman as Distributor.
Goldman is located at 85 Broad Street, New York, New York 10004.

Transfer Agent: State Street Bank And Trust Company ("State Street" Or The
"Transfer Agent")
State Street has delegated its responsibilities as Transfer Agent to its
indirect subsidiary, National Financial Data Services, Inc. ("NFDS"). State
Street is located at 225 Franklin Street, Boston, Massachusetts 02110. NFDS is
located at 330 W. 9th Street, Kansas City, Missouri 64105.

Custodian: State Street Bank And Trust Company (The "Custodian")
State Street also serves as the Custodian of each of the Funds.

PAGE 66 The Commerce Funds
.-----------------------------
<PAGE>

[Back Cover - Institutional Shares]

How Can I Contact The Commerce Funds?
If you would like more information about The Commerce Funds, you may request the
following documents:

Statement of Additional Information
The Statement of Additional Information (SAI) contains additional information
about the Funds and is incorporated by reference into this prospectus.

Securities and Exchange Commission Reports
You can review, after paying a duplicating fee, the reports of the Funds and the
SAI by writing to the SEC's Public Reference Section, Washington, D.C.
20459-0102 or by electronic request to: [email protected]. Call the SEC at
(202) 942-8090 for information on operation of the public reference room. You
can get copies of this information for free on the SEC's EDGAR database at
http://www.sec.gov.
- -------------------

The Funds' investment company registration number is 811-8598.

Annual and Semi-Annual Reports

The Funds' annual and semi-annual reports contain additional information about
the Funds' investments. The annual report also discusses market conditions and
investment strategies that significantly affected the Funds' performance during
their last fiscal year. To make shareholder inquiries or to receive free copies
of the SAI and the annual and semi-annual reports, contact The Commerce Funds
in writing, via the World Wide Web, or by telephone, as listed below.

[Commerce Funds Armillary Logo]
P.O. Box 219525
Kansas City, MO 64121-9525

www.commercefunds.com

1-800-995-6365
(8 a.m.-5 p.m. CST)

<PAGE>

[Front Cover - Service Shares]

The Commerce Funds
Service Shares Prospectus
March 1, 2000

The MidCap Fund
The Growth Fund
The Growth and Income Fund
The International Equity Fund
The Balanced Fund
The Short-Term Government Fund
The Bond Fund

[Commerce Funds bar logo]

<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
Overview of Each Fund
MidCap 4
Growth 8
Growth and Income 12
International Equity 16
Balanced 21
Short-Term Government 27
Bond 32
Investment Securities and Practices 37
Account Policies and Features 45
Buying Service Shares 45
Redeeming Service Shares 51
General Policies 53
Business of the Commerce Funds 55
Tax Information 56
Service Providers 57
</TABLE>

The Commerce Funds PAGE 1
---------------
.
<PAGE>

The Commerce Funds

What These Funds Are: These Funds are mutual funds. A mutual fund is a pooled
investment that gives you an opportunity to participate in financial markets.
Each Fund is professionally managed. Each Fund has stated goals that it
attempts to reach. However, as with all mutual funds, none of these Funds can
offer guaranteed results. You could lose money in these Funds.
The Commerce Funds consists of nine investment portfolios, each of which has a
separate pool of assets with separate investment objectives and policies. This
Prospectus offers Service Shares of seven of these investment portfolios.

The MidCap Fund seeks long-term capital appreciation.

The Growth Fund seeks capital appreciation and, secondarily, current income and
dividend growth potential.

The Growth and Income Fund seeks both capital appreciation and current income.

The International Equity Fund seeks total return with an emphasis on growth of
capital.

The Balanced Fund seeks total return through a balance of capital appreciation
and current income consistent with preservation of capital.

The Short-Term Government Fund seeks current income consistent with
preservation of principal.

The Bond Fund seeks total return through current income and, secondarily,
capital appreciation.

What These Funds Are Not : An investment in any of these Funds is not a bank
deposit. Your investment is not insured or guaranteed by the FDIC or any other
agency of the government.

PAGE 2 The Commerce Funds
---------------
.
<PAGE>

This prospectus describes the Services Shares of each Fund. Services Shares are
offered primarily to:

. financial planners and their clients.

The Commerce Funds is also authorized to issue an additional class of shares,
Institutional Shares, in each of the Midcap Fund, Growth Fund, Growth and
Income Fund, International Equity Fund, Balanced Fund, Short-Term Government
Fund, Bond Fund, National Tax-Free Intermediate Bond Fund and Missouri Tax-Free
Intermediate Bond Fund. Institutional Shares are offered primarily to:

. participants in employer-sponsored defined contribution plans when such plans
offer The Commerce Funds as one of their investment options;

. any investor who has been a continuous shareholder in The Commerce Funds
since January 1, 1997 or before;

. financial planners, broker/dealers and their clients.

The Commerce Funds PAGE 3
---------------
.
<PAGE>

MidCap Fund
- ---------------------------------------------------------------------------

Paul D. Cox,
CFA and
Portfolio Manager

. Joined the Investment Management Group of Commerce Bank in 1989
. Fund manager since Fund inception

. Director of Equity Management for Commerce Bank's Investment Management Group

. 20 years of experience

Please see the
table
on p. 37 for
more
detailed information
about the
investment
practices of
the MidCap
Fund and the
risks
associated
with those
practices.

Investment Objectives
-------------------------------------------------------------------------
[GRAPHIC]

. Seeks long-term capital appreciation.

Primary Investment Strategies
---------------------------------------
[GRAPHIC]

Primary Risks of Investing in the Fund
---------------------------------------
[GRAPHIC]
Investment Risk: The value of your investment in this Fund may go up or down,
which means that you could lose money.
Small Company Stock Risk: Investing in securities of smaller companies may be
riskier than investing in larger, more established companies. Smaller companies
are more vulnerable to adverse developments because of more limited product
lines, markets or financial resources. Also, smaller company stocks may trade
less often and in limited volume compared to stocks trading on a national
securities exchange. Security prices of small company stocks may be more
volatile than the prices of larger company stocks. As a result, this Fund's net
asset value may be subject to rapid and substantial changes if it invests in
small company stocks.

An investment in the Fund is not a deposit of Commerce Bank and is not insured
or guaranteed by the FDIC or any other governmental agency.

PAGE 4 The Commerce Funds
---------------
.
<PAGE>

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

MidCap Fund Past Performance
-----------------------------------------------------------
[GRAPHIC]

The chart and table below provide some indication of the risks of investing in
the Fund by showing its annual returns and long-term performance. The bar chart
shows the Fund's performance from calendar year to calendar year since
inception of the Service Shares. The table compares the Fund's performance over
time to that of a broad-based securities market index. Both charts assume
reinvestment of dividends and distributions. As with all mutual funds, how this
Fund performed in the past is not a prediction of how it will perform in the
future.

Year-by-Year Total Returns as of 12/31 Each Year

[GRAPH]
(percentage)

1999 25.56%
1998 16.92%

Best Calendar Quarter: 21.84%, 4th Quarter 1998

Worst Calendar Quarter: -16.02%, 3rd Quarter 1998

These figures do not reflect any applicable sales charges. If sales charges
were reflected, returns would be less than shown.

Average Annual Total Return as of 12/31/99

<TABLE>
<CAPTION>
Since Inception
1 Year 3 Years (1/2/97)
<S> <C> <C> <C>
MidCap Fund 25.56% N/A 20.86%
S&P 400 Mid-Cap 14.73% N/A 21.83%
Index*
</TABLE>
* The S&P 400 Mid-Cap Index is a capitalization-weighted index that measures
the performance of the mid-range sector of the U.S. stock market. The Index
figures do not reflect any fees or expenses.
continued

The Commerce Funds PAGE 5
---------------
.
<PAGE>

MidCap Fund (continued)
- ---------------------------------------------------------------------------

Fees and Expenses
-----------------------------------------------------------

<TABLE>
<CAPTION>
MidCap Fund (1)
Service Shares
<S> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (load) Imposed on Purchases (as a
percentage of offering price) 3.50%
Maximum Sales Charge (load) Imposed on Reinvested Distributions None
Maximum Deferred Sales Charge (load) Imposed on Redemptions (2) None
Redemption Fees None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 0.75%
Distribution (12b-1) Fees 0.25%
Other Expenses (3) 0.39%
-----
Total Annual Fund Operating Expenses 1.39%
=====
</TABLE>
(1) Formerly the Aggressive Growth Fund.
(2) A deferred sales charge of 1.00% is assessed on certain redemptions of
shares that are purchased with no initial sales charge as part of an
investment of $1,000,000 or more.

(3) "Other Expenses" include shareholder servicing fees of up to 0.25%,
annualized, of the average daily net assets of Shares held under the
Shareholder Administrative Services Plan.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
$487 $775 $1,084 $1,960
</TABLE>

PAGE 6 The Commerce Funds
---------------
.
<PAGE>

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

MidCap Fund Financial Highlights(a)
-----------------------------------------------------------
[GRAPHIC]

<TABLE>
<CAPTION>
Year Ended 10/31
-----------------------------
Service Shares 1999 1998 1997(b)
<S> <C> <C> <C>
Net asset value, beginning of period $ 32.40 $ 32.94 $ 28.64
Income from investment operations:
Net investment loss (0.31)(f) (0.16) (0.11)
Net realized and unrealized gains(c) 9.27 (f) 1.42 4.41
Distributions to shareholders:
From net investment income -- -- --
From net realized gains (1.61) (1.80) --
Net asset value, end of period $ 39.75 $ 32.40 $ 32.94
Total return(d) 28.63% 3.68% 15.01%
Net assets at end of period (in 000's) $ 3,384 $ 1,236 $ 658
Ratio of net expenses to average net assets 1.39% 1.41% 1.48%(e)
Ratio of net investment loss to average net
assets (0.86)% (0.82)% (0.95)%(e)
Portfolio turnover rate 98% 76% 89%
</TABLE>
(a) Formerly the Aggressive Growth Fund.
(b) Service Shares were first offered to the public on January 2, 1997.
(c) Includes the balancing effect of calculating per share amounts.
(d) 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.
(e) Annualized.

(f) Calculated based on average shares outstanding methodology.

The Commerce Funds PAGE 7
---------------
.
<PAGE>

Growth Fund
- ---------------------------------------------------------------------------

Joseph C. Williams III, CFA and Portfolio Manager

. Joined Commerce Bank in 1975
. Fund manager since Fund inception

. 23 years of experience

Please see the table on p. 37 for more detailed information about the
investment practices of the Growth Fund and the risks associated with those
practices.
Investment Objectives
-------------------------------------------------------------------------
[GRAPHIC]

. Seeks capital appreciation and, secondarily, current income and dividend
growth potential.

Primary Investment Strategies
---------------------------------------
[GRAPHIC]

. Anticipates using 45 to 60 stocks to achieve a diversified portfolio.

Primary Risks of Investing in the Fund
---------------------------------------
[GRAPHIC]

An investment in the Fund is not a deposit of Commerce Bank and is not insured
or guaranteed by the FDIC or any other governmental agency.

PAGE 8 The Commerce Funds
---------------
.
<PAGE>

- --------------------------------------------------------------------------------
Growth Fund Past Performance
-----------------------------------------------------------
[GRAPHIC]

The chart and table below provide some indication of the risks of investing in
the Fund by showing its annual returns and long-term performance. The bar chart
shows the Fund's performance from calendar year to calendar year since
inception of the Service Shares. The table compares the Fund's performance over
time to that of a broad-based securities market index. Both charts assume
reinvestment of dividends and distributions. As with all mutual funds, how this
Fund performed in the past is not a prediction of how it will perform in the
future. The Fund's performance reflects expense limitations in effect. If
expense limitations were not in place, the Fund's performance would have been
reduced.

Year-by-Year Total Returns as of 12/31 Each Year

[CHART]
1999 14.45%
1998 28.35%
(percentage)

Best Calendar Quarter: 24.91%, 4th Quarter 1998
Worst Calendar Quarter: -14.59%, 3rd Quarter 1998

These figures do not reflect any applicable sales charges. If these charges
were reflected, returns would be less than shown.

Average Annual Total Return as of 12/31/99

<TABLE>
<CAPTION>
Since Inception
1 Year 3 Years (1/2/97)
<S> <C> <C> <C>
Growth Fund 14.45% N/A 23.35%
S&P 500 Index* 21.04% N/A 27.59%
</TABLE>
* The S&P 500 Index is an unmanaged index that emphasizes large capitalization
companies. The Index figures do not reflect any fees or expenses.
continued

The Commerce Funds PAGE 9
---------------
.
<PAGE>

Growth Fund (continued)
- ---------------------------------------------------------------------------

Fees and Expenses
-----------------------------------------------------------

<TABLE>
<CAPTION>
Growth Fund
Service Shares
<S> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (load) Imposed on Purchases (as a
percentage of offering price) 3.50%
Maximum Sales Charge (load) Imposed on Reinvested Distributions None
Maximum Deferred Sales Charge (load) Imposed on Redemptions (1) None
Redemption Fees None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 0.75%
Distribution (12b-1) Fees 0.25%
Other Expenses (2) 0.33%
-----
Total Annual Fund Operating Expenses (3) 1.33%
=====
</TABLE>
(1) A deferred sales charge of 1.00% is assessed on certain redemptions of
shares that are purchased with no initial sales charge as part of an
investment of $1,000,000 or more.

(2) "Other Expenses" include shareholder servicing fees of up to 0.25%,
annualized, of the average daily net assets of Shares held under the
Shareholder Administrative Services Plan.

(3) The Adviser intends to voluntarily reimburse expenses, excluding interest,
taxes, distribution fees and extraordinary expenses, during the current
year to the extent necessary for the Growth Fund to maintain Total Annual
Fund Operating Expenses of not more than 1.38% of average daily net assets.
The Adviser reserves the right to discontinue the expense reimbursement at
any time.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
$481 $757 $1,053 $1,895
</TABLE>

PAGE 10 The Commerce Funds
---------------
.
<PAGE>

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

Growth Fund Financial Highlights
----------------------------------------------------------
[GRAPHIC]

<TABLE>
<CAPTION>
Year Ended 10/31
-------------------------
Service Shares 1999 1998 1997(a)
<S> <C> <C> <C>
Net asset value, beginning of period $ 37.29 $ 34.50 $28.26
Income from investment operations:
Net investment income (loss) (0.12) (0.01) 0.09
Net realized and unrealized gains(b) 6.37 5.05 6.25
Distributions to shareholders:
From net investment income -- (0.01) (0.10)
From net realized gains (5.47) (2.24) --
Net asset value, end of period $ 38.07 $ 37.29 $34.50
Total return(c) 17.97% 15.10% 22.47%
Net assets at end of period (in 000's) $14,468 $ 8,965 $5,758
Ratio of net expenses to average net assets 1.33% 1.33% 1.36%(d)
Ratio of net investment income (loss) to average
net assets (0.36)% (0.06)% 0.35%(d)
Portfolio turnover rate 35% 53% 32%
</TABLE>
(a) Service Shares were first offered to the public on January 2, 1997.
(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.

The Commerce Funds PAGE 11
---------------
.
<PAGE>

Growth and Income Fund
- ---------------------------------------------------------------------------

John Bartlett, CFA and Portfolio Manager

. Joined Commerce Bank in 1991
. Fund manager since Fund inception

. Director of Economic & Market Strategy for Commerce Bank's Investment
Management Group

. 22 years of experience

Please see the table on p. 37 for more detailed information about the
investment practices of the Growth and Income Fund and the risks associated
with those practices.
Investment Objectives
-------------------------------------------------------------------------
[GRAPHIC]

. Seeks capital appreciation and current income.

Primary Investment Strategies
---------------------------------------
[GRAPHIC]

. Anticipates using 50 to 70 stocks to achieve a diversified portfolio.

Primary Risks of Investing in the Fund
---------------------------------------

[GRAPHIC]
Investment Risk: The value of your investment in this Fund may go up or down,
which means that you could lose money. The types of stocks held by the Fund may
not perform as well as other types of stocks.
Market Risk: General economic conditions and/or the activities of individual
companies may cause the value of the securities in the Fund to increase or
decrease. The Fund's net asset value may fluctuate with movements in the equity
market.
Management Risk: A strategy used by the Adviser may fail to produce the
intended results.

An investment in the Fund is not a deposit of Commerce Bank, N.A. (Commerce
Bank), and is not insured or guaranteed by the FDIC or any other governmental
agency.

PAGE 12 The Commerce Funds
---------------
.
<PAGE>

- --------------------------------------------------------------------------------
Growth and Income Fund Past Performance
-----------------------------------------------------------
[GRAPHIC]

The chart and table below provide some indication of the risks of investing in
the Fund by showing its annual returns and long-term performance. The bar chart
shows the Fund's performance from calendar year to calendar year since
inception of the Service Shares. The table compares the Fund's performance over
time to that of broad-based securities market indices. Both charts assume
reinvestment of dividends and distributions. As with all mutual funds, how this
Fund performed in the past is not a prediction of how it will perform in the
future. The Fund's performance reflects expense limitations in effect. If
expense limitations were not in place, the Fund's performance would have been
reduced.

Year-by-Year Total Returns as of 12/31 Each Year

[GRAPH]
(percentage)

1999 -3.23%
1998 -1.22%

Best Calendar Quarter: 13.91%, 4th Quarter 1998
Worst Calendar Quarter: -19.83%, 3rd Quarter 1998

These figures do not reflect any applicable sales charges. If these charges
were reflected, returns would be less than shown.

Average Annual Total Return as of 12/31/99

<TABLE>
<CAPTION>
Since Inception
1 Year 3 Years (3/3/97)
<S> <C> <C> <C>
Growth and Income -3.23% N/A 7.93%
Fund
S&P 500 Index* 21.04% N/A 26.32%
Russell 1000 Value
Index** 7.34% N/A 17.17%
</TABLE>

* The S&P 500 Index is an unmanaged index that emphasizes large capitalization
companies.
** The Russell 1000 Value Index measures the performance of the 1,000 largest
U.S. companies based on total market capitalization, with lower price-to-
book ratios and lower forecasted growth values.
The Index figures do not reflect any fees or expenses.

continued

The Commerce Funds PAGE 13
---------------
.
<PAGE>

Growth and Income Fund (continued)
- ---------------------------------------------------------------------------

Fees and Expenses
-----------------------------------------------------------

<TABLE>
<CAPTION>
Growth and Income Fund
Service Shares
<S> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (load) Imposed on Purchases (as a
percentage of offering price) 3.50%
Maximum Sales Charge (load) Imposed on Reinvested
Distributions None
Maximum Deferred Sales Charge (load) Imposed on
Redemptions (1) None
Redemption Fees None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 0.75%
Distribution (12b-1) Fees 0.25%
Other Expenses (2) 0.40%
-----
Total Annual Fund Operating Expenses (3) 1.40%
=====
</TABLE>
(1) A deferred sales charge of 1.00% is assessed on certain redemptions of
shares that are purchased with no initial sales charge as part of an
investment of $1,000,000 or more.

(2) "Other Expenses" include shareholder servicing fees of up to 0.25%,
annualized, of the average daily net assets of Shares held under the
Shareholder Administrative Services Plan.

(3) The Adviser intends to voluntarily reimburse expenses, excluding interest,
taxes, distribution fees and extraordinary expenses, during the current
year to the extent necessary for the Growth and Income Fund to maintain
total annual operating expenses of not more than 1.45% of average daily net
assets. The Adviser reserves the right to discontinue the expense
reimbursement at any time.

<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
<S> <C> <C> <C> <C>
$488 $778 $1,089 $1,971
</TABLE>

PAGE 14 The Commerce Funds
---------------
.
<PAGE>

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

Growth and Income Fund Financial Highlights
----------------------------------------------------------
[GRAPHIC]

<TABLE>
<CAPTION>
Year Ended
10/31
---------------- 3/3/97(a) through
Service Shares 1999 1998 10/31/97
<S> <C> <C> <C>
Net asset value, beginning of period $ 21.73 $ 21.81 $ 18.00
Income from investment operations:
Net investment income 0.11 0.16 0.12
Net realized and unrealized gain (loss)(b) (0.11) (0.09) 3.80
Distributions to shareholders:
From net investment income (0.09) (0.11) (0.11)
From net realized gains (0.23) (0.04) --
Net asset value, end of period $ 21.41 $ 21.73 $ 21.81
Total return(c) 0.02% 0.30% 21.81%
Net assets at end of period (in 000's) $ 989 $ 1,365 $ 2,588
Ratio of net expenses to average net assets 1.40% 1.41% 1.45%(d)
Ratio of net investment income to average
net assets 0.42% 0.60% 1.02%(d)
Ratios assuming no expense reimbursements:
Ratio of expenses to average net assets 1.40% 1.41% 2.27%(d)
Ratio of net investment income to average
net assets 0.42% 0.60% 0.20%(d)
Portfolio turnover rate 64% 55% 5%
</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.

The Commerce Funds PAGE 15
---------------
.
<PAGE>

International Equity Fund
- ---------------------------------------------------------------------------

The International Equity Fund is sub-advised by Rowe Price-Fleming
International, Inc.

The Fund has an Investment Advisory Group that has day-to-day responsibility
for managing the portfolio and developing and executing the Fund's investment
program.

Please see the table on p. 37 for more detailed information about the
investment practices of the International Equity Fund and the risks associated
with those practices.
Investment Objective
---------------------------------------
[GRAHIC]

Seeks total return with an emphasis on capital growth.

Primary Investment Strategies
---------------------------------------

[GRAPHIC]

. Invests at least 65% of total assets in common stock of established companies
that conduct their principal activities or are located outside the United
States or whose securities are traded in foreign markets.
. The Fund will be invested in any of the non-U.S. regions of the global equity
markets, including (but not limited to) the Far East (including Japan) and
Europe (including the UK). The Fund will invest in emerging markets, such as
Latin America, on an opportunistic basis.
. Focuses on purchasing securities of large and, to a lesser extent, medium-
sized companies, although stocks may be purchased without regard to a
company's market capitalization. Stocks of medium-sized companies will be
purchased on an opportunistic basis.

Primary Risks of Investing in the Fund
---------------------------------------

[GRAHIC]
Investment Risk: The value of your investment in this Fund may go up or down,
which means that you could lose money. International funds, in general, have
volatile net asset values. The Fund may not be an appropriate investment if you
cannot bear financially the loss of at least a significant portion of your
investment.

PAGE 16 The Commerce Funds
---------------
.
<PAGE>

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

Market Risk: General economic conditions and/or the activities of individual
companies may cause the value of the securities in the Fund to increase or
decrease. The Fund's net asset value may fluctuate with movements in the
various international equity markets.
Management Risk: A strategy used by the Sub-Adviser may fail to produce the
intended results.

Futures/Options Risk: To the extent the Fund uses futures and options, it is
exposed to additional volatility and potential losses.

An investment in the Fund is not a deposit of Commerce Bank and is not insured
or guaranteed by the FDIC or any other governmental agency.
continued

The Commerce Funds PAGE 17
---------------
.
<PAGE>

International Equity Fund (continued)
- ---------------------------------------------------------------------------

International Equity Fund Past Performance
-----------------------------------------------------------
[GRAPHIC]

The chart and table below provide some indication of the risks of investing in
the Fund by showing its annual returns and long-term performance. The bar chart
shows the Fund's performance from calendar year to calendar year since
inception of the Service Shares. The table compares the Fund's performance over
time to that of a broad-based securities market index. Both charts assume
reinvestment of dividends and distributions. As with all mutual funds, how this
Fund performed in the past is not a prediction of how it will perform in the
future. The Fund's performance reflects expense limitations in effect. If
expense limitations were not in place, the Fund's performance would have been
reduced.

Year-by-Year Total Returns as of 12/31 Each Year

[CHART]

1999 31.57%
1998 15.24%

(percentage)

Best Calendar Quarter: 22.67%, 4th Quarter 1999

Worst Calendar Quarter: -13.34%, 3rd Quarter 1998

These figures do not reflect any applicable sales charges. If sales charges
were reflected, returns would be less than shown.

Average Annual Total Return as of 12/31/99

<TABLE>
<CAPTION>
Since Inception
1 Year 3 Years (1/2/97)
<S> <C> <C> <C>
International Equity 31.57% N/A 15.52%
Fund
MSCI EAFE Index* 27.29% N/A 16.07%
</TABLE>
* The MSCI EAFE Index is an unmanaged index composed of a sample of companies
representative of the market structure of 20 European and Pacific Basin
countries. The Index figures do not reflect any fees or expenses.

PAGE 18 The Commerce Funds
---------------
.
<PAGE>

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

Fees and Expenses
-----------------------------------------------------------
[GRAPHIC]
The following table shows the fees and expenses that you would pay directly or
indirectly if you invested in this Fund. Shareholder Fees are paid directly
from your account. Total Annual Fund Operating Expenses are deducted from the
Fund's assets, not from your account, so they affect the share price of the
Fund.

<TABLE>
<CAPTION>
International Equity Fund
Service Shares
<S> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (load) Imposed on Purchases
(as a percentage of offering price) 3.50%
Maximum Sales Charge (load) Imposed on Reinvested
Distributions None
Maximum Deferred Sales Charge (load) Imposed on
Redemptions (1) None
Redemption Fees None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees (*) 1.50%
Distribution (12b-1) Fees 0.25%
Other Expenses (2) 0.44%
-----
Total Annual Fund Operating Expenses 2.19%
Less: Fee Waiver 0.56%
-----
Net Annual Fund Operating Expenses(*) 1.63%
=====
</TABLE>

(*) The Adviser has contractually agreed to waive a portion of its management
fees at least until October 31, 2000. As a result of this fee waiver,
Management Fees will be approximately 0.94% of average daily net assets.
Net Annual Fund Operating Expenses are restated based on current expenses
for fiscal year 2000.

(1) A deferred sales charge of 1.00% is assessed on certain redemptions of
shares that are purchased with no initial sales charge as part of an
investment of $1,000,000 or more.

(2) "Other Expenses" include shareholder servicing fees of up to 0.25%,
annualized, of the average daily net assets of Shares held under the
Shareholder Administrative Services Plan.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
$510 $846 $1,205 $2,215
</TABLE>
continued

The Commerce Funds PAGE 19
---------------
.
<PAGE>

International Equity Fund (continued)
- --------------------------------------------------------------------------------

International Equity Fund Financial Highlights
-----------------------------------------------------------

[GRAPHIC]

The following table describes the Fund's performance for the time periods
stated. The total return figures show how much you would have earned (or lost)
on an investment in the Fund during each time period, assuming you had
reinvested all dividends and distributions. Some of the information reflects
financial results for a single Fund share. The information has been audited by
KPMG LLP, the Funds' independent accountants. Their report, along with the
Fund's financial statements, is incorporated by reference in the Funds'
Statement of Additional Information (available upon request).
<TABLE>
<CAPTION>
Year Ended 10/31
--------------------------
Service Shares 1999 1998 1997(a)
<S> <C> <C> <C>
Net asset value, beginning of period $ 22.92 $ 22.06 $ 21.70
Income from investment operations:
Net investment income 0.10 0.05 0.01
Net realized and unrealized gains(b) 4.34 1.44 0.35
Distributions to shareholders:
From net investment income (0.06) (0.06) --
From net realized gains -- (0.57) --
Net asset value, end of period $ 27.30 $ 22.92 $ 22.06
Total return(c) 19.39% 6.88% 1.66%
Net assets at end of period (in 000's) $ 499 $ 379 $ 231
Ratio of net expenses to average net assets 1.78% 1.87% 1.97%(d)
Ratio of net investment income to average net
assets 0.33% 0.19% 0.14%(d)
Ratios assuming no voluntary waiver of fees or
expenses limitations:
Ratio of expenses to average net assets 2.32% 2.39% 2.48%(d)
Ratio of net investment loss to average net
assets (0.21)% (0.33)% (0.37)%(d)
Portfolio turnover rate 32% 22% 22%
</TABLE>
(a) Service Shares were first offered to the public on January 2, 1997.
(b) Includes the balancing effect of calculating per share amounts.
(c) Assumes investment of 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 20 The Commerce Funds
---------------
.
<PAGE>

Balanced Fund
- --------------------------------------------------------------------------------

Scott M. Colbert, CFA and Portfolio Manager

. Joined Commerce Bank in 1993
. Fund manager since Fund inception

. Director of Fixed-Income Management for Commerce Bank's Investment Management
Group

. 13 years of experience

Joseph C. Williams III, CFA and Portfolio Manager

. Joined Commerce Bank in 1975
. Fund manager since Fund inception

. 23 years of experience

Please see the table on p. 37 for more detailed information about the
investment practices of the Balanced Fund and the risks associated with those
practices.
Investment Objectives
---------------------------------------
[GRAPHIC]

Seeks total return through a balance of capital appreciation and current
income, consistent with preservation of capital.

Primary Investment Strategies
---------------------------------------
[GRAHIC]

Equity Investment Strategies
. Normally invests the equity portion in common stocks, preferred stocks, and
securities or bonds that are convertible into common or preferred stocks.

. Normally purchases stocks of companies with market capitalizations of over
$200 million. The average capitalization of companies whose stock was held by
the Fund as of December 31, 1999 was $71.8 billion.
. Utilizes a broadly diversified portfolio with both value (low price/book and
price/earnings ratios) and growth characteristics to achieve capital
appreciation and current income.

. Maturity Distribution: To achieve capital appreciation, the Fund intends to
keep the duration of the fixed-income portfolio to within 30% of the Lehman
Brothers Aggregate

The Commerce Funds PAGE 21
---------------
.
<PAGE>

Balanced Fund (continued)
- ---------------------------------------------------------------------------

Bond Index although the Fund has no restriction on the maximum or minimum
duration of any individual security it holds. For example, if the duration of
the Lehman Brothers Aggregate Bond Index were 4.5 years, the Fund's fixed-
income assets would have a duration between 3.15 years and 5.85 years.
Duration is a linear measure of interest rate risk. For example, a portfolio
with a duration of 2 years would lose 2% of its value if interest rates rose
by 1%, or it would gain 2% if interest rates declined by 2%. A portfolio with
a duration of 4 years would be twice as volatile as a portfolio with a
duration of 2 years.
. Actively manages credit and sector allocations to enhance returns relative to
the unmanaged benchmark.

Primary Risks of Investing in the Fund
-------------------------------------------------------------------------
[GRAPHIC]

PAGE 22 The Commerce Funds
---------------
.
<PAGE>

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

Extension Risk: An issuer may exercise its right to pay principal on an
obligation held by a Fund (such as a mortgage-backed or asset-backed security)
later than expected. This may happen when interest rates rise. Under these
circumstances, the value of the obligation will decrease and a Fund will also
suffer from the inability to invest in higher-yielding securities.
Prepayment Risk: Prepayment of the underlying mortgage collateral of some
fixed-income securities may result in a decreased rate of return and a decline
in value of the securities.

An investment in the Fund is not a deposit of Commerce Bank and is not insured
or guaranteed by the FDIC or any other governmental agency.
continued

The Commerce Funds PAGE 23
---------------
.
<PAGE>

Balanced Fund (continued)
- ---------------------------------------------------------------------------

Balanced Fund Past Performance
-----------------------------------------------------------
[GRAPHIC]

The chart and table below provide some indication of the risks of investing in
the Fund by showing its annual returns and long-term performance. The bar chart
shows the Fund's performance from calendar year to calendar year since
inception of the Service Shares. The table compares the Fund's performance over
time to that of a broad-based securities market index. Both charts assume
reinvestment of dividends and distributions. As with all mutual funds, how this
Fund performed in the past is not a prediction of how it will perform in the
future. The Fund's performance reflects expense limitations in effect. If
expense limitations were not in place, the Fund's performance would have been
reduced.

Year-by-Year Total Returns as of 12/31 Each Year

[GRAPH]

1999 4.96%
1998 12.92%

(percentage)

Best Calendar Quarter: 11.48%, 4th Quarter 1998
Worst Calendar Quarter: -8.34%, 3rd Quarter 1998

These figures do not reflect any applicable sales charges. If sales charges
were reflected, returns would be less than shown.

Average Annual Total Return as of 12/31/99

<TABLE>
<CAPTION>
Since Inception
1 Year 3 Years (1/2/97)
<S> <C> <C> <C>
Balanced Fund 4.96% N/A 12.64%
S&P 500 Index* 21.04% N/A 27.59%
Lehman Bros. Aggregate Bond Index** -.82% N/A 5.74%
60% S&P 500/40% Lehman Bros. Aggregate Bond 12.00% N/A 18.78%
Index***
</TABLE>
* The Standard & Poor's 500 Index is an unmanaged index that emphasizes large
capitalization companies.
** The Lehman Brothers Aggregate Bond Index is a broad market-weighted index
comprised of three major classes of investment grade bonds with maturities
greater than one year.
*** The 60% S&P 500/40% Lehman Brothers Aggregate Bond Index is a composite of
the S&P 500 Index (with income) (weighted at 60%) and the Lehman Brothers
Aggregate Bond Index (weighted at 40%).
The Index figures do not reflect any fees or expenses.

PAGE 24 The Commerce Funds
---------------
.
<PAGE>

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

Fees and Expenses
-----------------------------------------------------------
[GRAPHIC]

<TABLE>
<CAPTION>
Balanced Fund
Service Shares
<S> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (load) Imposed on Purchases
(as a percentage of offering price) 3.50%
Maximum Sales Charge (load) Imposed on Reinvested Distributions None
Maximum Deferred Sales Charge (load) Imposed on Redemptions (1) None
Redemption Fees None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 1.00%
Distribution (12b-1) Fees 0.25%
Other Expenses (2) 0.46%
-----
Total Annual Fund Operating Expenses 1.71%
Less: Fee Waiver and Expense Reimbursement 0.43%
-----
Net Annual Fund Operating Expenses (3) 1.28%
=====
</TABLE>

(1) A deferred sales charge of 1.00% is assessed on certain redemptions of
shares that are purchased with no initial sales charge as part of an
investment of $1,000,000 or more.

(2) "Other Expenses" include shareholder servicing fees of up to 0.25%,
annualized, of the average daily net assets of Shares held under the
Shareholder Administrative Services Plan.

(3) Effective March 1, 2000, the Adviser has contractually agreed to reduce or
limit the Total Annual Fund Operating Expenses, excluding interest, taxes
and extraordinary expenses, at least until October 31, 2000, such that the
Net Annual Fund Operating Expenses are expected to be 1.28% for fiscal year
2000.

<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
<S> <C> <C> <C> <C>
$476 $742 $1,028 $1,841
</TABLE>

continued

The Commerce Funds PAGE 25
---------------
.
<PAGE>

Balanced Fund (continued)
- ------------------------------------------------------------------

Balanced Fund Financial Highlights
-----------------------------------------------------------
[GRAPHIC]

<TABLE>
<CAPTION>
Year Ended 10/31
-----------------------
Service Shares 1999 1998 1997(a)
<S> <C> <C> <C>
Net asset value, beginning of period $27.01 $26.66 $23.25
Income from investment operations:
Net investment income 0.64 0.53 0.40
Net realized and unrealized gains(b) 1.22 1.65 3.42
Distributions to shareholders:
From net investment income (0.62) (0.53) (0.41)
From net realized gains (2.98) (1.30) --
Net asset value, end of period $25.27 $27.01 $26.66
Total return(c) 7.38% 8.36% 16.53%
Net assets at end of period (in 000's) $2,735 $2,594 $1,219
Ratio of net expenses to average net assets 1.38% 1.38% 1.38%(d)
Ratio of net investment income to average net
assets 2.47% 1.99% 2.13%(d)
Ratios assuming no voluntary waiver of fees or
expense limitations:
Ratio of expenses to average net assets 1.74% 1.74% 1.78%(d)
Ratio of net investment income to average net
assets 2.11% 1.63% 1.73%(d)
Portfolio turnover rate 11% 68% 31%
</TABLE>
(a) Service Shares were first offered to the public on January 2, 1997.
(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, and 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 26 The Commerce Funds
---------------
.
<PAGE>

Short-Term Government Fund
- --------------------------------------------------------------------------------

Scott M. Colbert, CFA and Portfolio Manager

. Joined Commerce Bank in 1993
. Fund manager since Fund inception

. Director of Fixed-Income Management for Commerce Bank's Investment Management
Group

. 13 years of experience

Please see the table on p. 37 for more detailed information about the
investment practices of the Short-Term Government Fund and the risks associated
with those practices.
Investment Objectives
---------------------------------------
[GRAPHIC]

Seeks current income consistent with preservation of principal.

Primary Investment Strategies
---------------------------------------
[GRAPHIC]

The Fund employs the following strategies in an effort to achieve current
income and principal preservation:

. Actively manages maturities to take advantage of changes in interest rates.
The dollar-weighted average maturity of the Fund's investments will not
exceed three years.

Primary Risks of Investing in the Fund
---------------------------------------

[GRAPHIC]
Investment Risk: The value of your investment in this Fund may go up or down,
which means that you could lose money.
Interest Rate Risk: Generally, the market value of fixed-income securities in
the Fund can be expected to go up when interest rates go down and to go down
when interest rates go up. Longer-term bonds and zero coupon bonds are usually
more sensitive to interest rate changes than shorter-term bonds. In general,
the longer the average maturity of bonds in the Fund, the more the Fund's share
price will go up or down in response to interest rate changes.
Market Risk: General economic conditions and/or the activities of individual
companies may cause the value of the securities in the Fund to increase or
decrease.

The Commerce Funds PAGE 27
---------------
.
<PAGE>

Short-Term Government Fund (continued)
- ---------------------------------------------------------------------------

Credit Risk: An issuer of fixed-income securities could default on its
obligation to pay interest and repay principal. A bond's credit rating could be
downgraded. The Fund could lose money in either of these instances.
Management Risk: A strategy used by the Adviser could fail to produce the
intended results.

An investment in the Fund is not a deposit of Commerce Bank and is not insured
or guaranteed by the FDIC or any other governmental agency.

PAGE 28 The Commerce Funds
---------------
.
<PAGE>

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

Short-Term Government Fund Past Performance
-----------------------------------------------------------
[GRAPHIC]

The chart and table below provide some indication of the risks of investing in
the Fund by showing its annual returns and long-term performance. The bar chart
shows the Fund's performance from calendar year to calendar year since
inception of the Service Shares. The table compares the Fund's performance over
time to that of a broad-based securities market index. Both charts assume
reinvestment of dividends and distributions. As with all mutual funds, how this
Fund performed in the past is not a prediction of how it will perform in the
future. The Fund's performance reflects expense limitations in effect. If
expense limitations were not in place, the Fund's performance would have been
reduced.

Year-By-Year Total Returns as of 12/31 Each Year

[GRAPH]
1999 1.78%
1998 6.87%
(percentage)

Best Calendar Quarter: 3.51%, 3rd Quarter 1998

Worst Calendar Quarter: 0.04%, 2nd Quarter 1999

These figures do not reflect any applicable sales charges. If sales charges
were reflected, returns would be less than shown.

Average Annual Total Return as of 12/31/99

<TABLE>
<CAPTION>
Since Inception
1 Year 3 Years (1/2/97)
<S> <C> <C> <C>
Short-Term Government Fund 1.78% N/A 5.07%
Salomon Brothers 1-5 Year Treasury/Govt. 2.01% N/A 5.59%
Sponsored Index *
</TABLE>

The Commerce Funds PAGE 29
---------------
.
<PAGE>

Short-Term Government Fund (continued)
- ---------------------------------------------------------------------------

Fees and Expenses
-----------------------------------------------------------

[GRAPHIC]
The following table shows the fees and expenses that you would pay directly or
indirectly if you invested in this Fund. Shareholder Fees are paid directly
from your account. Total Annual Fund Operating Expenses are deducted from the
Fund's assets, not from your account, so they affect the share price of the
Fund.
<TABLE>
<CAPTION>
Short-Term Government Fund
Service Shares
<S> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (load) Imposed on Purchases
(as a percentage of offering price) 2.00%
Maximum Sales Charge (load) Imposed on Reinvested
Distributions None
Maximum Deferred Sales Charge (load) Imposed on
Redemptions (1) None
Redemption Fees None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 0.50%
Distribution (12b-1) Fees 0.25%
Other Expenses (2) 0.42%
-----
Total Annual Fund Operating Expenses 1.17%
Less: Fee Waiver and Expense Reimbursement 0.24%
-----
Net Annual Fund Operating Expenses (3) 0.93%
=====
</TABLE>

(1) A deferred sales charge of 1.00% is assessed on certain redemptions of
shares that are purchased with no initial sales charge as part of an
investment of $1,000,000 or more.

(2) "Other Expenses" include shareholder servicing fees of up to 0.25%,
annualized, of the average daily net assets of Shares held under the
Shareholder Administrative Services Plan.

(3) The Adviser has contractually agreed to reduce or limit the Total Annual
Fund Operating expenses, excluding interest, taxes and extraordinary
expenses, at least until October 31, 2000, to 0.93% of the Fund's average
daily net assets.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
$293 $490 $704 $1,320
</TABLE>

PAGE 30 The Commerce Funds
---------------
.
<PAGE>

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

Short-Term Government Fund Financial Highlights
-----------------------------------------------------------
[GRAPHIC]

<TABLE>
<CAPTION>
Year Ended 10/31
-----------------------
Service Shares 1999 1998 1997(a)
<S> <C> <C> <C>
Net asset value, beginning of period $18.79 $18.48 $18.37
Income from investment operations:
Net investment income 1.00 1.06 0.92
Net realized and unrealized gains (loss)(b) (0.72) 0.31 0.11
Distribution to shareholders:
From net investment income (0.99) (1.06) (0.92)
From net realized gains (0.01) -- --
Net asset value, end of period $18.07 $18.79 $18.48
Total return(c) 1.57% 7.67% 5.81%
Net assets at end of period $1,022 $ 968 $ 450
Ratio of net expenses to average net assets 0.93% 0.93% 0.93%(d)
Ratio of net investment income to average net assets 5.46% 5.63% 5.64%(d)
Ratios assuming no voluntary waiver of fees or
expense limitations:
Ratio of expenses to average net assets 1.17% 1.29% 1.36%(d)
Ratio of net investment income to average net assets 5.22% 5.28% 5.21%(d)
Portfolio turnover rate 10% 48% 36%
</TABLE>
(a) Service Shares were first offered to the public on January 2, 1997.
(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.

The Commerce FundsPAGE 31
---------------
.
<PAGE>

Bond Fund
- ---------------------------------------------------------------------------

Scott M. Colbert, CFA and Portfolio Manager
. Joined Commerce in 1993
. Fund manager since Fund inception

. Director of Fixed-Income Management for

Commerce Bank's Investment Management Group

. 13 years of experience

Please see the table on p. 37 for more detailed information about the
investment practices of the Bond Fund and the risks associated with those
practices.

Investment Objective
---------------------------------------
[GRAPHIC]

Seeks total return through current income and, secondarily, capital
appreciation.

Primary Investment Strategies
---------------------------------------
[GRAPHIC]

. Credit Quality: Invests at least 65% of its total assets in fixed-income
securities (bonds) rated at the time of purchase A- or better by one of the
four major ratings services or considered by the Adviser to be of equivalent
quality.
. The market-weighted average credit rating of the Fund's entire portfolio will
be AA-/Aa3 or better.
. Security Types: In seeking current income and capital appreciation, the Fund
invests in a diversified portfolio of investment-grade corporate debt
obligations and obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. The Fund may invest up to 65% of its total
assets in mortgage-backed and asset-backed securities.
. Maturity Distribution: To achieve capital appreciation, the Fund's average
effective duration will be within 30% of the duration of the Lehman Brothers
Aggregate Bond Index, although the Fund has no restriction on the maximum or
minimum duration of any individual security it holds. For example, if the
duration of the Lehman Aggregate Bond Index were 4.5 years, the Fund's assets
would have a duration of between 3.15 years and 5.85 years.

Primary Risks of Investing in the Fund
---------------------------------------

[GRAPHIC]
Investment Risk: The value of your investment in this Fund may go up or down,
which means that you could lose money.
Market Risk: General economic conditions and/or the activities of individual
companies may cause the value of the securities in the Fund to increase or
decrease.
Interest Rate Risk: Generally, the market value of fixed-income securities can
be expected to go up when interest rates go down and to go down when interest
rates go up.
Credit Risk: An issuer of bonds may default on its obligation to pay interest
and repay principal. Also, a bond's credit rating

PAGE 32 The Commerce Funds
---------------
.
<PAGE>

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

could be downgraded. The Fund could lose money in either of these instances.
The Fund may invest up to 35% of its assets in obligations rated BBB or Baa by
certain ratings services. These obligations are considered to have speculative
characteristics and are riskier than higher-rated obligations.
Management Risk: A strategy used by the Adviser may fail to produce the
intended results.
Mortgage-Backed Risk: Mortgage-backed securities, especially collateralized
mortgage-backed securities, may be subject to additional risks, including price
volatility, liquidity, and enhanced sensitivity to interest rates.
Asset-Backed Risk: Asset-backed securities may involve certain risks not
presented by other securities. These risks include a greater risk of default
during periods of economic downturn than other securities. Also, asset-backed
securities may be less liquid than other securities and therefore more
difficult to value and liquidate, if necessary.
Call Risk: An issuer may exercise its right to pay principal on an obligation
held by the Fund (such as a mortgage-backed or asset-backed security) earlier
than expected. This may happen when interest rates decline. Under these
circumstances, the Fund may be unable to recoup all of its initial investment
and will also suffer from having to reinvest in lower yielding securities.
Extension Risk: An issuer may exercise its right to pay principal on an
obligation held by the Fund (such as a mortgage-backed or asset-backed
security) later than expected. This may happen when interest rates rise. Under
these circumstances, the value of the obligation will decrease and the Fund
will also suffer from the inability to invest in higher-yielding securities.
Prepayment Risk: Prepayment of the underlying mortgage collateral of some
fixed-income securities may result in a decreased rate of return and a decline
in value of the securities.
Maturity Risk: The Fund will not necessarily hold its securities to maturity,
which could result in loss of principal.

An investment in the Fund is not a deposit of Commerce Bank and is not insured
or guaranteed by the FDIC or any other governmental agency.
continued

The Commerce Funds PAGE 33
---------------
.
<PAGE>

Bond Fund (continued)
- ---------------------------------------------------------------------------

Bond Fund Past Performance
-----------------------------------------------------------
[GRAPHIC]

The chart and table below provide some indication of the risks of investing in
the Fund by showing its annual returns and long-term performance. The bar chart
shows the Fund's performance from calendar year to calendar year since
inception of the Service Shares. The table compares the Fund's performance over
time to that of a broad-based securities market index. Both charts assume
reinvestment of dividends and distributions. As with all mutual funds, how this
Fund performed in the past is not a prediction of how it will perform in the
future. The Fund's performance reflects expense limitations in effect. If
expense limitations were not in place, the Fund's performance would have been
reduced.

Year-By-Year Total Returns as of 12/31 Each Year

[GRAPH]

1999 -1.17%
1998 7.95%

(percentage)

Best Calendar Quarter: 4.18%, 3rd Quarter 1998

Worst Calendar Quarter: -1.22%, 2nd Quarter 1999

These figures do not reflect any applicable sales charges. If sales charges
were reflected, returns would be less than shown.

Average Annual Total Return as of 12/31/99

<TABLE>
<CAPTION>
Since Inception
1 Year 3 Years (1/2/97)
<S> <C> <C> <C>
Bond Fund -1.17% N/A 5.11%
Lehman Bros. -.82% N/A 5.74%
Aggregate Bond
Index*
</TABLE>
* The Lehman Brothers Aggregate Bond Index is a broad market-weighted index
comprised of three major classes of investment-grade bonds with maturities
greater than one year. The Index figures do not reflect any fees or expenses.

PAGE 34 The Commerce Funds
---------------
.
<PAGE>

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

Fees and Expenses
-----------------------------------------------------------
[GRAPHIC]

<TABLE>
<CAPTION>
Bond Fund
Service Shares
<S> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (load) Imposed on Purchases (as a
percentage of offering price) 3.50%
Maximum Sales Charge (load) Imposed on Reinvested Distributions None
Maximum Deferred Sales Charge (load) Imposed on Redemptions (1) None
Redemption Fees None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 0.50%
Distribution (12b-1) Fees 0.25%
Other Expenses (2) 0.31%
-----
Total Annual Fund Operating Expenses (3) 1.06%
=====
</TABLE>
(1) A deferred sales charge of 1.00% is assessed on certain redemptions of
shares that are purchased with no initial sales charge as part of an
investment of $1,000,000 or more.

(2) "Other Expenses" include shareholder servicing fees of up to 0.25%,
annualized, of the average daily net assets of Shares held under the
Shareholder Administrative Services Plan.

(3) The Adviser intends to voluntarily reimburse expenses, excluding interest,
taxes, distribution fees and extraordinary expenses, during the current
year to the extent necessary for the Bond Fund to maintain Total Annual
Fund Operating Expenses of not more than 1.13% of average daily net assets.
The Adviser reserves the right to discontinue the expense reimbursement at
any time.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
$454 $675 $914 $1,599
</TABLE>
continued

The Commerce Funds PAGE 35
---------------
.
<PAGE>

Bond Fund (continued)
- --------------------------------------------------------------------------------
Bond Fund Financial Highlights
-----------------------------------------------------------
[GRAPHIC]

<TABLE>
<CAPTION>
Year Ended 10/31
-----------------------
Service Shares 1999 1998 1997(a)
<S> <C> <C> <C>
Net asset value, beginning of period $19.85 $19.43 $19.00
Income from investment operations:
Net investment income 1.11 1.11 0.94
Net realized and unrealized gains (loss)(b) (1.05) 0.42 0.43
Distributions to shareholders:
From net investment income (1.11) (1.11) (0.94)
From net realized gains (0.23) -- --
Net asset value, end of period $18.57 $19.85 $19.43
Total return(c) 0.29% 8.05% 7.48%
Net assets at end of period (in 000s) $1,180 $1,059 $ 739
Ratio of net expenses to average net assets 1.06% 1.08% 1.10%(d)
Ratio of net investment income to average net assets 5.80% 5.59% 5.67%(d)
Portfolio turnover rate 16% 30% 19%
</TABLE>

(a) Service Shares were first offered to the public on January 2, 1997.
(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 36 The Commerce Funds
---------------
.
<PAGE>

Investment Securities and Practices
----------------------------------------------------------------------

This table shows some of the investment methods and securities that the
Funds may use. The Funds' Statement of Additional Information (available on
request) contains a more complete discussion of the securities and
practices each Fund may use, and the risks involved. The Funds' Annual
Report shows the securities and practices each Fund is currently using. We
encourage you to obtain and read a copy of the Statement of Additional
Information and the Annual Report should you have any questions about the
Funds' investment policies.

<TABLE>
<S> <C>
Key:
#t= percent of total assets the Fund
may invest (x)= not permitted
#n= percent of net assets the Fund may
invest e = equity portion of the Fund
a= permitted f = fixed-income portion of the Fund
</TABLE>

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

<TABLE>
<CAPTION>
Growth Internat'l Short-Term
MidCap Growth & Income Equity Balanced Government Bond
Investment Securities
<S> <C> <C> <C> <C> <C> <C> <C>
American Depository
Receipts 10t/2/ 10t/2/ 10t/2/ a 10e/1/ (x) (x)
Asset-Backed Securities (x) (x) (x) (x) 65f/1/ (x) 65t/4/
Convertible Securities a a a a ae (x) a
Corporate Debt
Obligations (x) (x) (x) a af/1/ (x) a
Emerging Market
Securities (x) (x) (x) a (x) (x) (x)
Equity Securities a a a a ae (x) (x)
European Depository
Receipts (x) (x) (x) a (x) (x) (x)
Foreign Equity
Securities 10t/2/ 10t/2/ 10t/2/ a 10e/1/ (x) (x)
Foreign Debt and Foreign
Government Securities (x) (x) (x) a 20f /1/ (x) 20t
Hybrids (x) (x) (x) 10t (x) (x) (x)
Mortgage-Related
Securities (x) (x) (x) (x) 65f /1/ a/3/ 65t/4/
Municipal Obligations (x) (x) (x) (x) 20f /1/ (x) 20t
Stripped Securities (x) (x) (x) (x) af (x) a
U.S. Government
Obligations a a a a af a/3/ a
Variable and Floating
Rate
Instruments a a a a a a a
Zero Coupon Bonds a a a a af a a
</TABLE>

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

The Commerce Funds PAGE 37
---------------
.
<PAGE>

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

<TABLE>
<CAPTION>
Growth Internat'l Short-Term
MidCap Growth & Income Equity Balanced Government Bond
Investment Practices
<S> <C> <C> <C> <C> <C> <C> <C>
Cross Hedging of
Currencies (x) (x) (x) a (x) (x) (x)
Foreign Currency
Exchange
Contracts (x) (x) (x) a (x) (x) (x)
Futures Contracts &
Related
Options a a a a af (x) a
Interest Rate Swaps,
Mortgage
Swaps, Caps and Floors (x) (x) (x) (x) af a a
Mortgage Dollar Rolls (x) (x) (x) (x) af a a
Options on Foreign
Currencies (x) (x) (x) a (x) (x) (x)
Options on Securities
and
Securities Indices 25t 25t 25t 5t 5t 5t 5t
Repurchase Agreements 33 1/3t 33 1/3t 33 1/3t 33 1/3t 33 1/3t 33 1/3t 33 1/3t
Standby Commitments (x) (x) (x) (x) (x) (x) (x)
When-Issued and Forward
Commitments a a a a af a a
</TABLE>
-----------------------------------------------------------------------------

(2) The MidCap, Growth, and Growth and Income Funds may invest up to 10% of
their total assets in foreign securities, including ADRs.

(4) The Bond Fund may invest up to 65% of its total assets in asset-backed
and/or mortgage-related securities.

PAGE 38 The Commerce Funds
---------------
.
<PAGE>

Risks: The following chart summarizes the types of risks from which loss
may result. More information about risks associated with the Funds provided
on the following pages and in the Funds' Statement of Additional
Information, which is available on request.

-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Growth Internat'l Short-Term
MidCap Growth & Income Equity Balanced Government Bond
Risks Associated with
These Investments
<S> <C> <C> <C> <C> <C> <C> <C>
Asset-Backed Risk X X
Call Risk X X X
Credit Risk X X X
Currency Risk
Emerging Market Risk X
Extension Risk X X X
Euro Risk X
Foreign Risk X X
Futures/Options Risk X
Government Securities
Risk X
Interest Rate Risk X X X
Investment Risk X X X X X X X
Management Risk X X X X X X X
Market Risk X X X X X X X
Maturity Risk X X
Mortgage-Backed Risk X X X
Prepayment Risk X X X
Small Company Stock Risk X
Year 2000 Risk X X X X X X X
</TABLE>
-----------------------------------------------------------------------------

Asset-Backed Risk: Asset-backed securities may involve certain risks not
presented by other securities. These risks include a greater chance of
default during periods of economic downturn than other securities. Also,
asset-backed securities may be less liquid and therefore more difficult to
value and liquidate, if necessary. Ultimately, asset-backed securities are
dependent upon payment of the underlying consumer loans or receivables by
individuals, and the certificate holder frequently has no recourse against
the entity that originated the loans or receivables. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of
which have given debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. In addition, default may
require repossession of the personal property of the debtor, which may be
difficult or impossible in some cases. Most issuers of automobile
receivables permit the servicers to return possession of the underlying
obligations. If the servicers were to sell these obligations to another
party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the number of vehicles involved in a typical issuance
and technical requirements under state law, the trustee for the

The Commerce Funds PAGE 39
---------------
.
<PAGE>

automobile receivables may not have an effective security interest in all
of the obligations backing such receivables. Therefore, there is a
possibility that recoveries of repossessed collateral may not, in some
cases, be able to support payments on these securities.
Call Risk: An issuer may exercise its right to pay principal on an
obligation held by a Fund (such as a mortgage-backed or asset-backed
security) earlier than expected. This may happen when interest rates
decline. Under these circumstances, a Fund may be unable to recoup all of
its initial investment and will also suffer from having to reinvest in
lower-yielding securities.
Credit Risk: An issuer of bonds may default on its obligation to pay
interest and repay principal. A bond's credit rating could be downgraded. A
Fund could lose money in either of these instances. The Bond Fund may
invest up to 35% of its assets in obligations rated BBB or Baa by certain
ratings services. These obligations are considered to have speculative
characteristics and are riskier than higher rated obligations.
Currency Risk: Fluctuations in the exchange rates between the U.S. dollar
and foreign currencies may negatively affect an investment. A decline in
the value of a foreign currency versus the U.S. dollar reduces the dollar
value of securities denominated in that currency. Exchange rate movements
can be large and unpredictable and can last for extended periods. Absent
other events which could otherwise affect the value of a foreign security
(such as a change in the political climate or an issuer's credit quality),
appreciation in the value of a foreign currency generally can be expected
to increase the value of a foreign currency-denominated security in terms
of U.S. dollars. An increase in foreign interest rates or a decline in the
value of the foreign currency relative to the U.S. dollar generally can be
expected to depress the value of a foreign currency-denominated security.
Although a Fund may invest in securities denominated in foreign currencies,
its portfolio securities and other assets are valued in U.S. dollars.
Currency exchange rates may fluctuate significantly over short periods of
time causing, together with other factors, a Fund's net asset value to
fluctuate as well. Currency exchange rates generally are determined by the
forces of supply and demand in the foreign exchange markets and the
relative merits of investments in different countries, actual or
anticipated changes in interest rates and other complex factors, as seen
from an international perspective. Currency exchange rates also may be
affected unpredictably by the intervention or the failure to intervene by
U.S. or foreign governments or central banks, or by currency controls or
political developments in the U.S. or foreign governments or central banks,
or by currency controls or political developments in the U.S. or abroad. To
the extent that a Fund's total assets, adjusted to reflect the Fund's net
position after giving effect to currency transactions, are denominated in
the currencies of foreign countries, the Fund will be more susceptible to
the risk of adverse economic and political developments within those
countries. In addition, the respective net currency positions of the
International Equity Fund may expose it to risks independent of its
securities positions. Although the net long and short foreign currency
exposure of the International Equity Fund will not exceed its total asset
value, to the extent that the Fund is fully invested in foreign securities
while also maintaining currency positions, it may be exposed to greater
risk than would have if it did not maintain the currency positions. The
Funds investing in foreign securities are all subject to the possible
imposition of exchange control regulations or freezes on convertibility of
currency.

PAGE 40 The Commerce Funds
---------------
.
<PAGE>

The International Equity Fund may enter into forward currency exchange
contracts in an effort to hedge all or any portion of its portfolio positions.
Specifically, foreign currency contracts may be used for this purpose to reduce
the level of volatility caused by changes in foreign currency exchange rates or
when such transactions are economically appropriate for the reduction of risks
in the ongoing management of the Fund. Although the contracts may be used to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time they tend to limit any potential gain that might be realized
should the value of such currency increase. The Fund may also enter into
foreign currency exchange contracts to seek to increase total return when the
Adviser anticipates that a foreign currency will appreciate or depreciate in
value, but securities denominated in that currency do not present attractive
investment opportunities and are not held by the Fund. In addition, the
International Equity Fund may engage in cross-hedging by using forward
contracts in one currency to hedge against fluctuations in the value of
securities denominated in a different currency if the Adviser believes that
there is a pattern of correlation between the currencies.
Emerging Market Risk: To the extent that a Fund has investments in emerging
market countries, it will be subject to abrupt and severe price declines. Many
of the economic and political structures of these countries do not compare
favorably with the United States in terms of wealth and stability, and their
financial markets may lack liquidity. Investments in these countries are much
riskier than those in mature countries. The International Equity Fund may
invest its assets in countries with emerging economies or securities markets.
Most of these countries are located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. Political and economic structures in many
of these countries may be undergoing significant evolution and rapid
development, and such countries may lack the social, political and economic
stability characteristic of more developed countries. Some of these countries
may have failed in the past to recognize private property rights and at times
have nationalized or expropriated the assets of private companies. As a result,
the risks of investing in foreign securities, including the risks of
nationalization and expropriation may be heightened. In addition, unanticipated
political or social developments may affect the value of the Fund's investments
in those countries and the availability of additional investments in those
countries. The small size and inexperience of the securities markets in certain
countries and limited volume of trading in securities in those countries may
make the Fund's investments in such countries illiquid and more volatile than
investments in most Western European countries. There may be little financial
or accounting information available with respect to issuers located in certain
of such countries, and it may be difficult as a result to assess the value or
prospects of an investment in such issuers.
Extension Risk: An issuer may exercise its right to pay principal on an
obligation held by a Fund (such as a mortgage-backed or asset-backed security)
later than expected. This may happen when interest rates rise. Under these
circumstances, the value of the obligation will decrease and a Fund will also
suffer from the inability to invest in higher-yielding securities.

The Commerce Funds PAGE 41
---------------
.
<PAGE>

Euro Risk: The european common currency, the euro, was introduced on January 1,
1999. The move to a common currency by 11 diverse nations with varying economic
and political systems does carry risks for funds with significant investments
in euro-denominated assets. (The participating nations are Germany, France,
Italy, the Netherlands, Spain, Portugal, Austria, Belgium, Finland, Ireland,
and Luxembourg.) The euro, or the economies of those countries, could be
adversely affected if the European Economic and Monetary Union does not appear
to be working smoothly. On the other hand, the euro may be beneficial over time
by encouraging competition and productivity. Because of the number of countries
using this single currency, a significant portion of the assets held by the
Funds may be denominated in the euro.

PAGE 42 The Commerce Funds
---------------
.
<PAGE>

high-risk derivative) give the investor the right (where the investor purchases
the option), or the obligation (where the investor writes (sells) the option),
to buy or sell an asset at a predetermined price in the future. Futures and
options contracts may be made or sold for any number of reasons, including: to
manage fund exposure to changes in securities prices and foreign currencies; as
an efficient means of adjusting fund overall exposure to certain markets; in an
effort to enhance income; as a cash management tool; to protect the value of
portfolio securities; and to adjust portfolio duration. Call and put options
may be purchased or sold on securities, financial indices, and foreign
currencies.

Futures contracts and options may not always be successful hedges; their prices
can be highly volatile; using them could lower fund total return and the
potential loss from the use of futures can exceed the fund's initial investment
in such contracts.
Government Securities Risk: The U.S. Government may not provide financial
support to U.S. Government agencies, instrumentalities or sponsored enterprises
if it is not obligated to do so by law.

Mortgage-Backed Risk: In addition to prepayment, call and extension risks,
mortgage-backed securities may be subject to special risks, including price
volatility, liquidity, and enhanced sensitivity to interest rates.
Collateralized mortgage-backed securities (CMOs) may exhibit even more price
volatility and interest rate risk than other mortgage-backed securities. They
may lose liquidity as CMO market makers may choose not to repurchase, or may
offer prices, based on current market conditions, that are unacceptable to the
Fund based on the Adviser's analysis of the market value of the security. The
Bond and Balanced Funds may purchase "stripped" mortgage-backed securities
(SMBS) and other types of "stripped" securities. SMBS, in particular, are more
volatile and sensitive to

The Commerce Funds PAGE 43
---------------
.
<PAGE>

interest rate changes than ordinary debt securities, and there is a greater
risk that a Fund's initial investment in these securities may not be fully
recouped.
Prepayment Risk: Prepayment of the underlying mortgage collateral of some
fixed-income securities may result in a decreased rate of return.
Small Company Stock Risk: Investing in securities of smaller companies may be
riskier than investing in securities of larger, more established companies.
Smaller companies are more vulnerable to adverse developments because of more
limited product lines, markets or financial resources. They often depend on a
smaller, less experienced management group. Also, smaller company stocks may
trade less often and in limited volume compared to stocks trading on a national
securities exchange. Security prices of small company stocks may be more
volatile than the prices of larger company stocks. As a result, a Fund's NAV
may be subject to rapid and substantial changes if it invests in small company
stocks.
Year 2000 Risk: Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used by the Adviser and the Funds' other
service providers do not properly process and calculate date-related
information and dates from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The Adviser has taken and will continue to take steps
to address the Year 2000 Problem with respect to the computer systems that it
uses and to obtain assurance that comparable steps have been taken and will be
taken by the Funds' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Funds as a result of the Year 2000 Problem. The Year 2000 Problem
could also adversely impact a Fund's portfolio holdings and the markets in
which they invest, causing their shares prices to go down.
Risks of Short-term Investing: For temporary defensive purposes, the Adviser
may decide to suspend the normal investment activities of a Fund by investing
up to 100% of its assets in cash and cash equivalent short-term obligations,
including money market instruments, a term that includes bank obligations,
commercial paper, U.S. Government obligations, foreign government securities
(if permitted) and repurchase agreements. Bank obligations include obligations
of foreign banks or foreign branches of U.S. banks. The Adviser may temporarily
adopt a defensive position to reduce changes in the value of the Fund's shares
that may result from adverse market, economic, political or other conditions.
When the Adviser pursues a temporary defensive strategy, the Funds may not be
following their stated objectives and may not profit from favorable
developments that they would have otherwise profited from if they were pursuing
their normal investment strategies.
Portfolio Turnover: The Funds may buy and sell investments relatively often.
Such a strategy often involves higher expenses, including brokerage
commissions, and may increase the amount of capital gains (and, in particular,
short-term gains) realized by a portfolio. Shareholders must pay tax on such
capital gains.

PAGE 44 The Commerce Funds
---------------
.
<PAGE>

Account Policies And Features
- --------------------------------------------------------------------------------

Buying Service Shares
- --------------------------------------------------------------------------------

How Are Service Shares Priced?
You pay a sales charge (load) to invest in these Funds. Service Shares of the
Funds are purchased at their public offering price (POP), which is a Fund's net
asset value (NAV) per share plus a front-end sales charge. The NAV is generally
calculated as of the close of trading (usually 4 p.m. Eastern time) on the New
York Stock Exchange (NYSE) every day the NYSE is open. Your order will be
priced at the NAV next calculated after your order is received in good order by
The Commerce Funds' Transfer Agent plus any applicable sales charge. Therefore,
to receive the NAV of any given day, The Commerce Funds must accept your order
by the close of regular trading on the NYSE that day. If The Commerce Funds
receives and accepts your order after the NYSE closes, you will receive the NAV
that is calculated on the close of trading on the following day. The Commerce
Funds are open for business on the same days as the NYSE. Each Fund's
investments are valued based on market value, or where market quotations are
not readily available, based on fair value as determined in good faith by the
Funds' Board of Trustees. Certain short-term securities may be valued at
amortized cost, which approximates fair value.

How to Calculate NAV

<TABLE>
<S> <C> <C>
(Value of Assets Attributable to the Class) - (Liabilities Attributable to the Class)
NAV = Number of Outstanding Shares of the Class
</TABLE>

The Commerce Funds PAGE 45
---------------
.
<PAGE>

Sales Charge: The maximum front-end sales charge is 3.50% for each Fund (except
the Short-Term Government Fund, which is 2.00%) and may be less based on the
amount you invest, as shown in the following chart:

All Funds Except The Short-Term Government Fund:

<TABLE>
<CAPTION>
Maximum Dealer's
As a % of As a % of Reallowance as a %
offering price net asset value of offering price
Amount of Purchase per share per share per share*
<S> <C> <C> <C>
Less than $100,000 3.50 3.63 3.15
$100,000 but less than
$250,000 2.50 2.56 2.25
$250,000 but less than
$500,000 1.50 1.52 1.35
$500,000 but less than
$1,000,000 1.00 1.01 0.90
$1,000,000 or more 0.00** 0.00** 1.00***
</TABLE>

* Dealer's reallowance may be changed periodically.
** There is no initial sales charge on purchases of $1,000,000 or more of
Service Shares; however, a contingent deferred sales charge (CDSC) of 1.00%
will be imposed on the lesser of the POP or the NAV of the shares on the
redemption date for shares redeemed within 18 months after purchase.
*** The Distributor may pay placement fees to dealers of up to 1.00% of the
POP on purchases of Service Shares of $1,000,000 or more.

Short-Term Government Fund:

<TABLE>
<CAPTION>
Maximum Dealer's
As a % of As a % of Reallowance as a %
offering price net asset value of offering price
Amount of Purchase per share per share per share*
<S> <C> <C> <C>
Less than $500,000 2.00 2.04 1.80
$500,000 but less than
$1,000,000 1.00 1.01 0.90
$1,000,000 or more 0.00** 0.00** 1.00***
</TABLE>

* Dealer's reallowance may be changed periodically.
** There is no initial sales charge on purchases of $1,000,000 or more of
Service Shares; however, a CDSC of 1.00% will be imposed on the lesser of
the POP or the NAV of the shares on the redemption date for shares redeemed
within 18 months after purchase.
*** The Distributor may pay placement fees to dealers of up to 1.00% of the
POP on Service Shares purchases of $1,000,000 or more.

PAGE 46 The Commerce Funds
---------------
.
<PAGE>

When There Is No Sales Charge: There is generally no sales charge on Service
Shares purchased by the following types of investors or transactions:
. automatic reinvestments and cross reinvestments of dividends and capital gain
distributions;
. the Exchange Privilege described below;
. the Redemption Reinvestment Privilege described below;
. non-profit organizations, foundations and endowments qualified under Section
501(c)(3) of the Internal Revenue Code (excluding individual tax sheltered
annuities);
. any state, county or city, or any instrumentality, department, authority or
agency thereof, prohibited by applicable laws from paying a sales charge for
the purchase of Fund shares;
. registered representatives of dealers who have entered into dealer agreements
with Goldman, Sachs & Co. to the extent permitted by such firms and for their
customers;

. financial planners and their clients;

. customers of Commerce Bank's Investment Management Group (IMG) who purchase
shares for an account that is outside the IMG relationship; or

. immediate family (other than spouses and legal dependents) of employees,
directors, advisory directors, officers and retirees of Commerce Bancshares,
Inc., Goldman, Sachs & Co., State Street Bank and Trust Company and National
Financial Data Services, Inc. or their subsidiaries or affiliates.

What Is The Minimum Investment For The Funds?

<TABLE>
<CAPTION>
Initial Additional
Investment Investments
<S> <C> <C>
Regular Account $1,000 $250
Automatic Investment Account $ 500 $50/month
Individual Retirement Accounts (except SEP & SIMPLE
IRAs), Keogh plans, corporate retirement plans, public
employer deferred plans, profit sharing plans and
401(k) plans $1,000 $250
SEP and SIMPLE IRAs $ 50 $50/month
</TABLE>

How Do I Buy Service Shares?

The following section describes features and gives specific instructions on how
to purchase Service Shares directly from The Commerce Funds. The Commerce Funds
has authorized certain dealers to purchase shares of Funds on behalf of their
clients. Some of the account features and instructions described in this
section may not be applicable to clients of these dealers.

The Commerce Funds PAGE 47
---------------
.
<PAGE>

1. Consider The Following Features To Customize Your Account:

. Making Automatic Investments: The Automatic Investment feature lets you
transfer money from your financial institution account into your Fund account
automatically either on the 1st or the 15th of the month. The Automatic
Investment feature is one way to use dollar cost averaging to invest (see
below). Only accounts at U.S. financial institutions that permit automatic
withdrawals through the Automated Clearing House (ACH) are eligible. Check
with your financial institution to determine eligibility.

. Using Dollar Cost Averaging: Dollar cost averaging involves investing a
dollar amount at regular intervals. Because more shares are purchased during
periods with lower share prices and fewer shares are purchased when the price
is higher, your average cost per share may be reduced. In order to be
effective, dollar cost averaging should be followed on a regular basis. You
should be aware, however, that shares bought using dollar cost averaging are
made without regard to their price on the day of investment or to market
trends. In addition, while you may find dollar cost averaging to be
beneficial, it will not prevent a loss if you ultimately redeem your shares
at a price that is lower than their purchase price. Dollar cost averaging
does not assure a profit or protect against a loss in a declining market.
Since dollar cost averaging involves investment in securities regardless of
fluctuating price levels, you should consider your financial ability to
continue to purchase through periods of low price levels. You can invest
through dollar cost averaging on your own or through the Automatic Investment
feature described above.

. Using Rights Of Accumulation: When you buy Service Shares of The Commerce
Funds, your current total investment determines the sales charge (load) you
pay. Since larger investments receive a discounted sales charge, the sales
charge (load) you pay may subsequently be reduced as you build your
investment.

To buy Service Shares at a reduced sales charge under Rights of Accumulation,
you must indicate at the time of purchase that a quantity discount is
applicable. (See section 5 of the application.) A reduction in sales charge is
subject to a check of appropriate records, after which you will receive the
lowest applicable sales charge.

Example: Suppose you own Service Shares with a current total value of $90,000
that can be traced back to the purchase of the shares with a sales charge. If
you subsequently invest $10,000 in any Fund within The Commerce Funds family
(except the Short-Term Government Fund), you will pay a reduced sales charge
of 2.50% of the POP on the additional purchase.

. Using Letters Of Intent: You may also buy Service Shares at a reduced sales
charge under a written Letter of Intent, a non-binding commitment to invest a
total of at least $100,000 in one or more Fund of The Commerce Funds within a
period of 13

PAGE 48 The Commerce Funds
---------------
.
<PAGE>

months and under the terms and conditions of the Letter of Intent. Service
Shares you buy under a Letter of Intent will be eligible for the same sales
charge discount that would have been available had all of your Service Shares
been purchased at once. To use this feature, complete the Letter of Intent
section on your account application. A Letter of Intent must be filed with The
Commerce Funds within 90 days of the first investment under the Letter of
Intent provision.

Things To Consider When Completing A Letter Of Intent:
. The Letter of Intent does not bind you to buy or sell shares of the full
amount at the sales charge indicated. However, you must complete the intended
purchase to obtain the reduced sales charge.
. When you sign a Letter of Intent, The Commerce Funds will hold in escrow a
sufficient number of shares which can be sold to make up any difference in
the sales charge on the amount actually invested.
. After you fulfill the terms of the Letter of Intent, the shares in escrow
will be released.
. If your aggregate investment exceeds that indicated in your Letter of Intent,
you will receive an adjustment which reflects the further reduced sales
charge applicable to your excess investment.
. You may combine purchases that are made by members of your immediate family,
or the total investments of a trustee or custodian of any qualified pension
or profit-sharing plan or IRA established for your benefit. Please reference
on the account application the accounts that are to be combined for this
purpose.

2. Contact The Commerce Funds To Open Your Account:

By Mail:
-----------------------------------------------------------
[GRAPHIC]
Complete an account application. Mail the completed application and a
check payable to The Commerce Funds to:
The Commerce Funds
c/o Shareholder Services

P.O. Box 219525

Kansas City, MO 64121-9525
In Person:
-----------------------------------------------------------
[GRAPHIC]
You are welcome to stop by a Commerce Bank office location, where a
registered investment representative can assist you in opening an
account.

. Federal regulations require you to provide a certified Taxpayer
Identification Number upon opening or reopening an account.

The Commerce Funds PAGE 49
---------------
.
<PAGE>

. If your check used for investment does not clear, a fee may be imposed by the
Transfer Agent. All payments by check must be in U.S. dollars and must be
drawn only on U.S. financial institutions.

How Do I Add To My Commerce Funds Account?

To add to your original investment, you may either mail your additional
investment to the address above or you may use Electronic Funds Transfer.

By Electronic Funds Transfer:
-----------------------------------------------------------
To use Electronic Funds Transfer, have your bank send your investment
to:
[GRAPHIC]

Investors Fiduciary Trust Company, with these instructions:
--ABA #101003621
--Account #756-044-3
--Your name and address
--Your social security or tax ID number
--Name of the Fund
--Class of shares
--Your new account number

What Are My Options For Changing My Investment Within The Commerce Funds?

. Changing Shares From Fund To Fund: As a shareholder, you have the privilege
of exchanging your shares for Service Shares of any other Commerce Fund or
Institutional Shares of Commerce National Tax-Free Intermediate Bond Fund or
the Commerce Missouri Tax-Free Intermediate Bond Fund. Exchanges may also be
made with the Goldman Sachs Institutional Liquid Assets Prime Obligations
Portfolio ("Money Market Fund"). Goldman Sachs Asset Management, a unit of
the Investment Management Division of Goldman, Sachs & Co., serves as
investment adviser for the Money Market Fund.

Service Shares being exchanged are subject to the minimum initial and
subsequent investment requirements as described above. The Commerce Funds
reserves the right to reject any exchange request and the exchange privilege
may be modified or terminated at any time. At least 60 days' notice of any
material modification or termination of the exchange privilege will be given
to shareholders except where notice is not required under the regulations of
the Securities and Exchange Commission (SEC). Before exchanging your shares,
you should consider carefully the investment objectives, policies, risks and
expenses of the Fund you are acquiring.

. Making Automatic Exchanges: You may request on your account application that
a specified dollar amount of Service Shares be automatically exchanged for
Service Shares of any other Commerce Fund or Institutional Shares of the
Commerce National Tax-

PAGE 50 The Commerce Funds
---------------
.
<PAGE>

Free Intermediate Bond Fund or the Commerce Missouri Tax-Free Intermediate
Bond Fund. These automatic exchanges may be made on any one day of each month
and are subject to the following conditions: 1) the minimum dollar amount for
automatic exchanges must be at least $250 per month; 2) the value of the
account in the originating Fund must be at least $1,000 after the exchange; 3)
the value of the account in the acquired Fund must equal or exceed the
acquired Fund's minimum initial investment requirement; and 4) the names,
addresses and taxpayer identification number for the shareholder accounts of
the exchanged and acquired Funds must be identical.

.Cross Reinvesting Of Distributions: You may invest dividend or capital gain
distributions from one Fund of the Service Class to another Fund of the
Service Class or to a tax-free Fund of the Institutional Class as mentioned
above. If you elect to reinvest the distributions paid by one Fund in shares
of another Fund of The Commerce Funds, the dividends or distributions will be
treated as received by you for tax purposes. Cross reinvestment privileges do
not apply to the Money Market Fund described under "Changing Shares From Fund
to Fund."

Redeeming Service Shares
- --------------------------------------------------------------------------------

You May Sell Shares At Any Time: Your shares will be sold at the NAV next
calculated after The Commerce Funds' Transfer Agent receives your properly
completed order. Your order will be processed promptly and you will generally
receive the proceeds within a week. Please note: If the Fund has not yet
collected payment for the shares you are selling, it may delay sending the
proceeds for up to 15 business days.

Receipt Of Proceeds From A Sale: Ordinarily, sale proceeds will be disbursed
the next business day following receipt by the Transfer Agent of a properly
completed order. Payment by check will ordinarily be made within seven calendar
days following redemption or you may have your proceeds sent by federal wire to
your financial institution account. Proceeds will normally be wired the
business day after your request to redeem shares is received in good order by
the Transfer Agent. Your request to wire proceeds is subject to the financial
institution's wire charges.

Written requests to sell Service Shares must be signed by each shareholder,
including each joint owner. Certain types of redemption requests will need to
include a signature guarantee. You may obtain a signature guarantee from most
banks or securities dealers. Guarantees from notaries public will not be
accepted.

How Do I Redeem Shares From My Commerce Funds Account?

The following section describes how to redeem shares directly through The
Commerce Funds. The Commerce Funds has authorized certain dealers to redeem
shares of Funds

The Commerce Funds PAGE 51
---------------
.
<PAGE>

on behalf of their clients. Some of the account features and instructions
described in this section may not be applicable to clients of these dealers.

1. Consider Using An Automated Redemption:

2. Contact The Commerce Funds To Redeem Shares From Your Account

By Mail:
-----------------------------------------------------------
Write a letter to us that gives the following information:
[GRAPHIC] --names of all account owners
--your account number
--the name of the Fund
--the dollar amount you want to redeem
--what we should do with the proceeds

Each owner, including each joint owner should sign the letter. Mail your
request to:
The Commerce Funds
c/o Shareholder Services

P. O. Box 219525

Kansas City, MO 64121-9525

By Telephone--Requesting Proceeds Be Wired:
-----------------------------------------------------------
[GRAPHIC]
Call The Commerce Funds with your request. Please see "What Are The
Important Things To Consider When Contacting The Commerce Funds by
Telephone?" below for specific instructions. When requesting a
redemption by wire you must be redeeming shares in the amount of $1,000
or more. Also, the Fund must have your financial institution account
information already on file. Proceeds will be wired directly to this
designated account.

PAGE 52 The Commerce Funds
---------------
.
<PAGE>

By Telephone--Requesting Proceeds Be Sent By Check:
-----------------------------------------------------------
[GRAPHIC]

Call The Commerce Funds at 1-800-995-6365 (8 a.m - 5 p.m. CST) with your
request. Please see "What Are The Important Things to Consider When
Contacting The Commerce Funds by Telephone?" below for specific
instructions. The check will be made payable to the shareholder(s) of
record and sent to the address listed on your account.

In Person:
-----------------------------------------------------------
[GRAPHIC]
You are welcome to stop by a Commerce Bank office location, where a
registered investment representative can assist you in redeeming shares
from your account.

What Are The Important Things To Consider When Contacting The Commerce Funds By
Telephone?

You may call us at 1-800-995-6365 (8 a.m.- 5 p.m. CST) to explain what you want
to do. To make additions by phone or request electronic transfers or request
redemptions, we need your prior written authorization. If you did not check the
box in Section 8 of your original account application, you must send us a
letter that gives us this authorization.

General Policies
- --------------------------------------------------------------------------------

Dividend And Distribution Policies: As a Fund shareholder, you are entitled to
any dividends and distributions from net investment income and net realized
capital gains. You may choose one of the following distribution options for
dividends and capital gains:

(1) reinvest all dividend and capital gain distributions in additional
Service Shares,
(2) receive dividend distributions in cash and reinvest capital gain
distributions in additional Service Shares,

The Commerce Funds PAGE 53
---------------
.
<PAGE>

(3) receive all dividend and capital gain distributions in cash, or
(4) have all dividend and capital gain distributions deposited directly
into your designated account at a financial institution.

If you do not select an option when you open an account, all distributions will
automatically be reinvested in additional Service Shares of the same Fund. For
your protection, if you elect to have distributions mailed to you and these
cannot be delivered, they will be reinvested in additional Service Shares of
the same Fund. To change your distribution option, contact The Commerce Funds
at 1-800-995-6365 (8 a.m. - 5 p.m. CST). The change will become effective after
it is received in good order and processed by the Transfer Agent.
<TABLE>
<CAPTION>
Monthly Quarterly Annual Net Realized
Fund Dividends* Dividends** Dividends*** Capital Gains ****
<S> <C> <C> <C> <C>
MidCap X X
Growth X X
Growth and Income X X
International Equity X X
Balanced X X
Short-Term Government X X
Bond X X
</TABLE>
* Monthly dividends are declared daily but are only distributed on or about
the last business day of the month.
** Quarterly dividends are both declared and paid on the calendar quarter
months.
*** Annual dividends are both declared and paid in December.
**** Each Fund declares and distributes net realized capital gains annually
(December).

PAGE 54 The Commerce Funds
---------------
.
<PAGE>

business day. If payment is not received by the Fund's Transfer Agent by such
time, the financial institution could be held liable for resulting fees or
losses. The Commerce Funds may be deemed to have received a purchase or
redemption order when a financial institution or its designee accepts the
order. Orders received by the Fund in proper form will be priced at the Fund's
POP next computed after they are accepted by the financial institution or its
designee. Financial institutions are responsible to their customers and The
Commerce Funds for timely transmission of all subscription and redemption
requests, investment information, documentation and money.

Business Of The Commerce Funds
- --------------------------------------------------------------------------------

Shareholder Servicing

The Commerce Funds have adopted a distribution plan under Rule 12b-1 that
permits each Fund to pay up to 0.25% annually of their average daily net assets
attributable to the Service Class Shares. The Funds also have adopted a
Shareholder Administrative Services Plan that permits each Fund to pay up to
0.25% of average daily net assets of Shares held under the plan to third
parties for providing shareholder services to the Shareholder Administrative
Services Plan participants. Because these fees are paid out of each Fund's
assets, over time they will increase the cost of your investment and may cost
you more than paying other types of sales charges.

Certain financial institutions may charge their customers account fees for
purchasing or redeeming shares of The Commerce Funds. These institutions may
provide shareholder services to their clients that are not available to a
shareholder dealing directly with The Commerce Funds. Each institution is
responsible for notifying its customers regarding its fees and additional or
changed purchase or redemption terms. You should contact your financial
institution for this information.

The Distributor and its affiliates may, out of its administration fee or other
resources, pay a fee of up to 0.25% of the amount invested or additional
incentives to dealers who initiate and are responsible for purchases of shares
of The Commerce Funds. In addition, at its expense, the Distributor will
provide additional compensation and promotional incentives to dealers in
connection with the sales of shares of the Funds. Subject to NASD regulation,
compensation may include promotional and other merchandise, sales and training
programs and other special events sponsored by dealers. Compensation may also
include payment for reasonable expenses incurred in connection with trips taken
by invited registered representatives for meetings or seminars of a business
nature.

The Commerce Funds PAGE 55
---------------
.
<PAGE>

Tax Information
- --------------------------------------------------------------------------------

Taxes on Distributions
The Funds' distributions will generally be taxable to shareholders as ordinary
income and capital gains (which may be taxable at different rates depending on
the length of time the Fund held the relevant assets). You will be subject to
income tax on these distributions regardless of whether they are paid in cash
or reinvested in additional shares. Once a year, The Commerce Funds will send
you a statement showing the types and total amount of distributions you
received during the previous year.

Taxes on Exchanges and Redemptions
When you redeem or exchange shares in any Fund, you may recognize a gain or
loss for income tax purposes. This gain or loss will be based on the difference
between your tax basis in the shares and the amount you receive for them. To
aid in computing your tax basis, you generally should retain your account
statements for the periods during which you held shares. Any loss realized on
shares held for six months or less will be treated as a long-term capital loss
to the extent of any capital gain dividends that were received with respect to
the shares. The one major exception to these tax rules is that distributions
on, and sales, exchanges and redemptions of, shares held in an IRA (or other
tax qualified plan) will not be currently taxable.

Backup Withholding
By law, The Commerce Funds must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.

PAGE 56 The Commerce Funds
---------------
.
<PAGE>

Service Providers
- --------------------------------------------------------------------------------

Investment Adviser: Commerce Bank, N.A. (the "Adviser")

The Adviser receives a fee for the advisory services provided and expenses
assumed under the Advisory Agreement. During the last fiscal year, the Funds
paid the Adviser the following fees, calculated as a percentage of the Funds'
average daily net assets:
<TABLE>
<CAPTION>
Actual Rate Paid in
Fiscal Year 1999
<S> <C>
MidCap Fund 0.75%
Growth Fund 0.75%
Growth and Income Fund 0.75%
International Equity Fund 0.96%
Balanced Fund 0.66%
Short-Term Government Fund 0.30%
Bond Fund 0.50%
</TABLE>

Fund Managers:

<TABLE>
<CAPTION>
Person Fund(s) Experience
<S> <C> <C>
John Bartlett, CFA, Growth and Income Joined Commerce Bank in 1991
Vice President and Fund manager since inception
Director of Economic & 22 years of experience
Market Strategy
Scott M. Colbert, CFA, Short-Term Government, Joined Commerce Bank in 1993
Vice President and
Director Bond, fixed-income portion of Fund manager since inception
of Fixed Income Balanced 13 years of experience
Management
Paul D. Cox, CFA, MidCap Joined Commerce Bank in 1989
Vice President and Fund manager since inception
Director of Equity 20 years of experience
Management
Joseph C. Williams III,
CFA, Growth, equity portion of Joined Commerce Bank in 1975
Vice President Balanced Fund manager since inception
23 years of experience
</TABLE>

The Commerce Funds PAGE 57
---------------
.
<PAGE>

Sub-Adviser: Rowe Price-Fleming International, Inc. ("Price-Fleming" or the
"Sub-Adviser")

Rowe Price-Fleming International, Inc., a joint venture established in 1979
between T. Rowe Price Associates and the London-based Fleming Group, serves as
Sub-Adviser to the International Equity Fund. Price-Fleming's U.S. office is
located at 100 East Pratt Street, Baltimore, Maryland 21202. As of December 31,
1999, Price-Fleming managed over $42 billion in investments for individual and
institutional accounts.

The Fund has an Investment Advisory Group that has day-to-day responsibility
for managing the portfolio and developing and executing the Fund's investment
program.

Administrator: Goldman Sachs Asset Management ("GSAM" or the "Administrator")

Distributor: Goldman, Sachs & Co. ("Goldman" or the "Distributor")
Shares of each Fund are sold on a continuous basis by Goldman as Distributor.
Goldman is located at 85 Broad Street, New York, New York 10004.

Transfer Agent: State Street Bank and Trust Company ("State Street" or the
"Transfer Agent")
State Street has delegated its responsibilities as Transfer Agent to its
indirect subsidiary, National Financial Data Services, Inc. ("NFDS"). State
Street is located at 225 Franklin Street, Boston, Massachusetts 02110. NFDS is
located at 330 W. 9th Street, Kansas City, Missouri 64105.

Custodian: State Street Bank and Trust Company (the "Custodian")
State Street also serves as the Custodian of each of the Funds.

PAGE 58 The Commerce Funds
---------------
.
<PAGE>

[Back Cover - Service Shares]

How Can I Contact The Commerce Funds?

If you would like more information about The Commerce Funds, you may request the
following documents:

Statement of Additional Information

The Statement of Additional Information (SAI) contains additional information
about the Funds and is incorporated by reference into this prospectus.

Securities and Exchange Commission Reports

You can review, after paying a duplicating fee, the reports of the Funds and the
SAI by writing to the SEC's Public Reference Section, Washington, D.C.
20459-0102 or by electronic request to: [email protected]. Call the SEC at
(202) 942-8090 for information on operation of the public reference room. You
can get copies of this information for free on the SEC's EDGAR database at
http://www.sec.gov.
- -------------------

The Funds' investment company registration number is 811-8598.

Annual and Semi-Annual Reports

The Funds' annual and semi-annual reports contain additional information about
the Funds' investments. The annual report also discusses market conditions and
investment strategies that significantly affected the Funds' performance during
their last fiscal year. To make shareholder inquiries or to receive free copies
of the SAI and the annual and semi-annual reports, contact the Commerce Funds
in writing, via the World Wide Web, or by telephone, as listed below.

[Commerce Funds Armillary Logo]
P.O. Box 219525
Kansas City, MO 64121-9525

www.commercefunds.com

1-800-995-6365
(8 a.m.-5 p.m. CST)

<PAGE>

Not to be used for Individual Retirement Accounts-- For an IRA application,
call the Transfer Agent at 1-800-995-6365 (8 a.m.- 5 p.m. CST)
commerce funds/TM/
Institutional Shares
Account Application Form (CB 5998)

- --------------------------------------------------------------------------------
This Account The Commerce Funds c/o Shareholder Services P.O. Box 219525
Application Kansas City, MO 64121-9525
Form Should be For additional information call: 1-800-995-6365 (8 a.m.-5
Forwarded p.m. CST)
Promptly to: Date: _______________________

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
1. Account
Registration Please Print
Individual

--------------------------------------------------------------------------------------------
First Name Initial Last Name (Birthdate) SS# or Tax ID#

Joint Tenants
The account will be registered as "Joint Tenants with Right
of Survivorship" unless otherwise specified.

--------------------------------------------------------------------------------------------
First Name Initial Last Name (Birthdate) SS# or Tax ID#

Transfer on Death

-------------------------------- --------------------------- ----------------------------
Name Date of Birth SS#

Gift to Minors

--------------------------------------------------------------------------------------------
Custodian's Name (Only one can be named)

-------------------------------------------------------------- ----------------------------
Minor's Name (Only one) SS#
Under the __________________________ (State of Residence) Uniform Gift to Minors Act

Corporation, Trust, or other Entity

-------------------------------------------------------------- ----------------------------
Name of Corporation, Trust or other Non-Person Entity Tax ID#

--------------------------------------------------------------------------------------------
Additional Attention
documentation
may be required --------------------------------------------------------------------------------------------
Date of Trust Instrument: Name of Beneficiary (If to be included in the
registration)

--------------------------------------------------------------------------------------------
Name(s) of Trustee(s) (If to be included in the registration)

- --------------------------------------------------------------------------------------------------------------
2. Mailing Address ( )
----------------------------------------------------- -------------------------------
Street Daytime Phone
--------------------------------------------------------------------------------------------
City State Zip Code

</TABLE>

1
<PAGE>

- --------------------------------------------------------------------------------
3. To Purchase Check appropriate boxes:
Institutional
Shares
[_]Short-Term [_]Growth and
Government $_____ Income $_____
#336 Amount #346 Amount

[_]Bond $_____ [_]MidCap $_____
$1000 Minimum #333 Amount #339 Amount
per Fund ($500 [_]Balanced $_____ [_]International
Minimum for #338 Amount Equity $_____
Automatic #340 Amount
Investment
Plan-- See [_]Growth $_____ [_]National $_____
Section 5) #337 Amount Tax-Free Amount
Intermediate
Bond
#334
[_]Missouri
Tax-Free
Intermediate$_____
Bond Amount
#335
[_]ILA
Prime $_____
Obligations Amount
Money
Market
#343
[_]A check (payable to "The Commerce Funds") for $________ is
enclosed.
- --------------------------------------------------------------------------------
4. Dividend and See "Dividend and Distribution Policies" in the Prospectus.
Distribution Choose how you wish to receive dividends. If no boxes are
Options checked, Option A will be assigned.
A. [_] Reinvest all dividends and capital gains.
B. [_] Receive dividends in cash and reinvest capital gains.
(Complete cash dividend section below.)
C. [_] Receive all dividends and capital gains in cash.
(Complete cash dividend section below.)
D. [_] All dividends and capital gains reinvested in another
Commerce Fund account. (See Prospectus regarding
limitations on this privilege.)

Fund Name _________________ Account Number _________________
Please send cash dividends to:
[_] Account registration address. [_]Deposit to bank (attach
voided check/deposit slip)
[_] Check to special payee as follows:
(Signature Guarantee required.
See Section 12 of this Form.)

Name of Payee __________ Account No. (if applicable) ________
Street Address ______________________________________________
City ______________________
State __ Zip ____________________

- --------------------------------------------------------------------------------
5.Automatic See "Using Dollar Cost Averaging" in the Prospectus.
Investment Plan
(Optional) Beginning on the 1st or 15th (circle day(s) that apply) day
(Attach voided of these months: J F M A M J J A S O N D (circle all months
check or that apply), I/We authorize State Street Bank (the custodian
deposit slip) for a Fund) to debit the amount requested below from my/our
bank account for investment in a Fund. I/We understand that
my/our participation in the Automatic Investment Plan is
subject to the terms and conditions of such plan as amended
from time to time.

-------------------------------------------------------------
Amount of each monthly investment (minimum $50/Month) Name of
Fund
-------------------------------------------------------------
Amount of each monthly investment (minimum $50/Month) Name of
Fund
-------------------------------------------------------------
Authorized Signature (as shown on bank records)

-------------------------------------------------------------
Authorized Signature (if joint bank account both sign)

2
<PAGE>

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

6. For Telephone See "Buying Shares" or "Redeeming Shares" in the Prospectus.
Purchase/
Redemption, [_] The Commerce Funds and its agent is hereby authorized to
this Section honor telephone, telegraphic, or other instructions,
must be without signature guarantee, from any person for the
completed redemption of shares for the above account, without an
obligation on behalf of The Commerce Funds or its agent,
(Optional) to verify that such person is the shareholder of record
or authorized to give purchase/redemption instructions,
provided proceeds are sent by federal wire (minimum
$1,000) or electronic funds transfer to/from the bank
account indicated on your voided check or deposit slip
or mailed to the account registration address. Neither a
Fund nor its agent shall be liable for telephone
purchases or redemptions or for payments made to any
unauthorized account for instructions reasonably
believed to be genuine. The Commerce Funds will employ
reasonable procedures to confirm that such instructions
given are genuine.

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

7. Telephone See "Exchanging Shares from Fund to Fund" in the Prospectus.
Exchange
(Optional) Telephone Exchange Privilege (you will have this privilege
unless declined)

[_] I/We do not wish to authorize telephone exchanges.

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

8. Automatic See "Making Automatic Exchanges" in the Prospectus.
Exchanges
(Optional) The originating Fund's balance must be at least $1,000 after
(Attach voided the exchange and the receiving Fund's minimum investment
check or must be met. Exchanges will take place each month after such
deposit slip) exchanges commence until terminated.

I/We hereby authorize automatic exchanges of $________ (exact
dollars--$250 minimum) into my/our identically registered
account:

Exchange from ____________________________ (Name of Fund)

to ____________________________ (Name of Fund)

Account No. (if known) ___________________

Please make exchanges on the__day beginning the month of_____.

------------------------------------ --------------------
Financial Institution Name Account Number

--------------------------------------------------------------
Financial Institution Street Address City State Zip Code

-------------------- --------------------
ABA Routing Number Name on Account

- --------------------------------------------------------------------------------
9. Duplicate [_]Check the box if you would like duplicate
Mailings confirmations/statements sent to another address:
(Optional)

------------------------------------------------------
Name

------------------------------------------------------
Street Address City State Zip

- --------------------------------------------------------------------------------
10. Automatic Minimum account balance must be $5,000. Withdrawal minimum
Withdrawal is $100.
Plan
(Optional) Check One: [_]Monthly [_]Quarterly [_]Semi-Annual [_] Annual

Please make payments via (check one) [_] check [_] ACH
(financial institution must be ACH affiliated. Attach voided
check). Payments made via check are withdrawn from your
account on or about the 15th of a month for monthly
withdrawals or the 15th of the month for quarterly/semi-
annual/annual withdrawals. Payments made via ACH may be
withdrawn from your account on any day. (I understand that I
may change the date of redemption, via ACH, or the amount at
any time in writing to the Fund at the address stated
above.)

If withdrawal payments are to be made via ACH (attach voided
check/deposit slip)

Please withdraw $________from my account on the________of
the month.

Complete this section ONLY if check is to be made payable to
person(s) other than the registered owner. Signature
Guarantee required. (See Section 12 of this Form.)

-------------------------------------------------------------
Name of check recipient Address City State Zip

<PAGE>

- --------------------------------------------------------------------------------
11.Taxpayer ID 1) The number shown on this Account Application Form is
Certification my/our correct Taxpayer Identification number, and 2) I/we
am/are not subject to backup withholding because (a) I/we
am/are exempt from backup withholding, or (b) I/we have not
been notified by the Internal Revenue Service (IRS) that
I/we am/are subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS
has notified me/us that I/we am/are no longer subject to
backup withholding.

You must cross out item (2) above if you have been notified
by the IRS that you are currently subject to federal backup
withholding because of under reporting interest or dividends
on your federal tax return or if you have not been notified
by the IRS that you are no longer subject to backup
withholding.

I/we further certify that I/we am/are neither a citizen nor
a resident of the United States for the purpose of the
Internal Revenue Code. I/we am/are a resident of ____________

NOTE: FAILURE TO COMPLETE THIS SECTION MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU.

By checking only the appropriate box and signing below, I/we
certify under penalties of perjury that:
[_] I/we do not have a taxpayer identification number, but
I/we have applied for or intend to apply for one. I/we
understand that the required 31% withholding may apply
before I/we provide such number and certifications,
which should be provided within 60 days.

or [_] I/we am/are an exempt recipient.

or [_] I/we am/are neither a citizen nor a resident of the
United States for the purpose of the Internal Revenue
Code. I/we am/are a resident of _____________________ .

Permanent Foreign Address: __________________________________
__________________________________
__________________________________

- --------------------------------------------------------------------------------
12.Signature By the execution of this Account Application Form, the
Authorization undersigned represents and warrants that it has the full
right, power and authority to make the investment applied
for pursuant to this Form and is acting for itself or in
some fiduciary capacity in making such investment.

THE UNDERSIGNED AFFIRMS THAT I/WE HAVE RECEIVED A CURRENT
PROSPECTUS FOR THE FUND AND HAVE REVIEWED THE SAME.

Sign Here:

-------------------------------------------------------------
Signature Name (print) and Title

Signature Guarantee required only if a special payee/address
is designated under item #'s 4 and 10. See "Redeeming
Shares" in the Prospectus.

-------------------------------------------------------------
Signature Signature Guarantee (if required)
Guarantee
- --------------------------------------------------------------------------------
13.THE COMMERCE FUNDS DISCLOSURE STATEMENT (YOU MUST SIGN)

The account owner acknowledges that the account owner has read this disclosure
statement and has been told and understands that:

. shares of the Funds are not bank deposits or obligations of, or guaranteed,
endorsed or otherwise supported by Commerce Bank, N.A., its parent company or
its affiliates, or any other bank

. are not federally insured or guaranteed by the U.S. Government, Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any other
government agency

. investment in the Funds involves investment risks, including possible loss of
the principal amount invested

. Commerce Bank, N.A. serves as the investment adviser to the Funds and
receives compensation for such services as disclosed in the current
prospectus

Dated: ____________ -------------------------------------
Signature

-------------------------------------
Signature

4
<PAGE>

- --------------------------------------------------------------------------------
This Account The Commerce Funds
Application c/o Shareholder Services
Form Should be P.O. Box 219525
Forwarded Kansas City, MO 64121-9525
Promptly to: For additional information call 1-800-995-6365
(8 a.m.-5 p.m. CST)

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

For Broker/Dealer Investment dealer's signature is required for Automatic
Use Only Withdrawal Plan. If an Automatic Withdrawal Plan is being
opened, we believe that the amount to be withdrawn is
reasonable in light of the investor's circumstances and we
recommend establishment of the account.

-------------------------------------------------------------
Branch Office Location Branch Number/Branch Phone

-------------------------------------------------------------
Reg. Rep. Number Reg. Rep.'s Name

-------------------------------------------------------------
Authorized Signature State Zip

Account # ______________________________________

Order # ________________________________________

5
<PAGE>

Not to be used for Individual Retirement Accounts--For an IRA application,
call the Transfer Agent at 1-800-995-6365 (8 a.m.-5 p.m. CST)
commerce funds\TM\
Service Shares

Account Application Form (CB 5075)

- --------------------------------------------------------------------------------
This Account The Commerce Funds
Application c/o Shareholder Services
Form P.O. Box 219525
Should be Kansas City, MO 64121-9525
Forwarded For additional information call:
Promptly to: 1-800-995-6365 (8 a.m.-5 p.m. CST)
Date: ________________________
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
1. Account Please Print
Registration Individual

----------------------------------------------------------- --------------
First Name Initial Last Name (Birthdate) SS# or Tax ID#

Joint Tenants
The account will be registered as "Joint Tenants with Right
of Survivorship" unless otherwise specified.

----------------------------------------------------------- --------------
First Name Initial Last Name (Birthdate) SS# or Tax ID#

Transfer on Death

---------------------------- ---------------------------- --------------
Name Date of Birth SS#

Gift to Minors

----------------------------------------------------------------------------
Custodian's Name (Only one can be named)

----------------------------------------------------------- ---------------
Minor's Name (Only one) SS#

Under the ________________ (State of Residence) Uniform Gift to Minors Act

Corporation, Trust, or other Entity

----------------------------------------------------------- ---------------
Name of Corporation, Trust or other Non-Person Entity Tax ID#

----------------------------------------------------------------------------
Additional Attention
documentation
may be required ----------------------------------------------------------------------------
Date of Trust Instrument: Name of Beneficiary (If to be
included in the registration)

----------------------------------------------------------------------------
Name(s) of Trustee(s) (If to be included in the registration)
- ----------------------------------------------------------------------------------------------
2. Mailing Address ( )
------------------------------------------- -------------------------------
Street Daytime Phone

----------------------------------------------------------------------------
City State Zip Code
</TABLE>

1
<PAGE>

- --------------------------------------------------------------------------------
3.To Purchase Check appropriate boxes:
Service Shares
[_]Short-Term $_____ [_]Growth and $_____
Government Amount Income Amount
#686 #696
$1000 Minimum [_]Bond $_____ [_]MidCap $_____
per Fund ($500 #683 Amount #689 Amount
minimum for
Automatic
Investment [_]Balanced $_____ [_]International
Plan-- see #688 Amount Equity $_____
section 7) #690 Amount

[_]Growth $_____ [_]ILA Prime $_____
#687 Amount Obligations Amount
Money
Market
#343

[_]A check (payable to "The Commerce Funds") for $________ is
enclosed.

[_]I/we certify that I/we am/are an entity exempt from the
sales charge according to the "Buying Service Shares"
section in the Prospectus and I/we am/are, therefore,
entitled to purchase Fund shares at net asset value. By
checking this box, the undersigned agrees that I/we will
notify Commerce Funds Shareholder Services at or prior to
purchase if I/we am/are no longer in one of the categories
of eligible investors.
Reason for exemption ______________________________________
- --------------------------------------------------------------------------------
4. Dividend and See "Dividend and Distribution Policies" in the Prospectus.
Distribution Choose how you wish to receive dividends. If no boxes are
Options checked, Option A will be assigned.
A. [_] Reinvest all dividends and capital gains.

B. [_] Receive dividends in cash and reinvest capital gains.
(Complete cash dividend section below.)

C. [_] Receive all dividends and capital gains in cash.
(Complete cash dividend section below.)

D. [_] All dividends and capital gains reinvested in another
Commerce Fund account.
(See Prospectus regarding limitations on this
privilege.)

Fund Name ________________ Account Number __________________
Please send cash dividends to:

[_] Account registration address. [_]Deposit to bank (attach
voided check/deposit slip)

[_] Check to special payee as follows:
(Signature Guarantee required.
See Section 14 of this Form.)

Name of Payee __________ Account No. (if applicable) ________

Street Address _______________________________________________

City ______________________ State __ Zip _____________________

- --------------------------------------------------------------------------------
5. Right of See "Buying Service Shares" in the Prospectus.
Accumulation
(Optional) Cumulative quantity discounts are applicable if a
shareowner's current value of existing shares of a Fund
alone or in combination with shares of any other Fund
described in the Prospectus on which a sales charge was
paid, total the requisite amount for receiving a discount
($100,000 minimum) as described in the accompanying
Prospectus. Below are listed all the accounts (account name,
Fund and number) which should be aggregated for a right of
accumulation.

Name _______________ Name _______________ Name _______________

Fund _______________ Fund _______________ Fund _______________

Acct No. ___________ Acct No. ___________ Acct No. ___________

- --------------------------------------------------------------------------------
6. Letter of See "Buying Service Shares" in the Prospectus.
Intent
(Optional) I/we intend to invest, over a 13-month period from this
date, in Service Shares of a Fund, as described in the
Prospectus, in an amount that will equal or exceed:
[_] $100,000 [_] $250,000 [_] $500,000 [_] $1,000,000
If I/we do not invest this amount, I/we agree to pay the
higher applicable sales charge on my investment, and
authorize the Transfer Agent to escrow and redeem Service
Shares in my account for this purpose.

I/we agree to the Letter of Intent and Escrow Agreement
described in the accompanying Prospectus under "Buying--
Letter of Intent" and incorporated by reference herein.

2
<PAGE>

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

7. Automatic See "Using Dollar Cost Averaging" in the Prospectus.
Investment
Plan
(Optional) Beginning on the 1st or 15th (circle day(s) that apply) day
(Attach of these months: J F M A M J J A S O N D (circle all months
voided check that apply), I/We authorize State Street Bank (the custodian
or deposit for a Fund) to debit the amount requested below from my/our
slip) bank account for investment in a Fund. I/We understand that
my/our participation in the Automatic Investment Plan is
subject to the terms and conditions of such plan as amended
from time to time.

-------------------------------------------------------------
Amount of each monthly investment (minimum $50/Month) Name of
Fund

-------------------------------------------------------------
Authorized Signature (as shown on bank records)

-------------------------------------------------------------
Authorized Signature (if joint bank account both sign)

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

8. For Telephone See "Buying Shares" or "Redeeming Shares" in the Prospectus.
Purchase/
Redemption, [_] The Commerce Funds and its agent is hereby authorized to
this Section honor telephone, telegraphic, or other instructions,
must be without signature guarantee, from any person for the
completed redemption of shares for the above account, without an
(Optional) obligation on behalf of The Commerce Funds or its agent,
to verify that such person is the shareholder of record or
authorized to give purchase/redemption instructions,
provided proceeds are sent by federal wire (minimum
$1,000) or electronic funds transfer to/from the financial
institution account indicated on your voided check or
deposit slip or mailed to the account registration
address. Neither a Fund nor its agent shall be liable for
telephone purchases or redemptions or for payments made to
any unauthorized account for instructions reasonably
believed to be genuine. The Commerce Funds will employ
reasonable procedures to confirm that such instructions
given are genuine.
- --------------------------------------------------------------------------------

9. Telephone See "Changing Shares from Fund to Fund" in the Prospectus.
Exchange
(Optional)
Telephone Exchange Privilege (you will have this privilege
unless declined)

[_] I/We do not wish to authorize telephone exchanges.

- --------------------------------------------------------------------------------
10. Automatic See "Making Automatic Changes" in the Prospectus.
Exchanges
(Optional) The originating Fund's balance must be at least $1,000 after
(Attach the exchange and the receiving Fund's minimum investment
voided check must be met. Exchanges will take place each month after such
or deposit exchanges commence until terminated.
slip)
I/We hereby authorize automatic exchanges of $________ (exact
dollars--$250 minimum) into my/our identically registered
account:

Exchange from ____________________________ (Name of Fund)

to ____________________________ (Name of Fund)

Account No. (if known) ___________________

Please make exchanges on the__day beginning the month of____.

----------------------------- ------------------------------
Financial Institution Name Account Number

--------------------------------------------------------------
Financial Institution Street Address City State Zip Code

----------------------------- -----------------------------
ABA Routing Number Name on Account
- --------------------------------------------------------------------------------
11. Duplicate [ ] Check the box if you would like duplicate
Mailings confirmations/statements sent to another address:
(Optional)
------------------------------------------------------------
Name

------------------------------------------------------------
Street Address City State Zip

<PAGE>

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

12. Automatic Minimum account balance must be $5,000. Withdrawal minimum
Withdrawal is $100.
Plan
(Optional) Check One: [_]Monthly [_]Quarterly [_]Semi-Annual [_]Annual

Please make payments via (check one) [_] check [_] ACH (Bank
must be ACH affiliated. Attach voided check). Payments made
via check are withdrawn from your account on or about the
15th of a month for monthly withdrawals or the 15th of the
month for quarterly/semi-annual/annual withdrawals. Payments
made via ACH may be withdrawn from your account on any day.
(I understand that I may change the date of redemption, via
ACH, or the amount at any time in writing to the Fund at the
address stated above.)

If withdrawal payments are to be made via ACH (attach voided
check/deposit slip)
Please withdraw $________from my account on the_________of
the month.

Complete this section ONLY if check is to be made payable to
person(s) other than the registered owner. Signature
Guarantee required. (See Section 14 of this Form.)

-------------------------------------------------------------
Name of check recipient Address City State Zip
- --------------------------------------------------------------------------------
13. Taxpayer ID
Certification 1) The number shown on this Account Application Form is
my/our correct Taxpayer Identification number, and 2) I/we
am/are not subject to backup withholding because (a) I/we
am/are exempt from backup withholding, or (b) I/we have not
been notified by the Internal Revenue Service (IRS) that
I/we am/are subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS
has notified me/us that I/we am/are no longer subject to
backup withholding.

I/we further certify that I/we am/are neither a citizen nor
a resident of the United States for the purpose of the
Internal Revenue Code. I/we am/are a resident of ____________

NOTE: FAILURE TO COMPLETE THIS SECTION MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU.

By checking only the appropriate box and signing below, I/we
certify under penalties of perjury that:

[_] I/we do not have a taxpayer identification number, but
I/we have applied for or intend to apply for one. I/we
understand that the required 31% withholding may apply
before I/we provide such number and certifications,
which should be provided within 60 days.

or [_] I/we am/are an exempt recipient.

or [_] I/we am/are neither a citizen nor a resident of the
United States for the purpose of the Internal Revenue
Code. I/we am/are a resident of _____________________ .

Permanent Foreign Address: _________________________________
_________________________________
_________________________________
- --------------------------------------------------------------------------------
14.Signature By the execution of this Account Application Form, the
Authorization undersigned represents and warrants that it has the full
right, power and authority to make the investment applied
for pursuant to this Form and is acting for itself or in
some fiduciary capacity in making such investment.

THE UNDERSIGNED AFFIRMS THAT I/WE HAVE RECEIVED A CURRENT
PROSPECTUS FOR THE FUND AND HAVE REVIEWED THE SAME.

Sign Here:

-------------------------------------------------------------
Signature Name (print) and Title

Signature Guarantee required only if a special payee/address
is designated under item #'s 4 and 12. See "Redeeming
Shares" in the Prospectus.

--------------------------------------------------------------
Signature Signature Guarantee (if required)
Guarantee

4
<PAGE>

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

15. THE COMMERCE FUNDS DISCLOSURE STATEMENT (YOU MUST SIGN)

The account owner acknowledges that the account owner has read this disclosure
statement and has been told and understands that:

. shares of the Funds are not bank deposits or obligations of, or guaranteed,
endorsed or otherwise supported by Commerce Bank, N.A., its parent company or
its affiliates, or any other bank;

. are not federally insured or guaranteed by the U.S. Government, Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any other
government agency;

. investment in the Funds involves investment risks, including possible loss of
the principal amount invested;

. Commerce Bank, N.A. serves as the investment adviser to the Funds and
receives compensation for such services as disclosed in the current
prospectus; and

. sales charges may apply.

Dated: ____________ -------------------------------------
Signature

-------------------------------------
Signature

This Account The Commerce Funds
Application c/o Shareholder Services
Form P.O. Box 219525
Should be Kansas City, MO 64121-9525
Forwarded For additional information call 1-800-995-6365
Promptly to: (8 a.m.-5 p.m. CST)
- --------------------------------------------------------------------------------

For Broker/Dealer Investment dealer's signature is required for Automatic
Use Only Withdrawal Plan or Letter of Intent. If an Automatic
Withdrawal Plan is being opened, we believe that the amount
to be withdrawn is reasonable in light of the investor's
circumstances and we recommend establishment of the account.

-------------------------------------------------------------
Branch Office Location Branch Number/Branch Phone

-------------------------------------------------------------
Reg. Rep. Number Reg. Rep.'s Name

-------------------------------------------------------------
Authorized Signature State Zip

Account # ____________

Order # ______________

5
<PAGE>

THE COMMERCE FUNDS

STATEMENT OF ADDITIONAL INFORMATION

INSTITUTIONAL SHARES

SERVICE SHARES

Growth and Income Fund

Growth Fund

MidCap Fund

International Equity Fund

Balanced Fund

Short-Term Government Fund

Bond Fund

* * *
INSTITUTIONAL SHARES

National Tax-Free Intermediate Bond Fund

Missouri Tax-Free Intermediate Bond Fund

March 1, 2000

This Statement of Additional Information is not a prospectus. It is
meant to be read in conjunction with The Commerce Funds' Prospectuses dated
March 1, 2000. Because this Statement of Additional Information is not itself a
prospectus, no investment in the Funds should be made solely upon the
information contained herein. Copies of the Prospectuses may be obtained by
calling 1-800-995-6365. The financial statements and report thereon by the
Funds' independent accountants included in the Funds' Annual Report for the
fiscal period ended October 31, 1999 have been incorporated by reference into
this Statement of Additional Information.

<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>

<S> <C>
OVERVIEW OF THE COMMERCE FUNDS....................................................................................1
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS..................................................................1
Growth and Income Fund.......................................................................................1
Growth Fund..................................................................................................1
MidCap Fund..................................................................................................2
International Equity Fund....................................................................................2
Balanced Fund................................................................................................2
Short-Term Government Fund...................................................................................3
Bond Fund....................................................................................................3
National Tax-Free Intermediate Bond and Missouri Tax-Free Intermediate Bond Funds............................4
Convertible Securities.......................................................................................4
Corporate Debt Obligations...................................................................................5
Forward Currency Transactions................................................................................5
Foreign Investments..........................................................................................7
Futures Contracts and Related Options........................................................................8
Hybrid Instruments..........................................................................................10
Illiquid Securities.........................................................................................12
Interest Rate Swaps, Floors and Caps........................................................................12
Lending Securities..........................................................................................13
Mortgage Dollar Rolls.......................................................................................14
Mortgage-Related and Asset-Backed Securities................................................................14
Municipal Obligations.......................................................................................20
Options Trading.............................................................................................22
Passive Foreign Investment Companies........................................................................24
Portfolio Turnover..........................................................................................24
Ratings of Securities.......................................................................................25
Repurchase Agreements.......................................................................................26
Reverse Repurchase Agreements...............................................................................26
Rights Offerings and Warrants...............................................................................27
Securities Issued by Other Investment Companies.............................................................27
Special Considerations Regarding Investment in Missouri Obligations.........................................28
Stand-By Commitments........................................................................................31
Stripped Securities.........................................................................................31
Temporary Investments.......................................................................................33
U.S. Government Obligations.................................................................................34
Variable and Floating Rate Instruments......................................................................35
When-Issued Purchases and Forward Commitments...............................................................36
Zero Coupon Bonds...........................................................................................37
Investment Limitations......................................................................................37
PRICING OF SHARES................................................................................................41
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................................42
Public Offering Price.......................................................................................44
Additional Redemption Information...........................................................................45
</TABLE>

-i-
<PAGE>

<S> <C>
Retirement Plans............................................................................................46
DESCRIPTION OF SHARES............................................................................................47
ADDITIONAL INFORMATION CONCERNING TAXES..........................................................................50
Federal Taxes...............................................................................................50
Federal Tax-Exempt Information..............................................................................50
MANAGEMENT OF THE COMMERCE FUNDS............................................................................52
Trustees and Officers of the Trust..........................................................................52
Investment Advisor..........................................................................................55
Investment Sub-Advisor......................................................................................58
Custodian and Transfer Agent................................................................................60
Administrator...............................................................................................61
Distributor.................................................................................................62
THE DISTRIBUTION PLAN AND THE SHAREHOLDER ADMINISTRATIVE SERVICES PLANS..........................................62
PORTFOLIO TRANSACTIONS...........................................................................................63
Brokerage Transactions and Commissions......................................................................63
INDEPENDENT AUDITORS.............................................................................................71
COUNSEL..........................................................................................................71
ADDITIONAL INFORMATION ON PERFORMANCE............................................................................71
MISCELLANEOUS....................................................................................................84
APPENDIX A - Commercial Paper Ratings...........................................................................A-1
APPENDIX B......................................................................................................B-1
</TABLE>

-ii-
<PAGE>

OVERVIEW OF THE COMMERCE FUNDS

The Commerce Funds is an open-end, management investment
company registered under the Investment Company Act of 1940. The Commerce Funds
is a Delaware business trust, which was organized on February 7, 1994.

INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS

The following policies supplement the discussion of the Funds'
respective investment objectives and policies as set forth in the Prospectuses.
Investment methods described in this Statement of Additional Information are
among those which one or more of the Funds have the power to utilize. Some may
be employed on a regular basis; others may not be used at all. Accordingly,
reference to any particular method or technique carries no implication that it
will be utilized or, if it is, that it will be successful.

Except for the Missouri Tax-Free Intermediate Bond Fund, each
of the Funds is a diversified series of The Commerce Funds. The Missouri
Tax-Free Intermediate Bond Fund is a non-diversified series of the Funds. This
means that it is permitted to invest more than 5% of its assets in the
obligations of a single issuer.

Growth and Income Fund
- ----------------------

Although the Growth and Income Fund uses the S&P 500 and
Russell 1000 Value Indices for comparison purposes, the Fund may invest its
assets in securities that are not included in these indices. The Fund is not,
therefore, an "index" fund, which typically holds only securities that are
included in the index it attempts to replicate.

Other equity securities in which the Fund may invest include
warrants and securities that are convertible into common or preferred stocks.
The Fund may also invest, either directly or through investments in sponsored
and unsponsored American Depository Receipts ("ADRs"), up to 10% of its total
assets in the securities of foreign issuers. ADRs are receipts issued by a U.S.
bank or trust company evidencing ownership of underlying securities issued by a
foreign issuer. ADR prices are denominated in United States dollars while the
securities underlying an ADR are normally denominated in a foreign currency.

Growth Fund
- -----------

Although the Growth Fund uses the S&P 500 Index as a benchmark
for comparison, the Fund may invest its assets in securities that are not
included in this Index. The Fund is not, therefore, an "Index" fund, which
typically holds only securities that are included in the index it attempts to
replicate.
<PAGE>

MidCap Fund
- -----------

Other equity securities in which the Fund may invest include
warrants and securities convertible into common or preferred stocks. The Fund
may also invest up to 10% of its total assets in the securities of foreign
issuers either directly or through investments in sponsored and unsponsored
ADRs.

International Equity Fund
- -------------------------

The domicile or the location of the principal activities of a
company will be the country under whose laws the company is organized, in which
the principal trading market for the equity securities issued by the company is
located, or in which the company has over half of its assets or derives over
half of its revenues or profits.

The International Equity Fund may invest without limitation in
securities of foreign issuers in the form of sponsored and unsponsored ADRs and
European Depository Receipts ("EDRs"). EDRs are receipts issued by European
financial institutions evidencing the ownership of underlying securities issued
by a foreign issuer. EDR prices are generally denominated in foreign currencies
as are the securities underlying an EDR.

The Fund may invest up to 10% of its total assets in hybrid
investments, which are discussed below.

Balanced Fund
- -------------

Up to 20% of the fixed income portion of the Balanced Fund's
portfolio may be invested in obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia, and
their authorities, agencies, instrumentalities and political subdivision
("Municipal Obligations"). Up to 20% of the fixed income portion of the Fund's
portfolio may be invested directly in debt obligations of foreign issuers. These
obligations may include obligations of foreign corporations as well as
investments in obligations of foreign governments and their political
sub-divisions (which will be limited to direct government obligations and
government-guaranteed securities).

Although securities acquired by the Balanced Fund will
generally be issued by U.S. issuers, the Fund may also invest up to 10% of the
equity portion of its portfolio in securities issued by foreign issuers either
directly or indirectly through investments in sponsored and unsponsored ADRs.

-2-
<PAGE>

Short-Term Government Fund
- --------------------------

The Fund invests at least 65% of its total assets in U.S.
Government Obligations and mortgage-backed securities with maturities of average
lives in excess of five years. In addition, U.S. Government Obligations with
nominal maturities of five years that have variable or floating interest rates
or put features may be deemed to have remaining maturities of five years or less
and therefore will be permissible investments for the Fund.

Bond Fund
- ---------

Up to 20% of the total assets of the Bond Fund may be invested
directly in debt obligations of foreign issuers. These obligations may include
obligations of foreign corporations as well as investments in obligations of
foreign governments and their political sub-divisions (which will be limited to
direct government obligations and government-guaranteed securities). The Fund is
also permitted to invest up to 20% of its total obligations in Municipal
Obligations. Municipal Obligations are discussed below. The purchase of
Municipal Obligations may be advantageous when, as a result of prevailing
economic, regulatory or other circumstances, the yield of such securities, on a
pre-tax basis, is comparable to that of corporate obligations or U.S. Government
Obligations.

Although the Bond Fund seeks to equal or exceed the return of
the Lehman Brothers Aggregate Bond Index, the Fund may invest a substantial
portion of its assets in securities that are not included in its benchmark
index. The Fund is not, therefore, an "index" fund, which typically holds only
securities that are included in the index it attempts to replicate.

Although the Fund has no restriction as to the maximum or
minimum duration of any individual security held by it, the Fund's average
effective duration will be within -/+ 30% of the duration of the Lehman Brothers
Aggregate Bond Index. "Duration" is a term used by investment managers to
express the average time to receipt of expected cash flows (discounted to their
present value) on a particular fixed income instrument or a portfolio of
instruments. Duration takes into account the pattern of a security's cash flow
over time, including how cash flow is affected by prepayments and changes in
interest rates. For example, the duration of a five-year zero coupon bond, which
pays no interest or principal until the maturity of the bond, is five years.
This is because a zero coupon bond produces no cash flow until the maturity
date. On the other hand, a coupon bond that pays interest semi-annually and
matures in five years will have a duration of less than five years, which
reflects the semi-annual cash flows resulting from coupon payments. Duration
also generally defines the effect of interest rate changes on bond prices.
Generally, if interest rates increase by one percent, the value of a security
having an effective duration of five years would decrease in value by five
percent.

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<PAGE>

National Tax-Free Intermediate Bond and Missouri Tax-Free Intermediate Bond
- ---------------------------------------------------------------------------
Funds
- -----

Each of the National Tax-Free Intermediate Bond and Missouri
Tax-Free Intermediate Bond Funds may invest up to 10% of its total assets in
unrated obligations provided that such obligations are determined by the Advisor
to be comparable in quality to instruments that are eligible for purchase by the
Fund.

Each of the Funds may invest up to 20% of its net assets in
Municipal Obligations the interest on which is exempt from regular federal
income tax but is an item of tax preference for purposes of the federal
alternative minimum tax. Each Fund may also invest up to 20% of its net assets
for temporary defensive purposes in short-term taxable money market instruments,
in securities issued by other investment companies which invest in taxable or
tax-exempt money market instruments and in U.S. Government Obligations, all as
discussed below.

In addition, the Funds may hold uninvested cash reserves
pending investment during temporary defensive periods, or when, in the opinion
of the Advisor, suitable tax-exempt obligations are unavailable. There is no
percentage limitation on the amount of assets which may be held uninvested by
the Funds. Uninvested cash normally will not represent a significant portion of
a Fund's assets.

The Funds may invest from time to time in "money market
instruments" a term that includes, among other things, bank obligations,
commercial paper and corporate bonds with remaining maturities of 397 days or
less.

Convertible Securities
- ----------------------

The Growth and Income, Growth, MidCap International Equity,
Balanced and Bond Funds may invest in convertible securities, including bonds,
notes and preferred stock that may be converted into common stock either at a
stated price or within a specified period of time. Convertible securities
entitle the holder to receive interest paid or accrued on debt or the dividend
paid on preferred stock until the convertible securities mature or are redeemed,
converted or exchanged. Prior to conversion, convertible securities have
characteristics similar to ordinary debt securities in that they normally
provide a stable stream of income with generally higher yields than those of
common stock of the same or similar issuers. Convertible securities rank senior
to common stock in the corporate capital structure and, therefore, generally
entail less risk than the corporation's common stock, although the extent to
which such risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security.

In selecting convertible securities, the Advisor will
consider, among other factors, their evaluation of the creditworthiness of the
issuers of the securities, the interest or dividend income generated by the
securities, the potential for capital appreciation of the securities and the
underlying stocks, the prices of the securities relative to other comparable

-4-
<PAGE>

securities and to the underlying stocks, whether the securities are entitled to
the benefits of sinking funds or other protective conditions, the issuer
diversification of a Fund and whether the securities are rated by Moody's, S&P
or another NRSRO and, if so, the ratings assigned.

The value of convertible securities is a function of their
investment value (determined by yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and their conversion value (their worth, at market value, if
converted into the underlying stock). The investment value of convertible
securities is influenced by changes in interest rates, with investment value
declining as interest rates increase and increasing as interest rates decline,
and by the credit standing of the issuer and other factors. The conversion value
of convertible securities is determined by the market price of the underlying
stock. If the conversion value is low relative to the investment value, the
price of the convertible securities is governed principally by their investment
value. To the extent the market price of the underlying stock approaches or
exceeds the conversion price, the price of the convertible securities will be
increasingly influenced by their conversion value. In addition, convertible
securities generally sell at a premium over their conversion value determined by
the extent to which investors place value on the right to acquire the underlying
stock while holding fixed income securities.

Corporate Debt Obligations
- --------------------------

The Bond and International Equity Funds may invest in
corporate debt obligations. In addition to obligations of corporations,
corporate debt obligations include securities issued by banks and other
financial institutions. Corporate debt obligations are subject to the risk of an
issuer's inability to meet principal and interest payments on the obligations.

Forward Currency Transactions
- -----------------------------

In order to protect against a possible loss on investments
resulting from a decline or appreciation in the value of a particular foreign
currency against the U.S. dollar or another foreign currency or for other
reasons, the International Equity Fund is authorized to enter into forward
currency exchange contracts. A forward currency exchange contract is an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of contract. Forward currency contracts do
not eliminate fluctuations in the values of portfolio securities but rather may
allow a Fund to establish a rate of exchange for a future point in time. The
Fund may also enter into foreign currency exchange contracts to seek to increase
total return when the Advisor anticipates that a foreign currency will
appreciate or depreciate in value, but securities denominated in that currency
do not present attractive investment opportunities and are not held by the Fund.
In addition, the International Equity Fund may engage in cross-hedging by using
forward contracts in one currency to hedge against fluctuations in the value of
securities denominated in a different currency if the Advisor believes that
there is a pattern of correlation between the two currencies.

-5-
<PAGE>

The Fund may enter into forward foreign currency exchange
contracts in several circumstances. When entering into a contract for the
purchase or sale of a security, the Fund may enter into a contract for the
amount of the purchase or sale price to protect against variations, between the
date the security is purchased or sold and the date on which payment is made or
received, in the value of the foreign currency relative to the U.S. dollar or
other foreign currency.

When the Advisor anticipates that a particular foreign
currency may decline substantially relative to the U.S. dollar or other leading
currencies, in order to reduce risk, the Fund may enter into a forward contract
to sell, for a fixed amount, the amount of foreign currency approximating the
value of some or all of the Fund's securities denominated in such foreign
currency. Similarly, when the securities held by the Fund create a short
position in a foreign currency, the Fund may enter into a forward contract to
buy, for a fixed amount, an amount of foreign currency approximating the short
position. With respect to any forward foreign currency contract, it will
generally not be possible to match precisely the amount covered by that contract
and the value of the securities involved due to the changes in the values of
such securities resulting from market movements between the date the forward
contract is entered into and the date it matures. While forward contracts may
offer protection from losses resulting from declines or appreciation in the
value of a particular foreign currency, they also limit potential gains which
might result from changes in the value of such currency. The Fund will also
incur costs in connection with forward foreign currency exchange contracts and
conversions of foreign currencies and U.S. dollars. In addition, the Advisor may
purchase or sell forward foreign currency exchange contracts for the Fund for
non-hedging purposes when the Advisor anticipates that the foreign currency will
appreciate or depreciate in value.

A separate account consisting of cash or liquid assets, equal
to the amount of the Fund's assets that could be required to consummate forward
contracts will be established with the Fund's Custodian, except to the extent
the contracts are otherwise "covered." For the purpose of determining the
adequacy of the securities in the account, the deposited securities will be
valued at market or fair value. If the market or fair value of such securities
declines, additional cash or securities will be placed in the account daily so
that the value of the account will equal the amount of such commitments by the
Fund. A forward contract to sell a foreign currency is "covered" if the Fund
owns the currency (or securities denominated in the currency) underlying the
contract, or holds a forward contract (or call option) permitting the Fund to
buy the same currency at a price no higher than the Fund's price to sell the
currency. A forward contract to buy a foreign currency is "covered" if the Fund
holds a forward contract (or put option) permitting the Fund to sell the same
currency at a price as high as or higher than the Fund's price to buy the
currency.

-6-
<PAGE>

Foreign Investments
- -------------------

As indicated in the Prospectuses, the Growth and Income,
Growth, MidCap, International Equity and Bond Funds may invest up to 10%, 10%,
10%, 100% and 20%, respectively, of their total assets, and the Balanced Fund
may invest up to 20% and 10% of the fixed income and equity portions of its
portfolio, respectively, in securities issued by foreign issuers, including
American Depository Receipts ("ADRs") and, in the case of the International
Equity Fund, European Depository Receipts ("EDRs"), wherever organized ("Foreign
Securities"). In considering whether to invest in the Foreign Securities, the
Advisor will consider such factors as the characteristics of the particular
issuer, differences between economic trends and the performance of securities
markets within the United States and those within other countries, and also
factors relating to the general economic, governmental and social conditions of
the country or countries where the issuer is located.

Investment in Foreign Securities involves special risks
including market risk, foreign currency risk, interest rate risk and the risks
of investing in securities of foreign issuers and of companies whose securities
are principally traded outside the United States. Market risk involves the
possibility that stock prices will decline over short or extended periods. Stock
markets tend to be cyclical, with alternate periods of generally rising and
generally declining prices. In addition, the performance of investments in
securities denominated in a foreign currency will depend on the strength of the
foreign currency against the U.S. dollar and the interest rate environment in
the country issuing the currency. Absent other events which could otherwise
affect the value of a Foreign Security (such as a change in the political
climate or an issuer's credit quality), appreciation in the value of the foreign
currency generally can be expected to increase the value of a foreign
currency-denominated security in terms of U.S. dollars. An increase in foreign
interest rates or a decline in the value of the foreign currency relative to the
U.S. dollar generally can be expected to depress the value of a foreign
currency-denominated security.

There are other risks and costs involved in investing in
Foreign Securities, which are in addition to the usual risks inherent in
domestic investments. Investment in Foreign Securities involves higher costs
than investment in U.S. securities, including higher transaction and custody
costs as well as the imposition of additional taxes by foreign governments.
Foreign investments also involve risks associated with the level of currency
exchange rates, less complete financial information about the issuers, less
market liquidity, more market volatility and political and economic instability.
Future political and economic developments, the possible imposition of
withholding taxes, the possible seizure or nationalization of foreign holdings,
the possible establishment of exchange controls, or the adoption of other
governmental restrictions might adversely affect an investment in foreign
securities. Additionally, foreign banks and foreign branches of domestic banks
are subject to less stringent reserve requirements, and to different accounting,
auditing and recordkeeping requirements.

-7-
<PAGE>

The Balanced and Bond Funds may invest in foreign debt and in
the securities of foreign governments. The risks of such investments include the
risk that foreign governments may default on their obligations, may not respect
the integrity of such debt, may attempt to renegotiate the debt at a lower rate
and may not honor investments by U.S. entities or citizens.

The Growth and Income, Growth, MidCap, International Equity
and Balanced Funds may invest in ADRs, some of which may not be sponsored by the
issuing institution. A non-sponsored depository may not be required to disclose
material information that a sponsored depository would be required to provide
under its contractual relationship with the issuer. Accordingly, there may not
be a correlation between such information and the market value of such
securities.

Although a Fund may invest in securities denominated in
foreign currencies, its portfolio securities and other assets are valued in U.S.
dollars. Currency exchange rates may fluctuate significantly over short periods
of time causing, together with other factors, a Fund's net asset value to
fluctuate as well. Currency exchange rates generally are determined by the
forces of supply and demand in the foreign exchange markets and the relative
merits of investments in different countries, actual or anticipated changes in
interest rates and other complex factors, as seen from an international
perspective. Currency exchange rates also may be affected unpredictably by the
intervention or the failure to intervene by U.S. or foreign governments or
central banks, or by currency controls or political developments in the United
States or abroad.

To the extent that a Fund's total assets, adjusted to reflect
the Fund's net position after giving effect to currency transactions, are
denominated in the currencies of foreign countries, the Fund will be more
susceptible to the risk of adverse economic and political developments within
those countries. In addition, the respective net currency positions of the
International Equity Fund may expose it to risks independent of its securities
positions. Although the net long and short foreign currency exposure of the
International Equity Fund will not exceed its total asset value, to the extent
that the Fund is fully invested in Foreign Securities while also maintaining
currency positions, it may be exposed to greater risk than it would have if it
did not maintain the currency positions. The Funds investing in Foreign
Securities are also subject to the possible imposition of exchange control
regulations or freezes on convertibility of currency.

Futures Contracts and Related Options
- -------------------------------------

The Growth and Income, Growth, MidCap, International Equity,
Balanced, Bond, National Tax-Free Intermediate Bond and Missouri Tax-Free
Intermediate Bond Funds may invest in futures contracts and options thereon
(interest rate futures contracts or index futures contracts, as applicable) for
hedging purposes or to seek to increase total return. The International Equity
Fund may also invest in currency futures contracts. Positions in futures
contracts may be closed out only on an exchange which provides a secondary
market

-8-
<PAGE>

for such futures. However, there can be no assurance that a liquid secondary
market will exist for any particular futures contract at any specific time.
Thus, it may not be possible to close a futures position. In the event of
adverse price movements, a Fund would continue to be required to make daily cash
payments to maintain its required margin. In such situations, if a Fund has
insufficient cash, it may have to sell portfolio securities to meet daily margin
requirements at a time when it may be disadvantageous to do so. In addition, a
Fund may be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on a Fund's ability to effectively hedge.

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

The risk of loss in trading futures contracts in some
strategies can be substantial, due both to the low margin deposits required, and
the extremely high degree of leverage involved in futures pricing. As a result,
a relatively small price movement in a futures contract may result in immediate
and substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit, before any
deduction for the transaction costs, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the contract.

Utilization of futures transactions by a Fund involves the
risk of loss by a Fund of margin deposits in the event of bankruptcy of a broker
with whom the Fund has an open position in a futures contract or related option.

Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable

-9-
<PAGE>

positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.

The trading of futures contracts is also subject to the risk
of trading halts, suspensions, exchange or clearing-house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.

A Fund may not purchase or sell futures contracts or options
on futures contracts to increase total return unless immediately after any such
transaction the aggregate amount of premiums paid for put options and the amount
of margin deposits on its existing futures positions do not exceed 5% of the
total assets of the Fund.

Hybrid Instruments
- ------------------

The International Equity Fund may invest up to 10% of its
total assets in Hybrid instruments. Hybrid instruments combine the elements of
futures contracts or options with those of debt, preferred equity or depository
instruments (hereinafter "Hybrid Instruments"). Generally, a Hybrid Instrument
will be a debt security, preferred stock, depository share, trust certificate,
certificate of deposit or other evidence of indebtedness on which a portion of
or all interest payments, and/or the principal or stated amount payable at
maturity, redemption or retirement, is determined by reference to prices,
changes in prices, or differences between prices of securities, currencies,
intangibles, goods, articles or commodities (collectively, "Underlying Assets")
or by another objective index, economic factor or other measure, such as
interest rates, currency exchange rates, commodity indices, and securities
indices (collectively, "Benchmarks"). Thus, Hybrid Instruments may take a
variety of forms, including, but not limited to, debt instruments with interest
or principal payments or redemption terms determined by reference to the value
of a currency or commodity or securities index at a future point in time,
preferred stock with dividend rates determined by reference to the value of a
currency, or convertible securities with the conversion terms related to a
particular commodity.

Hybrid Instruments can be an efficient means of creating
exposure to a particular market, or segment of a market, with the objective of
enhancing total return. For example, a Fund may wish to take advantage of
expected declines in interest rates in several European countries, but avoid the
transactions costs associated with buying and currency-hedging the foreign bond
positions. One solution would be to purchase a U.S. dollar-denominated Hybrid
Instrument whose redemption price is linked to the average three-year interest
rate in a designated group of countries. The redemption price formula would
provide for payoffs of greater than par if the average interest rate was lower
than a specified level, and payoffs of less than par if rates were above the
specified level. Furthermore, a Fund could limit the downside risk of the
security by establishing a minimum redemption price so that the

-10-
<PAGE>

principal paid at maturity could not be below a predetermined minimum level if
interest rates were to rise significantly. The purpose of this arrangement,
known as a structured security with an embedded put option, would be to give a
Fund the desired European bond exposure while avoiding currency risk, limiting
downside market risk, and lowering transactions costs. Of course, there is no
guarantee that the strategy will be successful and a Fund could lose money if,
for example, interest rates do not move as anticipated or credit problems
develop with the issuer of the Hybrid Instrument.

The risks of investing in Hybrid Instruments reflect a
combination of the risks of investing in securities, options, futures and
currencies. Thus, an investment in a Hybrid Instrument may entail significant
risks that are not associated with a similar investment in a traditional debt
instrument that has a fixed principal amount, is denominated in U.S. dollars or
bears interest either at a fixed rate or a floating rate determined by reference
to a common, nationally published Benchmark. The risks of a particular Hybrid
Instrument will, of course, depend upon the terms of the instrument, but may
include, without limitation, the possibility of significant changes in the
Benchmarks or the prices of Underlying Assets to which the instrument is linked.
Such risks generally depend upon factors which are unrelated to the operations
or credit quality of the issuer of the Hybrid Instrument and which may not be
credit quality of the issuer of the Hybrid Instrument and which may not be
readily foreseen by the purchaser, such as economic and political events, the
supply and demand of the Underlying Assets and interest rate movements. At
various times Benchmarks and prices for Underlying Assets have been highly
volatile, and such volatility may be expected in the future. Reference is also
made to the discussion of futures, options, and forward contracts herein for a
discussion of the risks associated with such investments.

Hybrid Instruments are potentially more volatile and carry
greater market risks than traditional debt instruments. Depending on the
structure of the particular Hybrid Instrument, changes in a Benchmark may be
magnified by the terms of the Hybrid Instrument and have an even more dramatic
and substantial effect upon the value of the Hybrid Instrument. Also, the prices
of the Hybrid Instrument and the Benchmark or Underlying Asset may not move in
the same direction or at the same time.

Hybrid Instruments may bear interest or pay preferred
dividends at below market (or even relatively nominal) rates. Alternatively,
Hybrid Instruments may bear interest at above market rates but bear an increased
risk of principal loss (or gain). The latter scenario may result if "leverage"
is used to structure the Hybrid Instrument. Leverage risk occurs when the Hybrid
Instrument is structured so that a given change in a Benchmark or Underlying
Asset is multiplied to produce a greater value change in the Hybrid Instrument,
thereby magnifying the risk of loss as well as the potential for gain.

Hybrid Instruments may also carry liquidity risk since the
instruments are often "customized" to meet the portfolio needs of a particular
investor, and therefore, the number of investors that are willing and able to
buy such instruments in the secondary market may be smaller than that for more
traditional debt securities. In addition, because the purchase and

-11-
<PAGE>

sale of Hybrid Instruments could take place in an over-the-counter market
without the guarantee of a central clearing organization or in a transaction
between the Fund and the issuer of the Hybrid Instrument, the creditworthiness
of the counterparty or issuer of the Hybrid Instrument would be an additional
risk factor which the Fund would have to consider and monitor. Hybrid
Instruments also may not be subject to regulation of the Commodities Futures
Trading Commission ("CFTC"), which generally regulates the trading of commodity
futures by U.S. persons, the SEC, which regulates the offer and sale of
securities by and to U.S. persons, or any other governmental regulatory
authority.

Illiquid Securities
- -------------------

Each Fund may invest up to 15% of the value of its net assets
in illiquid securities, including securities having legal or contractual
restrictions on resale or no readily available market (including repurchase
agreements, variable and floating rate instruments and time deposits with
notice/termination dates in excess of seven days, stripped mortgage-backed
securities ("SMBS") issued by private issuers, interest rate and currency swaps
and certain securities which are subject to trading restrictions because they
are not registered under the Securities Act of 1933 (the "1933 Act")).

If otherwise consistent with its investment objective and
policies, each Fund may purchase commercial paper issued pursuant to Section
4(2) of the 1933 Act and securities that are not registered under the 1933 Act
but can be sold to "qualified institutional buyers" in accordance with Rule 144A
under the 1933 Act. These securities will not be considered illiquid so long as
the Advisor determines, under guidelines approved by the Board of Trustees, that
an adequate trading market exists. A Fund's investment in Rule 144A securities
could increase the level of illiquidity during any period that qualified
institutional buyers becomes uninterested in purchasing these securities.

Interest Rate Swaps, Floors and Caps
- ------------------------------------

In order to hedge against fluctuations in interest rates, the
Balanced, Short-Term Government, Bond, National Tax-Free Intermediate Bond and
Missouri Tax-Free Intermediate Bond Funds may opt to enter into interest rate
and mortgage swaps and interest rate caps and floors. A Fund typically uses
interest rate and mortgage swaps to preserve a return on a particular investment
or portion of its portfolio or to shorten the effective duration of its
portfolio securities. Interest rate swaps involve the exchange by a Fund with
another party of their respective commitments to pay or receive interest, such
as an exchange of fixed rate payments for floating rate payments. Mortgage swaps
are similar to interest rate swaps in that they represent commitments to pay and
receive interest. The notional principal amount, however, is tied to a reference
pool or pools of mortgages. The purchase of an interest rate floor or cap
entitles the purchaser to receive payments of interest on a notional principal
amount from the seller, to the extent that a specified index falls below (floor)
or exceeds (cap) a predetermined interest rate. In a typical cap or floor
arrangement, one party agrees to make payments only under specified
circumstances, usually in return for payment of a fee by the

-12-
<PAGE>

other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an agreed
upon level, while the seller of an interest rate floor is obligated to make
payments to the extent that a specified interest rate falls below an agreed upon
level. Since interest rate swaps, mortgage swaps and interest rate caps and
floors are individually negotiated, a Fund expects to achieve an acceptable
degree of correlation between its portfolio investments and its interest rate
swaps, mortgage swaps and interest rate caps and floors positions.

If a Fund enters into interest rate and mortgage swaps, it
will do so only on a net basis, i.e., the two payment streams are netted out,
with the Fund receiving or paying, as the case may be, only the net amount of
the two payments. Inasmuch as these transactions are entered into for good faith
hedging purposes, the Funds and the Advisor believe that such obligations do not
constitute senior securities as defined in the 1940 Act and, accordingly, do not
treat them as being subject to the Funds' borrowing restrictions. The net amount
of the excess, if any, of a Fund's obligations over its entitlements with
respect to each interest rate or mortgage swaps is accrued on a daily basis and
an amount of cash or liquid securities having an aggregate net asset value at
least equal to such accrued excess, is maintained in a segregated account by the
Fund's Custodian.

The use of interest rate swaps, mortgage swaps, caps and
floors is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities
transactions. If the Advisor is incorrect in its forecasts of market values and
interest rates, the investment performance of a Fund would be less favorable
than it would have been if these investment techniques were not used.

A Fund does not enter into any interest rate or mortgage swap
or interest cap or floor transaction unless the unsecured commercial paper,
senior debt or the claims-paying ability of the other party thereto is rated
either AA or A-1 or Aa or P-1 or better by S&P or Moody's or the equivalent
rating of another NRSRO or if unrated by such rating organizations, determined
by the Advisor to be of comparable credit quality. If there is a default by the
other party to such a transaction, a Fund will have contractual remedies
pursuant to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid in
comparison with the markets for other similar instruments which are traded in
the relevant market. However, the staff of the SEC takes the position that
swaps, caps and floors are illiquid for purposes of the Funds' limitations on
investments in illiquid securities.

Lending Securities
- ------------------

Each Fund may lend its portfolio securities to broker/dealers
and other institutional investors pursuant to agreements requiring that the
loans be continuously secured by collateral equal in value at all times to at
least the market value of the securities loaned. Collateral for securities loans
may include cash, securities of the U.S. Government, its

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<PAGE>

agencies or instrumentalities, or an irrevocable letter of credit issued by a
bank that meets the investment standards defined as "money market instruments"
below in "Temporary Investments." When a Fund lends its securities, it continues
to receive interest or dividends on the securities loaned and may simultaneously
earn interest on the investment of the cash loan collateral which will be
invested in readily marketable, high-quality, short-term obligations. Although
voting rights, or rights to consent, attendant to securities on loan pass to the
borrower, such loans may be called at any time and will be called so that the
securities may be voted by a Fund if a material event affecting the investment
is to occur. Such loans will not be made if, as a result, the aggregate of all
outstanding loans exceeds 33 1/3% of the value of a Fund's total assets
(including the value of the collateral received for the loan). There may be
risks of delay in receiving additional collateral or in recovering the
securities loaned or even a loss of rights in the collateral should the borrower
of the securities fail financially. However, loans are made only to borrowers
deemed by the Advisor to be of good standing and when, in its judgment, the
income to be earned form the loan justifies the attendant risks.

Mortgage Dollar Rolls
- ---------------------

The Balanced, Short-Term Government and Bond Funds may enter
into mortgage "dollar rolls" in which a Fund sells securities for delivery in
the current month and simultaneously contracts with the same counterparty to
repurchase similar (same type, coupon and maturity) but not identical securities
on a specified future date. A Fund gives up the right to receive principal and
interest paid on the securities sold. However, a Fund would benefit to the
extent of any difference between the price received for the securities sold and
the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the case proceeds of the
securities sold until the settlement date of the forward purchase. Unless such
benefits exceed the income, capital appreciation, and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of a Fund. A Fund will hold and maintain in a segregated
account until the settlement date cash or liquid assets, in an amount equal to
the forward purchase price. The benefits derived from the use of mortgage dollar
rolls may depend upon the Advisor's ability to correctly predict mortgage
prepayments and interest rates. There is no assurance that mortgage dollar rolls
can be successfully employed.

For financial reporting and tax purposes, each Fund proposes
to treat mortgage dollar rolls as two separate transactions; one transaction
involving the purchase of a security and a separate transaction involving a
sale. No Fund currently intends to enter into mortgage dollar rolls that are
accounted for as a financing.

Mortgage-Related and Asset-Backed Securities
- --------------------------------------------

The Balanced, Short-Term Government and Bond Funds may
purchase mortgage-related and the Balanced and Bond Funds may purchase
asset-backed securities that are secured by entities such as the Government
National Mortgage Association

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<PAGE>

("GNMA"), Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), commercial banks,
trusts, financial companies, finance subsidiaries of industrial companies,
savings and loan associations, mortgage banks and investment banks. Purchasable
mortgage-related securities are represented by pools of mortgage loans assembled
for sale to investors by various governmental agencies, which are described
below, as well as by private issuers such as commercial banks, savings and loan
institutions, mortgage bankers and private mortgage insurance companies.

Although certain mortgage-related securities are guaranteed by
a third party or are otherwise similarly secured, the market value of the
security, which may fluctuate, is not so secured. If a Fund purchases a
mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from increases in
interest rates or prepayment of the underlying mortgage collateral. As with
other interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true because mortgages underlying securities are prone to
prepayment in periods of declining interest rates. For this and other reasons, a
mortgage-related security's maturity may be shortened by unscheduled prepayments
on underlying mortgages and, therefore, it is not possible to accurately predict
the security's return to a Fund. Mortgage-related securities provide regular
payments consisting of interest and principal. No assurance can be given as to
return a Fund will receive when these amounts are reinvested.

Mortgage-Related Securities. There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities include GNMA Mortgage Pass-Through Certificates
(also known as "Ginnie Maes"), which are guaranteed as to the timely payment of
principal and interest by GNMA and such guarantee is backed by the full faith
and credit of the United States. GNMA is a wholly-owned U.S. Government
corporation within the Department of Housing and Urban Development. GNMA
certificates also are supported by the authority of GNMA to borrow funds from
the U.S. Treasury to make payments under its guarantee. Mortgage-related
securities also include FNMA guaranteed Mortgage Pass-Through Certificates (also
known as "Fannie Maes") which are solely the obligations of the FNMA, are not
backed by or entitled to the full faith and credit of the United States and are
supported by the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of principal and interest by FNMA.
Mortgage-related securities also include FHLMC Mortgage Participation
Certificates (also known as "Freddie Macs" or "PCs"). FHLMC is a corporate
instrumentality of the United States, created pursuant to an Act of Congress,
which is owned entirely by Federal Home Loan Banks. Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection

-15-
<PAGE>

or timely payment of all principal payments on the underlying mortgage loans.
When FHLMC does not guarantee timely payment of principal, FHLMC may remit the
amount due on account of its guarantee of ultimate payment of principal at any
time after default on an underlying mortgage, but in no event later than one
year after it becomes payable.

A Fund may invest in multiple class pass-through securities,
including collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduit ("REMIC") pass-through or participation certificates ("REMIC
Certificates"). These multiple class securities may be issued by U.S. Government
agencies or instrumentalities, including FNMA and FHLMC, or by trusts formed by
private originators of, or investors in, mortgage loans. In general, CMOs and
REMICs are debt obligations of a legal entity that are collateralized by, and
multiple class pass-through securities represent direct ownership interests in,
a pool of residential mortgage loans or mortgage pass-through securities (the
"Mortgage Assets"), the payments on which are used to make payments on the CMOs
or multiple pass-through securities. Investors may purchase beneficial interests
in REMICs, which are known as "regular" interests or "residual" interests. The
Funds do not intend to purchase residual interests.

Each class of CMOs or REMIC Certificates, often referred to as
a "tranche," is issued at a specific adjustable or fixed interest rate and must
be fully retired no later than its final distribution date. Principal
prepayments on the Mortgage Assets underlying the CMOs or REMIC Certificates may
cause some or all of the classes of CMOs or REMIC Certificates to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs or REMIC Certificates on a monthly
basis.

The principal of and interest on the Mortgage Assets may be
allocated among the several classes of CMOs or REMIC Certificates in various
ways. In certain structures (known as "sequential pay" CMOs or REMIC
Certificates), payments of principal, including any principal prepayments, on
the Mortgage Assets generally are applied to the classes of CMOs or REMIC
Certificates in the order of their respective final distribution dates. Thus no
payment of principal will be made on any class of sequential pay CMOs or REMIC
Certificates until all other classes having an earlier final distribution date
have been paid in full.

Additional structures of CMOs or REMIC Certificates include,
among others, "parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or
REMIC Certificates are those which are structured to apply principal payments
and prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.

A wide variety of REMIC Certificates may be issued in the
parallel pay or sequential pay structures. These securities include accrual
certificates (also known as "Z-Bonds"), which only accrue interest at a
specified rate until all other certificates having an

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<PAGE>

earlier final distribution date have been retired and are converted thereafter
to an interest-paying security, and planned amortization class ("PAC")
certificates, which are parallel pay REMIC Certificates which generally require
that specified amounts of principal be applied on each payment date to one or
more classes of REMIC Certificates (the "PAC Certificates"), even though all
other principal payments and prepayments of the Mortgage Assets are then
required to be applied to one or more other classes of the Certificates. The
scheduled principal payments for the PAC Certificates generally have the highest
priority on each payment date after interest due has been paid to all classes
entitled to receive interest currently. Shortfalls, if any, are added to the
amount payable on the next payment date. The PAC Certificate payment schedule is
taken into account in calculating the final distribution date of each class of
PAC. In order to create PAC tranches, one or more tranches generally must be
created that absorb most of the volatility in the underlying Mortgage Assets.
These tranches tend to have market prices and yields that are much more volatile
than the PAC classes.

FNMA REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by FNMA. In addition, FNMA will be
obligated to distribute on a timely basis to holders of FNMA REMIC Certificates
required installments of principal and interest and to distribute the principal
balance of each class of REMIC Certificates in full, whether or not sufficient
funds are otherwise available.

For FHLMC REMIC Certificates, FHLMC guarantees the timely
payment of interest, and also guarantees the ultimate payment of principal as
payments are required to be made on the underlying mortgage participation
certificates. PCs represent undivided interests in specified level payment,
residential mortgages or participation therein purchased by FHLMC and placed in
a PC pool. With respect to principal payments on PCs, FHLMC generally guarantees
ultimate collection of all principal of the related mortgage loans without
offset or deduction. FHLMC also guarantees timely payment of principal on
certain PCs, referred to as "Gold PCs."

The average life of mortgage-backed securities varies with the
maturities of the underlying mortgage instruments. The average life is likely to
be substantially less than the original maturity of the mortgage pools
underlying the securities as the result of mortgage prepayments. The rate of
such prepayments, and accordingly the life of the certificates, will be a
function of current market rates and current conditions in the relevant housing
markets. Estimated average life will be determined by the Advisor, and such
securities may be purchased by the Fund if the estimated average life is
determined to be five years or less.

-17-
<PAGE>

rates rise, the converse is not necessarily true because mortgages underlying
securities are prone to prepayment in periods of declining interest rates. For
this and other reasons, a mortgage-related security's maturity may be shortened
by unscheduled prepayments on underlying mortgages and, therefore, it is not
possible to accurately predict the security's return to a Fund. Mortgage-related
securities provide regular payments consisting of interest and principal. No
assurance can be given as to the return a Fund will receive when these amounts
are reinvested.

Asset-Backed Securities. The Bond and Balanced Funds may
purchase asset-backed securities issued by either governmental or non-
governmental entities which represent a participation in, or are secured by and
payable from, a stream of payments generated by particular assets, most often a
pool of assets similar to one another. Primarily, these securities do not have
the benefit of the same security interest in the underlying collateral. Payment
on asset-backed securities of private issuer is typically supported by some form
of credit enhancement, such as a letter of credit, surety bond, limited
guaranty, or subordination. Assets generating such payments will consist of such
instruments as motor vehicle installment purchase obligations, credit card
receivables and home equity loans. Each of these Funds may also invest in other
types of asset-backed securities that may be available in the future.

The yield characteristics of asset-backed securities differ
from traditional debt securities. A major difference is that the principal
amount of the obligations may be prepaid at any time because the underlying
assets (i.e., loans) generally may be prepaid at any time. As a result, if an
asset-backed security is purchased at a premium, a prepayment rate that is
faster than expected will reduce yield to maturity, while a prepayment rate that
is slower than expected will have the opposite effect of increasing yield to
maturity. Conversely, if an asset-backed security is purchased at a discount,
faster than expected payments will increase, while slower than expected
prepayments will decrease, yield to maturity. In calculating the average
weighted maturity of a Fund, the maturity of asset-backed securities will be
based on estimates of average life.

Prepayments on asset-backed securities generally increase with
falling interest rates and decrease with rising interest rates. Furthermore,
prepayment rates are influenced by a variety of economic and social factors. In
general, the collateral supporting non-mortgage asset-backed securities is of a
shorter maturity than mortgage loans and is less likely to experience
substantial prepayments. Like other fixed income securities, when interest rates
rise the value of an asset-backed security generally will decline; however, when
interest rates decline, the value of an asset-backed security with prepayment
features may not increase as much as that of other fixed income securities.

Asset-backed securities may involve certain risks that are not
presented by mortgage-backed securities arising primarily from the nature of the
underlying assets (e.g., credit card and automobile loan receivables as opposed
to real estate mortgages). Ultimately, asset-backed securities are dependent
upon payment of the consumer loans or receivables by

-18-
<PAGE>

individuals, and the certificate holder frequently has no recourse against the
entity that originated the loans or receivables. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which have given debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. In addition, default may require repossession of the personal
property of the debtor which may be difficult or impossible in some cases. Most
issuers of automobile receivables permit the servicers to return possession of
the underlying obligations. If the servicers were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the number of vehicles involved in a typical issuance and
technical requirements under state law, the trustee for the automobile
receivables may not have an effective security interest in all of the
obligations backing such receivables. Therefore, there is a possibility that
recoveries of repossessed collateral may not, in some cases, be able to support
payments on these securities.

Asset-backed securities may be subject to greater risk of
default during periods of economic downturn than other instruments. Also, the
secondary market for certain asset-backed securities may not be as liquid as the
market for other types of securities, which could result in a Fund's
experiencing difficulty in valuing or liquidating such securities. In certain
circumstances, asset-backed securities may be considered illiquid securities
subject to the percentage limitations described above under "Illiquid
Securities."

In general, the collateral supporting asset-backed securities
is of shorter maturity than mortgage-related securities. Like other fixed income
securities, when interest rates rise the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed income securities.

Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties.

The yield characteristics of asset-backed securities differ
from traditional debt securities. A major difference is that the principal
amount of the obligations may be prepaid at any time because the underlying
assets (i.e., loans) generally may be prepaid at any time. As a result, if an
asset-backed security is purchased at a premium, a prepayment rate that is
faster than expected may reduce yield to maturity, while a prepayment rate that
is slower than expected may have the opposite effect of increasing yield to
maturity. Conversely, if an asset-backed security is purchased at a discount,
faster than expected prepayments may increase, while slower than expected
prepayments may decrease, yield to maturity. In calculating the

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<PAGE>

average weighted maturity of a Fund, the maturity of asset-backed securities
will be based on estimates of average life.

Municipal Obligations
- ---------------------

The Balanced, Bond, National Tax-Free Intermediate Bond and
Missouri Tax-Free Intermediate Bond Funds may invest in Municipal Obligations.
Municipal Obligations include debt obligations issued by governmental entities
to obtain funds for various public purposes, including the construction of a
wide range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses and the extension of loans to public
institutions and facilities.

The two principal classifications of Municipal Obligations
consist of "general obligation" and "revenue" issues, and the respective
portfolios may also purchase "moral obligation" issues, which are normally
issued by special purpose authorities. General obligation securities are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue securities are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. Private activity bonds
(e.g., bonds issued by industrial development authorities) that are issued by or
on behalf of public authorities to finance various privately-operated facilities
are included within the term "Municipal Obligations" if the interest paid
thereon is exempt from regular federal income tax and not treated as a specific
tax preference item under the federal alternative minimum tax. Private activity
bonds are in most cases revenue securities and are not payable from the
unrestricted revenues of the issuer. The credit quality of such bonds is usually
directly related to the credit standing of the corporate user of the facility
involved. If the issuer of moral obligation securities is unable to meet its
debt service obligations from current revenues, it may draw on a reserve fund,
the restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer. There are, of course, variations
in the quality of Municipal Obligations both within a particular classification
and between classifications, and the yields on Municipal Obligations depend upon
a variety of factors, including general money market conditions, the financial
condition of the issuer, general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation and the rating of
the issue.

The Bond and Balanced Funds may, when deemed appropriate by
the Advisor in light of the particular Fund's investment objective, invest in
obligations issued by state and local governmental issuers. Dividends which are
derived from the interest of Municipal Obligations would be taxable to the
Funds' shareowners for federal income tax purposes.

Although the National Tax-Free Intermediate Bond and Missouri
Tax-Free Intermediate Bond Funds will invest most of their assets, under normal
circumstances, in intermediate-term Municipal Obligations, the Funds may also
purchase short-term project notes, tax anticipation notes, bond anticipation
notes, revenue anticipation notes, tax-exempt

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<PAGE>

commercial paper, and other forms of short-term tax-exempt loans. Such
instruments are issued with a short-term maturity in anticipation of the receipt
of tax funds, the proceeds of bond placements or other revenues.

Further, the Funds may purchase Municipal Obligations known as
"certificates of participation" which represent undivided proportional interests
in least payments by a governmental or non-profit entity. The least payments and
other rights under the least provide for and secure the payments on the
certificates. Lease obligations may be limited by applicable municipal charter
provisions or the nature of the appropriation for the lease. In particular,
lease obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be compelled
to make such payments. Furthermore, a lease may or may not provide that the
certificate trustee can accelerate lease obligations upon default. If the
trustee could not accelerate lease obligations upon default, the trustee would
only be able to enforce lease payments as they became due. In the event of a
default or failure of appropriation, it is unlikely that the trustee would be
able to obtain an acceptable le substitute source of payment. Certificates of
participation are generally subject to redemption by the issuing municipal
entity under specified circumstances. If a specified event occurs, a certificate
is callable at par either at any interest payment date or, in some cases, at any
time. As a result, certificates of participation are not as liquid or marketable
as other types of Municipal Obligations.

From time to time, proposals have been introduced before
Congress for the purpose of restricting or eliminating the federal income tax
exemption for interest on Municipal Obligations. For example, under the federal
tax legislation enacted in 1986, interest on certain private activity bonds must
be included in an investor's alternative minimum taxable income, and corporate
investors must treat all tax-exempt interest as an item of tax preference. The
Commerce Funds cannot predict what legislation, if any, may be proposed or
enacted in the future regarding the federal tax status of interest on such
obligations or, with respect to the Missouri Tax-Free Intermediate Bond Fund,
what legislation may be proposed in the Missouri Legislature relating to the
status of the Missouri income tax on interest on Missouri obligations. Such
proposals, whether pending or enacted, might materially and adversely affect the
availability of Municipal or Missouri Obligations for investment by a particular
Fund and the liquidity and value of its respective portfolio. In such an event,
the Fund would re-evaluate its investment objective and policies and consider
possible changes in its structure or possible dissolution.

Certain of the Municipal Obligations held by a Fund may be
insured as to the timely payment of principal and interest. The insurance
policies will usually be obtained by the issuer of the Municipal Obligation at
the time of its original issuance. In the event that the issuer defaults on
interest or principal payment, the insurer will be notified and will be required
to make payment to the bondholders. There is, however, no guarantee that the
insurer will meet its obligations. In addition, such insurance will not protect
against market fluctuations caused by changes in interest rates and other
factors. The National Tax-Free

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<PAGE>

Intermediate Bond and Missouri Tax-Free Intermediate Bond Funds may, from time
to time, invest more than 25% of their assets in Municipal Obligations covered
by insurance policies.

Options Trading
- ---------------

Each of the Funds may purchase put and call options and may
write covered call and secured put options, which will be listed on a national
securities exchange and issued by the Options Clearing Corporation. The
aggregate value of securities subject to options written by the International
Equity, Balanced, Short-Term Government, Bond, National Tax-Free Intermediate
Bond and Missouri Tax-Free Intermediate Bond Funds will not exceed 5% of the
respective Fund's total assets. The aggregate value of securities subject to
options written by the Growth, Growth and Income and MidCap Funds will not
exceed 25% of the respective Fund's total assets. Notwithstanding the foregoing,
a Fund may not purchase or sell futures contracts or options on futures
contracts to increase total return unless immediately after any such
transaction, the aggregate amount of premiums paid for put options and the
amount of margin deposits on existing futures positions do not exceed 5% of the
total assets of the Fund.

Options may relate to particular securities and various stock
indexes or currencies. This is a highly specialized activity which entails
greater than ordinary investment risks. Regardless of how much the market price
of the underlying security increases or decreases, the option buyer's risk is
limited to the amount of the original investment for the purchase of the option.
However, options may be more volatile than the underlying securities, and
therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an investment in the underlying securities themselves.
A listed call option gives the purchaser of the option the right to buy from a
clearing corporation, and a writer has the obligation to sell to the clearing
corporation, the underlying security at the stated exercise price at any time
prior to the expiration of the option, regardless of the market price of the
security. The premium paid to the writer is in consideration for undertaking the
obligations under the option contract. A listed put option gives the purchaser
the right to sell to a clearing corporation the underlying security at the
stated exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security. Put and call options purchased
by a Fund will be valued at the last sale price or, in the absence of such a
price, at the mean between bid and asked prices.

The Funds will write only "covered" call options on
securities. The option is "covered" if a Fund owns the security underlying the
call or has an absolute and immediate right to acquire that security without
additional cash consideration (or, if additional cash consideration is required,
cash or cash equivalents in such amount as are held in a segregated account by
its Custodian) upon conversion or exchange of other securities held by it. A
call option is also covered if a Fund holds a call on the same security as the
call written where the exercise price of the call held is (i) equal to or less
than the exercise price of the call written, or (ii) greater than the exercise
price of the call written provided the difference is maintained by the Fund in
cash or cash equivalents in a segregated account with its Custodian.

-22-
<PAGE>

A Fund's obligation to sell a security subject to a covered
call option written by it, or to purchase a security subject to a secured put
option written by it, may be terminated prior to the expiration date of the
option by the Fund's executing a closing purchase transaction, which is effected
by purchasing on an exchange an option of the same series (i.e., the same
underlying security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize a
profit on an outstanding option, to prevent an underlying security from being
called, to permit the sale of the underlying security or to permit the writing
of a new option containing different terms on such underlying security. The cost
of such a liquidation purchase plus transaction costs may be greater than the
premium received upon the original option, in which event the Fund will have
incurred a loss in the transaction. An option position may be closed out only on
an exchange which provides a secondary market for an option of the same series.
There is no assurance that a liquid secondary market on an exchange will exist
for any particular option. A covered call option writer, unable to effect a
closing purchase transaction, will not be able to sell the underlying security
until the option expires or the underlying security is delivered upon exercise
with the result that the writer in such circumstances will be subject to the
risk of market decline in the underlying security during such period. A Fund
will write an option on a particular security only if the Advisor believes that
a liquid secondary market will exist on an exchange for options of the same
series which will permit the Fund to make a closing purchase transaction in
order to close out its position.

When a Fund purchases a put or call option, the premium paid
by it is recorded as an asset of the Fund. When a Fund writes an option, an
amount equal to the net premium (the premium less the commission) received by
the Fund is included in the liability section of the Fund's statement of assets
and liabilities as a deferred credit. The amount of this asset or deferred
credit will be subsequently marked-to-market to reflect the current value of the
option purchased or written. The current value of the traded option is the last
sale price or, in the absence of a sale, the average of the closing bid and
asked prices. If an option purchased by a Fund expires unexercised, the Fund
realizes a loss equal to the premium paid. If a Fund enters into a closing sale
transaction on an option purchased by it, the Fund will realize a gain if the
premium received by the Fund on the closing transaction is more than the premium
paid to purchase the option, or a loss if it is less. If an option written by a
Fund expires on the stipulated expiration date or if a Fund enters into a
closing purchase transaction, it will realize a gain (or loss if the cost of a
closing purchase transaction exceeds the net premium received when the option is
sold) and the deferred credit related to such option will be eliminated. If an
option written by a Fund is exercised, the proceeds of the sale will be
increased by the net premium originally received and the Fund will realize a
gain or loss.

As noted previously, there are risks associated with
transactions in options on securities. For example, there are significant
differences between the securities and options markets that could result in an
imperfect correlation between these markets, causing a given transaction not to
achieve its objectives. In addition, a liquid secondary market for particular
options, whether traded over-the-counter or on a national securities exchange
("Exchange"),

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<PAGE>

may be absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an Exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an Exchange; the facilities of
an Exchange or the Options Clearing Corporation may not at all times be adequate
to handle current trading volume; or one or more Exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that Exchange (or in that class or series of options)
would cease to exist, although outstanding options that had been issued by the
Options Clearing Corporation as a result of trades on that Exchange would
continue to be exercisable in accordance with their terms. A Fund will likely be
unable to control losses by closing its position where a liquid secondary market
does not exist. A decision as to whether, when and how to use options involves
the exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
Successful use of options by a Fund is subject to the Advisor's ability to
correctly predict movements in the direction of stock prices, interest rates and
other economic factors.

Passive Foreign Investment Companies
- ------------------------------------

The International Equity Fund may purchase the securities of
certain foreign investment funds or trusts called passive foreign investment
companies. Such entities have been the only or primary way to invest in certain
countries. In addition to bearing their proportionate share of the Fund's
expenses (management fees and operating expenses), shareowners will also
indirectly bear similar expenses of such entities. Capital gains on the sale of
such holdings are considered ordinary income regardless of how long the Fund
held its investment. In addition, the Fund may be subject to corporate income
tax and an interest charge on certain dividends and capital gains earned from
these investments, regardless of whether such income and gains are distributed
to shareowners.

To avoid such tax and interest, the Fund intends to treat
these securities as sold on the last day of its fiscal year and recognize any
gains for tax purposes at that time; deductions for losses are allowable only to
the extent of any gains resulting from these deemed sales for prior taxable
years. Such gains and losses will be treated as ordinary income. The Fund will
be required to distribute any resulting income even though it has not sold the
security and received cash to pay for such distributions.

Portfolio Turnover
- ------------------

The annualized portfolio turnover rate for each Fund is
calculated by dividing the lesser of purchases or sales of portfolio securities
for the year by the monthly average market value of the portfolio securities.
The calculation excludes all securities, including options, whose maturities or
expiration dates at the time of acquisition are one year or less.

-24-
<PAGE>

Fund turnover may vary greatly from year to year as well as within a particular
year, and may be affected by cash requirements for redemption of shares and by
requirements which enable the Fund to receive favorable tax treatment. Fund
turnover will not be a limiting factor in making portfolio decisions, and each
Fund may engage in short-term trading to achieve its investment objective.

Ratings of Securities
- ---------------------

Investment-grade obligations are those rated at the time of
purchase AAA, AA, A or BBB by S&P, Aaa, Aa, A or Baa by Moody's or which are
similarly rated by another nationally recognized statistical rating organization
("NRSRO") (including Fitch Investors Service, Inc., Duff & Phelps, Thomson
BankWatch and IBCA) or are unrated but deemed by the Advisor to be comparable in
quality to instruments that are so rated. Obligations rated BBB by S&P, Baa by
Moody's or the equivalent rating of another NRSRO are considered to have
speculative characteristics and are subject to greater credit and market risk
than securities rated in the top three investment-grade categories.

Subsequent to their purchase by the Balanced, Bond, National
Tax-Free Intermediate Bond and Missouri Tax-Free Intermediate Bond Funds, a
Fund's portfolio securities may be downgraded below investment grade or may be
deemed by the Advisor to be no longer comparable to investment-grade securities.
Up to 5% of the Bond Fund's portfolio securities and up to 5% of the Balanced
Fund's fixed-income portion of its portfolio securities may represent securities
downgraded below investment grade. The Advisor will consider such an event in
determining whether the Fund should continue to hold the security. See Appendix
A for a description of applicable debt ratings.

The International Equity Fund may also hold foreign or
domestic money market instruments and domestic securities rated at the time of
purchase in one of the three highest investment-grade categories by Moody's, S&P
or another NRSRO. The Fund does not intend to purchase unrated debt obligations.
In an event that the rating of any security held by the Fund falls below the
required rating, the Sub-Advisor will dispose of the security unless it appears
this would be disadvantageous to the Fund.

The ratings of Moody's, S&P, Duff & Phelps Credit Rating Co.,
Fitch IBCA Investor Service, Inc. and Thomson BankWatch, as NRSROs, represent
their opinions as to the quality of debt securities. It should be emphasized,
however, that ratings are general and are not absolute standards of quality, and
debt securities with the same maturity, interest rate and rating may have
different yields while debt securities of the same maturity and interest rate
with different ratings may have the same yield. Subsequent to its purchase by a
Fund, an issue of debt securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by a Fund. The Advisor
will consider such an event in conjunction with the particular Fund's investment
policy when determining whether the Fund should continue to hold the obligation.

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<PAGE>

The payment of principal and interest on most securities
purchased by the Funds will depend upon the ability of the issuers to meet their
obligations. An issuer's obligations under its debt securities are subject to
the provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the Federal Bankruptcy Code, and laws, if
any, which may be enacted by federal or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations or, in the case of governmental entities,
upon the ability of such entities to levy taxes. The power or ability of an
issuer to meet its obligations for the payment of interest on and principal of
its debt securities may be materially adversely affected by litigation or other
conditions.

Attached to this Statement of Additional Information is
Appendix A, which contains descriptions of the rating symbols used by NRSROs for
securities in which the Funds may invest.

Repurchase Agreements
- ---------------------

Each Fund may enter into repurchase agreements under which it
buys a security and obtains a simultaneous commitment from the seller to
repurchase the security at a specified time and price. The seller must maintain
with a Fund's Custodian collateral equal to at least 100% of the repurchase
price including accrued interest as monitored daily by the Advisor. If the
seller under the repurchase agreement defaults, a Fund may incur a loss if the
value of the collateral securing the repurchase agreement has declined and may
incur disposition costs in connection with liquidating the collateral. If
bankruptcy proceedings are commenced with respect to the seller, liquidation of
the collateral by a Fund may be delayed or limited.

The repurchase price under the repurchase agreements described
in the Funds' Prospectuses generally equals the price paid by a Fund plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the securities underlying the repurchase agreement).
Securities subject to repurchase agreements are held by the Funds' Custodian (or
sub-Custodian) or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans under the 1940 Act.

Reverse Repurchase Agreements
- -----------------------------

Each Fund may borrow money for temporary purposes by entering
into transactions called reverse repurchase agreements. Under these agreements,
a Fund sells portfolio securities to a financial institution (such as a bank or
broker-dealer) and agrees to buy them back later at an agreed upon time and
price. When a Fund enters into a reverse repurchase agreement, it places in a
separate custodial account cash or liquid assets that have a value equal to or
greater than the repurchase price. The account is then continuously monitored by
the Advisor to make sure that an appropriate value is maintained. Reverse
repurchase agreements involve the risk that the value of portfolio securities a
Fund relinquishes may decline below the price the Fund must pay on the
repurchase date. A Fund will only enter

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<PAGE>

into reverse repurchase agreements to avoid the need to sell its securities to
meet redemption requests during unfavorable market conditions. As reverse
repurchase agreements are deemed to be borrowings by the SEC, each Fund is
required to maintain continuous asset coverage of 300%. Should the value of a
Fund's assets decline below 300% of borrowings, a Fund may be required to sell
portfolio securities within three days to reduce the Fund's debt and restore
300% asset coverage.

Rights Offerings and Warrants
- -----------------------------

The Growth and Income, Growth, MidCap, International Equity
and Balanced Funds may participate in rights offerings and may purchase
warrants, which are privileges issued by corporations enabling the owners to
subscribe to and purchase a specified number of shares of the corporation at a
specified price during a specified period of time. Subscription rights normally
have a short life span to expiration. The purchase of rights or warrants
involves the risk that a Fund could lose the purchase value of a right or
warrant if the right to subscribe to additional shares is not exercised prior to
the expiration of the rights and warrants. Also, the purchase of rights and/or
warrants involves the risk that the effective price paid for the right and/or
warrant added to the subscription price of the related security may exceed the
value of the subscribed security's market price such as when there is no
movement in the level of the underlying security. A Fund will not invest more
than 5% of its total assets, taken at market value, in warrants, or more than 2%
of its total assets, taken at market value, in warrants not listed on the New
York or American Stock Exchanges. This 2% limit on unlisted warrants does not
apply to the International Equity Fund. Warrants acquired by a Fund in units or
attached to other securities are not subject to this restriction.

Securities Issued by Other Investment Companies
- -----------------------------------------------

Each Fund may invest in securities issued by other investment
companies within the limits prescribed by the 1940 Act. Each Fund currently
intends to limit its investments so that, as determined immediately after a
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of investment companies as a group; (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Fund; and (d)
not more than 10% of the outstanding voting stock of any one investment company
will be owned in the aggregate by the Fund and other investment companies
advised by the Advisor, or any affiliate of Commerce Bancshares, Inc. As a
shareowner of another investment company, a Fund would bear, along with other
shareowners, its pro rata portion of the expenses of such other investment
company, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Fund bears directly in connection with its
own operations and may represent a duplication of fees to shareowners of the
Fund.

Each of the MidCap, Growth and Income, Growth and Balanced
Funds may invest in SPDRs. SPDRs are interests in a unit investment trust
("UIT") that may be obtained from the UIT or purchased in the secondary market
(SPDRs are listed on the American Stock Exchange). There is a 5% limit based on
total assets on investments by any one Fund in SPDRs. The UIT will issue SPDRs
in aggregations known as "Creation Units" in exchange for a "Portfolio Deposit"
consisting of (a) a portfolio of securities substantially similar to the
component securities ("Index Securities") of the Standard & Poor's 500 Composite
Stock Price Index (the "S&P Index"), (b) a cash payment equal to a pro rata
portion of the dividends accrued on the UIT's portfolio securities since the
last dividend payment by the UIT, net of expenses and liabilities, and (c) a
cash payment or credit ("Balancing Amount") designed to equalize the net asset
value of the S&P Index and the net asset value of a Portfolio Deposit.

SPDRs are not individually redeemable, except upon termination
of the UIT. To redeem, the Fund must accumulate enough SPDRs to reconstitute a
Creation Unit. The liquidity of small holdings of SPDRs, therefore, will depend
upon the existence of a secondary market. Upon redemption of a Creation Unit,
the Fund will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.

The price of SPDRs is derived from and based upon the
securities held by the UIT. Accordingly, the level of risk involved in the
purchase or sale of a SPDR is similar to the risk involved in the purchase or
sale of traditional common stock, with the exception that the pricing mechanism
for SPDRs is based on a basket of stocks. Disruptions in the markets for the
securities underlying SPDRs purchased or sold by the Funds could result in
losses on SPDRs.

-27-
<PAGE>

Special Considerations Regarding Investment in Missouri Obligations
- -------------------------------------------------------------------

The following discussion highlights some of the more important
economic and financial trends and considerations affecting Missouri Obligations
and is based on information from official statements, prospectuses and other
publicly available documents relating to, among other things, securities
offerings of the State of Missouri, its agencies and instrumentalities, as
available on the date of this Statement of Additional Information. The Commerce
Funds has not independently verified any of the information contained in such
statements or other documents.

Missouri's population was 5,468,338 on July 1, 1999 according
to the Population Estimates Program, Population Division, U.S. Bureau of the
Census, which represented an increase of 6.8% from the 1990 decennial census of
5,117,073 inhabitants. As of July, 1998, St. Louis and the surrounding
metropolitan area constituted the 18th largest Metropolitan Statistical Area
(MSA) in the nation with approximately 2.56 million inhabitants, more than half
of which were Missouri residents. St. Louis is located on the eastern boundary
of the State on the Mississippi River and is a distribution center and an
important site for banking and manufacturing activity. Anchoring the western
boundary is Kansas City, which is Missouri's second largest metropolitan area.
In 1998, Kansas City was the 24th largest MSA nationally with approximately 1.73
million inhabitants, more than half of which were Missouri residents. Kansas
City is a major agri-business center for the United States and is an important
center for finance and industry. Springfield, St. Joseph, Joplin and Columbia
are also important population and industrial centers in the State. Missouri's
personal income rose by 4.4% during calendar year 1999, as compared to the
national average of an estimated 5.4%. Missouri's employment stood at 2,830,400
at the end of October 1999, up 1,320 from June of 1998. At the end of November
1999, the state unemployment rate was at a historic low of 2.3% compared to 4.3%
(as revised) at the end of June 1998. The national rate was 3.8% at the end of
November 1999.

The major sectors of the State's economy include agriculture,
manufacturing, trade, government and services. Farming has traditionally played
a dominant role in the economy and yielded a large portion of the State's
revenues. Although the concentration in farming remains above the national
average, with increasing urbanization, significant income-generating activity
has shifted from agriculture to manufacturing and services. Earnings and
employment are distributed among the manufacturing, trade and service sectors in
a close approximation of the average national distribution, thus lessening the
State's cyclical sensitivity to impact by any single sector. In 1999, services
represented the single most significant non-agriculture economic activity, with
wholesale and retail trade ranking second and manufacturing ranking third. In
1996, these three economic sectors accounted for 67.6% of the State's
nonagricultural employment. Manufacturing, which accounts for approximately
14.9% of employment, is concentrated in industrial machinery, transportation
equipment and other durable goods. To the extent that the economy suffers a
recession, the manufacturing sector, in particular, could be adversely affected.

-28-
<PAGE>

Defense-related businesses play an important role in
Missouri's economy. In addition to the large number of civilians employed at the
various military installations and training bases in the State, aircraft
production and defense-related businesses receive sizeable annual defense
contract awards. In 1998, Missouri ranked sixth among the states in Department
of Defense contract awards compared to a ranking of fourth in 1996. The
continued decline in defense appropriations by the U.S. Congress have had and
will continue to have an impact on the State.

Limitations on State debt and bond issues are contained in
Article III, Section 37 of the Constitution of Missouri. Pursuant to this
section, (1) the General Assembly may issue general obligation bonds solely to
refund outstanding bonds (provided that the refunding bonds must mature within
25 years of issuance); (2) the General Assembly upon the recommendation of the
Governor to incur a temporary liability by reason of unforeseen emergency or of
deficiency in revenue, may issue bonds in an amount not to exceed $1 million for
any one year (must be paid within 5 years of issuance); and (3) the General
Assembly, or the people by initiative, may submit a proposition to incur
temporary indebtedness greater than $1 million by reason of unforeseen emergency
or of deficiency in revenue, and the bonds may be issued if approved by a
majority of those voting (such bonds must be retired serially and by installment
within 25 years of issuance). Before any bonds are issued pursuant to Section
37, the General Assembly must make provisions for the payment of principal and
interest and may provide for an annual tax on all taxable property in an amount
sufficient for that purpose.

Certain water pollution bonds and State building bonds are
also authorized pursuant to Section 37(b)-(h), inclusive. In 1971, Missouri
voters approved a constitutional amendment providing for the issuance of $150
million of general obligation bonds for the protection of the environment
through the control of water pollution. In 1979, voters approved a
constitutional amendment authorizing an additional $200 million of State Water
Pollution Control Bonds. In 1982, State voters approved a constitutional
amendment authorizing the issuance of $600 million of Third State Building
Bonds. Proceeds from the Third State Building Bonds are used to provide funds
for improvement of State buildings and property, including education, mental
health, parks, corrections and other State facilities, and for water, sewer,
transportation, soil conservation and other economic development projects. In
1988, and as amended in 1998, Missouri voters approved a constitutional
amendment authorizing the issuance of bonds in the aggregate sum of $275 million
for controlling water pollution and making improvements to drinking water
systems. In 1994, state voters approved a constitutional amendment authorizing
the issuance of $250 million Fourth State Building Bonds. Proceeds from the
Fourth State Building Bonds fund the rebuilding of institutions of higher
education, land acquisition, construction and purchase of buildings, and
planning, furnishing, equipping and landscaping such improvements and buildings.
In 1998, voters approved a constitutional amendment authorizing the issuance of
bonds in the aggregate sum of $100 million for the purpose of providing rural
water and sewer grants and loans, including grants for the establishment of
water supply hook-ups in unincorporated areas of any county to water supplies.
In 1998, voters approved a constitutional amendment authorizing the issuance of
bonds in the aggregate amount of $200 million for the purpose

-29-
<PAGE>

of providing funds for providing stormwater control plans, studies and projects
in certain counties and cities.

Article III, Section 36 of the Constitution of Missouri
requires that the General Assembly appropriate the annual principal and interest
requirements for outstanding general obligation bonds before any other
appropriations are made. Such amounts must be transferred from the General
Revenue Fund to bond interest and sinking funds. Authorization for these
transfers, as well as the actual payments of principal and interest, are
provided in the first appropriation bill of each fiscal year.

In addition to general obligation bonds, the Missouri
legislature has established numerous entities as bodies corporate and politic,
which are authorized to issue bonds to carry out their corporate purposes.

Article X, Section 16-24 of the Constitution of Missouri (the
"Tax Limitation Amendment") imposes a limit on the amount of taxes and other
revenue enhancement charges such as user fees which may be imposed by the State
or a political subdivision in any fiscal year. This limit is tied to total State
revenues for the fiscal year ended June 30, 1981, as defined in the Tax
Limitation Amendment, and adjusted annually, in accordance with the formula set
forth in the amendment. Under that formula, the revenue limit (the "Revenue
Limit") for any fixed year equals the product obtained by multiplying (i) the
ratio of total state revenues in fiscal year 1980-1981 divided by the aggregate
personal income received by persons in Missouri from all sources ("Personal
Income of Missouri") in calendar year 1979 times (ii) the Personal Income of
Missouri in either the calendar year prior to the calendar year in which
appropriations for the fiscal year for which the calculation is being made, or
the average of Personal Income of Missouri in the previous three calendar years,
whichever is greater. If the Revenue Limit is exceeded by 1% or more in any
fiscal year, a refund of the excess revenues collected by the State is required.
If the excess revenues collected are less than 1%, then the excess is not
refunded but is transferred to the General Revenue Fund. The details of the Tax
Limitation Amendment are complex and clarification from subsequent legislation
and judicial decisions may be necessary for the Tax Limitation Amendment to be
fully implemented. The Revenue Limit can be exceeded only if the General
Assembly approves by a two-thirds vote of each house an emergency declaration as
requested by the Governor. The Revenue Limit does not apply to taxes imposed for
payment of principal and interest on bonds that have been approved by the
voters, as authorized by the Missouri Constitution. In 1999, total state
revenues exceeded the total state revenue limit by $98.9 million, the entire
amount of which will be refunded to Missouri taxpayers in calendar year 2000.
The Missouri office of Administration projects that in fiscal year 2000 and
2001, total state revenues will not exceed the total state revenue limit.

In addition, to the Revenue Limit, the General Assembly is
prohibited without voter approval from increasing taxes as fees in any fiscal
year that in total produces new annual revenues greater than $50 million,
adjusted annually by the percentage change in the personal income of Missouri
for the second previous fiscal year, or 1% of total state revenue

-30-
<PAGE>

for the previous fiscal year prior to the General Assembly action, whichever is
less. The Tax Limitation Amendment could adversely affect the repayment
capabilities of certain non-general obligation issues if payment is dependent
upon increases in taxes or appropriations by the State's General Assembly.

General revenue collections in fiscal year 1999 were $7,078
million, 6.45% above fiscal year 1998 collections. The fiscal year 2000 budget
is conservatively based upon general revenue collections of $7,016 million.

Stand-By Commitments
- --------------------

The National Tax-Free Intermediate Bond and Missouri Tax-Free
Intermediate Bond Funds may acquire stand-by commitments with respect to
Municipal Obligations held within their respective portfolios. Under a stand-by
commitment, a dealer or bank agrees to purchase from a Fund, at the Fund's
option, specified Municipal Obligations at their amortized cost value to the
Fund plus accrued interest, if any. Stand-by commitments may be sold,
transferred or assigned by a Fund only with the underlying instrument.

The Funds expect that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). Where a Fund paid any
consideration directly or indirectly for a stand-by commitment, its cost would
be reflected as unrealized depreciation for the period during which the
commitment was held by the Fund.

The Funds intend to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the Advisor's opinion, present
minimal credit risks. The Funds' reliance upon the credit of these dealers,
banks and broker-dealers will be secured by the value of the underlying
Municipal Obligations that are subject to the commitment. In evaluating the
creditworthiness of the issuer of a stand-by commitment, the Advisor will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.

The Funds would acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. Stand-by commitments acquired by a Fund would
be valued at zero in determining net asset value.

Stripped Securities
- -------------------

The Federal Reserve has established an investment program
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities." The Bond and Balanced Funds may purchase securities registered
under this program. This allows the Funds to be able to have their beneficial
ownership of zero coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other

-31-
<PAGE>

evidences of ownership of the underlying U.S. Treasury securities. The Treasury
Department has, within the past several years, facilitated transfers of such
securities by accounting separately for the beneficial ownership of particular
interest coupon and principal payments on Treasury securities through the
Federal Reserve book-entry record-keeping system.

In addition, the Bond and Balanced Funds may acquire U.S.
Government Obligations and their unmatured interest coupons that have been
separated ("stripped") by their holder, typically a custodian bank or investment
brokerage firm. Having separated the interest coupons from the underlying
principal of the U.S. Government Obligations, the holder will resell the
stripped securities in custodial receipt programs with a number of different
names, including "Treasury Income Growth Receipts" ("TIGRs") and "Certificate of
Accrual on Treasury Securities" ("CATS"). The stripped coupons are sold
separately from the underlying principal, which is usually sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. The underlying U.S. Treasury bonds and notes themselves are
held in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are ostensibly owned by the
bearer or holder), in trust on behalf of the owners. Counsel to the underwriters
of these certificates or other evidences of ownership of U.S. Treasury
securities have stated that, in their opinion, purchasers of the stripped
securities most likely will be deemed the beneficial holders of the underlying
U.S. Government Obligations for federal tax purposes. The Commerce Funds is
unaware of any binding legislative, judicial or administrative authority on this
issue. Investments by either Fund in these securities will not exceed 5% of the
value of the Fund's total assets.

Although stripped securities do not pay interest to their
holders before they mature, federal income tax rules require a Fund each year to
recognize a part of the discount attributable to a security as interest income.
This income must be distributed along with the other income a Fund earns. To the
extent shareowners request that they receive their dividends in cash rather than
reinvesting them, the money necessary to pay those dividends must come from the
assets of a Fund or from other sources such as proceeds from sales of Fund
shares and/or sales of portfolio securities. The cash so used would not be
available to purchase additional income-producing securities, and a Fund's
current income could ultimately be reduced as a result.

In addition, the Bond and Balanced Funds may purchase SMBS
issued by the U.S. Government (or a U.S. Government agency or instrumentality)
or by private issuers such as banks and other institutions. SMBS, in particular,
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors. If
the underlying obligations experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment. The market
value of the class consisting entirely of principal payments can be extremely
volatile in response to changes in interest rates. The yields on a class of SMBS
that receives all or most of the interest are generally higher than prevailing
market yields on other mortgage-backed

-32-
<PAGE>

obligations because their cash flow patterns are also volatile and there is a
greater risk that the initial investment will not be fully recouped. SMBS issued
by the U.S. Government (or a U.S. Government agency or instrumentality) may be
considered liquid under guidelines established by the Board of Trustees if they
can be disposed of promptly in the ordinary course of business at a value
reasonably close to that used in the calculation of a Fund's per share net asset
value.

Temporary Investments
- ---------------------

Each Fund may assume a temporary defensive position at times
when the Advisor believes such a position is warranted by uncertain or unusual
market conditions. Such a position would allow a Fund to deviate from its
fundamental and non-fundamental policies. Each Fund may invest for temporary
defensive purposes up to 100% of its total assets in cash or cash equivalent
short-term obligations including "money market instruments," a term which
includes, among other things, bank obligations, commercial paper and notes, U.S.
Government Obligations, foreign government securities (if permitted) and
repurchase agreements. "Money market investments" also include, for purposes of
the National Tax-Free Intermediate Bond and Missouri Tax-Free Intermediate Bond
Funds, corporate bonds with remaining maturities of 397 days or less.

Bank obligations include bankers' acceptances, negotiable
certificates of deposit and non-negotiable time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions. Bank obligations also include obligations
of foreign banks or foreign branches of U.S. banks. Although the Funds will
invest in obligations of foreign banks or foreign branches of U.S. banks only
where the Advisor deems the investment to present minimal credit risks, such
investments nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks due to differences in
political, regulatory and economic systems and conditions. These risks may
include future unfavorable political and economic developments, possible
withholding taxes on interest income, seizure or nationalization of foreign
deposits, currency controls, interest limitations, or other governmental
restrictions which might affect the payment of principal or interest on the
securities held by the Fund. Additionally, these institutions may be subject to
less stringent reserve requirements and to different accounting, auditing,
reporting and recordkeeping requirements than those applicable to domestic
branches of U.S. banks. All investments in bank obligations are limited to the
obligations of financial institutions having more than $1 billion in total
assets at the time of purchase.

Certificates of deposit issued by domestic branches of
domestic banks do not benefit materially, and certificates of deposit issued by
foreign branches of domestic banks do not benefit at all, from insurance from
the Federal Deposit Insurance Corporation.

Both domestic banks and foreign branches of domestic banks are
subject to extensive governmental regulations which may limit both the amount
and types of loans which may be made and interest rates which may be charged. In
addition, the profitability of the banking industry is dependent largely upon
the availability and costs of funds for the purpose

-33-
<PAGE>

of financing and lending operations under prevailing money market conditions.
General economic conditions as well as exposure to credit losses arising from
possible financial difficulties of borrowers play an important part in the
operations of this industry.

The International Equity Fund may also hold foreign or
domestic money market instruments and debt securities rated at the time of
purchase in one of the three highest investment-grade categories by Moody's, S&P
or another NRSRO. The Fund does not intend to purchase unrated debt obligations.
In the event that the rating of any security held by the Fund falls below the
required rating, the Sub-Advisor will dispose of the security unless it appears
this would be disadvantageous to the Fund.

Investments by the National Tax-Free Intermediate Bond and
Missouri Tax-Free Intermediate Bond Funds in taxable commercial paper will
consist of issues that are rated A-1 or better by S&P, Prime-1 by Moody's or the
equivalent rating of another rating agency. Commercial paper may include
variable and floating rate instruments.

When the Advisor pursues a temporary defensive strategy, the
Funds may not profit from favorable developments that would have been available
if the Funds were pursuing their normal investment strategies. In addition, when
the Advisor uses a defensive strategy, the Funds will not be pursuing their
investment objectives.

U.S. Government Obligations
- ---------------------------

As stated in the Prospectuses, pursuant to their respective
investment objectives, the Funds may invest in U.S. Government Obligations.
Examples of the types of U.S. Government Obligations which may be held by the
Funds include, in addition to U.S. Treasury bonds, notes and bills, the
obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land
Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, Federal National Mortgage Association,
General Services Administration, Student Loan Marketing Association, Central
Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks and Maritime Administration. Obligations of certain
agencies and instrumentalities of the U.S. Government, such as those of the
Government National Mortgage Association, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law.

U.S. Government Obligations purchased by the Short-Term
Government Fund with nominal remaining maturities in excess of five years that
have variable or floating interest rates or demand or put features may
nonetheless be deemed to have remaining maturities of

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<PAGE>

five years or less so as to be permissible investments as follows: (a) a
government security with a variable or floating rate of interest will be deemed
to have a maturity equal to the period remaining until the next readjustment of
the interest rate; (b) a government security with a demand or put feature that
entitles the holder to receive the principal amount of the underlying security
at the time of or sometime after the holder gives notice of demand or exercise
of the put will be deemed to have a maturity equal to the period remaining until
the principal amount can be recovered through demand or exercise of the put; and
(c) a government security with both a variable or floating rate of interest as
described in clause (a) and a demand or put feature as described in clause (b)
will be deemed to have a maturity equal to the shorter of the period remaining
until the next readjustment of the interest rate or the period remaining until
the principal amount can be recovered through demand or exercise of the put.

U.S. Government Obligations have historically involved little
risk of loss of principal if held to maturity. The Short-Term Government Fund,
however, will not necessarily hold its securities to maturity. Generally, the
market value of securities not held to maturity can be expected to vary
universally to changes in prevailing interest rates. In addition, neither the
U.S. Government, nor any agency or instrumentality thereof has guaranteed,
sponsored or approved the Short-Term Government Fund or its shares. No assurance
can be given that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.

Variable and Floating Rate Instruments
- --------------------------------------

The Funds may purchase variable rate and floating rate
obligations issued by corporations, industrial development authorities and
governmental entities. Such instruments are frequently not rated by credit
rating agencies. However, in determining the creditworthiness of unrated
variable and floating rate instruments and their eligibility for purchase by the
Funds, the Advisor will consider the earning power, cash flows and other
liquidity ratios of the issuers and guarantors of such obligations and, if the
obligation is subject to a demand feature, will monitor their financial status
to meet payment on demand. In determining average weighted portfolio maturity,
an instrument will usually be deemed to have a maturity equal to the longer of
the period remaining to the next interest rate adjustment or the time a Fund can
recover payment of principal as specified in the instrument.

While there may be no active secondary market with respect to
a particular variable or floating rate instrument purchased by a Fund, a Fund
may, from time to time as specified in the instrument, demand payment in full of
the principal of the instrument or may resell the instrument to a third party.
The absence of such an active secondary market, however, could make it difficult
for a Fund to dispose of a variable or floating rate demand instrument if the
issuer defaulted on its payment obligations during periods that a Fund is not
entitled to exercise its demand rights, and a Fund could, for these or other
reasons, suffer a loss. Variable and floating rate instruments with no active
secondary market and with notice/termination dates in excess of seven days will
be included in the calculation of a Fund's illiquid assets.

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<PAGE>

Variable and floating rate demand instruments acquired by the
National Tax-Free Intermediate Bond and Missouri Tax-Free Intermediate Bond
Funds may include participations in Municipal Obligations purchased from and
owned by financial institutions (primarily banks). Participation interests
provide the Fund with a specified undivided interest (up to 100%) in the
underlying obligation and the right to demand payment of the unpaid principal
balance plus accrued interest on the participation interest from the institution
upon a specified number of days' notice, not to exceed thirty days. Each
participation interest is backed by an irrevocable letter of credit or guarantee
of a bank that the Advisor has determined meets the prescribed quality standards
for the Fund. The bank typically retains fees out of the interest paid on the
obligation for servicing the obligation, providing the letter of credit and
issuing the repurchase commitment.

When-Issued Purchases and Forward Commitments
- ---------------------------------------------

Each Fund may purchase securities on a when-issued basis or
enter into forward commitment transactions. These transactions, which involve a
commitment by a Fund to purchase or sell particular securities with payment and
delivery taking place at a future date (perhaps one or two months later), permit
the Fund to lock in a price or yield on a security it owns or intends to
purchase, regardless of future changes in market prices or in interest rates.
When-issued and forward commitment transactions involve the risk, however, that
the yield or price obtained in a transaction (and therefore the value of the
security) may be less favorable than the yield or price (and therefore the value
of the security) available in the market when the securities delivery takes
place. When a Fund agrees to purchase securities on a when-issued basis or
enters into a forward commitment to purchase securities, the Funds' Custodian
will set aside cash or liquid assets, as permitted by applicable law, equal to
the amount of the purchase or the commitment in a separate account. Normally,
the Custodian will set aside portfolio securities to meet this requirement. The
market value of the separate account will be monitored and if such market value
declines, the Fund will be required subsequently to place additional assets in
the separate account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitments. Because a Fund will set aside
cash or liquid assets, as permitted by applicable law, in the manner described,
the Fund's liquidity and ability to manage its portfolio might be affected in
the event its when-issued purchases or forward commitments ever exceeded 25% of
the value of its assets. In the case of a forward commitment to sell portfolio
securities, the Custodian will hold the portfolio securities in a segregated
account while the commitment is outstanding.

A Fund will make commitments to purchase securities on a
when-issued basis or to purchase or sell securities on a forward commitment
basis only with the intention of completing the transaction and actually
purchasing or selling the securities. No Fund intends to engage in when-issued
purchases and forward commitments for speculative purposes. If deemed advisable
as a matter of investment strategy, however, a Fund may dispose of or
renegotiate a commitment after it is entered into, and may sell securities it
has committed to

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<PAGE>

purchase before those securities are delivered to the Fund on the settlement
date. In these cases a Fund may realize a capital gain or loss.

When a Fund engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.

The value of the securities underlying a when-issued purchase
or a forward commitment to purchase securities, and any subsequent fluctuations
in their value, is taken into account when determining a Fund's net asset value
starting on the day that the Fund agrees to purchase the securities. A Fund does
not earn interest on the securities it has committed to purchase until they are
paid for and delivered on the settlement date. When a Fund makes a forward
commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets, and fluctuations in the value of
the underlying securities are not reflected in the Fund's net asset value as
long as the commitment remains in effect.

Zero Coupon Bonds
- -----------------

Each Fund may acquire zero coupon bonds. Such obligations will not
result in the payment of interest until maturity and typically have greater
price volatility than coupon obligations. A Fund will accrue income on such
investments for tax and accounting purposes, as required, which is distributable
to shareowners and which, because no cash is received at the time of accrual,
may require the liquidations of other portfolio securities to satisfy the Fund's
distribution obligations. These actions may occur under disadvantageous
circumstances and may reduce a Fund's assets, thereby increasing its expense
ratio and decreasing its rate of return. Zero coupon bonds are subject to
greater market fluctuations from changing interest rates than debt obligations
of comparable maturities which make current distributions of interest.

Investment Limitations
- ----------------------

Each Fund is subject to the investment limitations enumerated
below, which may not be changed with respect to a Fund without the approval of
the lesser of (1) 67% of the Fund's shares present at a meeting of shareowners
if the holders of more than 50% of the outstanding shares are present in person
or by proxy or (2) more than 50% of the Fund's outstanding shares. Other
restrictions in the form of non-fundamental policies are subject to change by
The Commerce Funds' Board of Trustees without shareholder approval. In addition,
the Funds' investment objectives are fundamental and may not be changed without
shareowner approval. If a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in the value of a Fund's investments will not constitute a violation of
such limitation, except that any borrowing by a Fund that exceeds the
fundamental investment limitations stated above must be reduced to meet such
limitations within the period required by the 1940 Act (currently three days).
Otherwise,

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<PAGE>

a Fund may continue to hold a security even though it causes the Fund to exceed
a percentage limitation because of the fluctuation in the value of the Fund's
assets.

As a matter of fundamental policy, no Fund may:

1. With respect to 75% of a Fund's total assets: (i) invest
more than 5% of a Fund's total assets in the securities of any one issuer; (ii)
invest more than 25% of a Fund's total assets in the securities of issuers in
any one industry; and (iii) hold more than 10% of the outstanding voting
securities of any one issuer; provided that the foregoing does not apply to the
National Tax-Free Intermediate Bond and Missouri Tax-Free Intermediate Bond
Funds. Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and repurchase agreements fully collateralized by such
securities are excepted from these limitations.

2. Purchase or sell real estate, except that a Fund may invest
in securities directly or indirectly secured by real estate or interests therein
or issued by companies which invest in real estate or interests therein and may
hold and sell real estate acquired by a Fund as a result of the ownership of
securities.

3. Make loans to other persons, except that the purchase of
all or a portion of an issue of securities or obligations of the type in which a
Fund may invest shall not be deemed to be the making of a loan, and except
further that a Fund may enter into repurchase agreements in accordance with its
investment objective and policies and may lend its portfolio securities in an
amount not to exceed 33 1/3% of the value of its total assets (including the
value of the collateral for the loan).

4. Borrow money, issue senior securities or pledge its assets,
except that a Fund may borrow from banks and enter into reverse repurchase
agreements as a temporary measure for extraordinary or emergency purposes or to
meet redemptions in amounts not exceeding 33 1/3% (taken at market value) of its
total assets (including the amount borrowed) and pledge its assets to secure
such borrowings, provided the Fund maintains assets coverage of at least 300%
for all such borrowings. No Fund will purchase securities while its aggregate
borrowings (including reverse repurchase agreements and borrowings from banks)
in excess of 5% of its total assets are outstanding. Securities held in escrow
or separate accounts in connection with a Fund's investment practices are not
deemed to be pledged for purposes of this limitation.

5. Purchase securities on margin, except that (i) a Fund may
obtain such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities, (ii) a Fund may pay initial or variation
margin in connection with futures and related option transactions, and (iii)
this investment limitation shall not apply to a Fund's transactions in futures
contracts and related options or to a Fund's transactions in securities on a
when-issued or forward commitment basis.

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<PAGE>

6. Underwrite securities of other issuers, except insofar as a
Fund technically may be deemed an underwriter under the Securities Act of 1933,
as amended ("Securities Act") in purchasing and selling portfolio securities and
except insofar as such underwriting would comply with the limits set forth in
the 1940 Act.

7. Purchase or sell commodities or contracts on commodities,
except to the extent a Fund may do so in accordance with applicable law and a
Fund's current prospectus and statement of additional information, as it may be
amended from time to time, and without registering as a commodity pool operator
under the Commodities Exchange Act.

As a matter of fundamental policy:

1. Each of the National Tax-Free Intermediate Bond Fund and
the Missouri Tax-Free Intermediate Bond Fund will limit its investments so that
less than 25% of the Fund's total assets will be invested in the securities of
the issuers in any one industry. For purposes of this restriction, state and
municipal governments and their agencies and instrumentalities, securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and repurchase agreements fully collateralized by securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities are not
deemed to be industries in connection with the issuance of tax-exempt
securities. Thus, a Fund may invest 25% or more of the value of its total assets
in Municipal Obligations which are related in such a way that an economic,
business or political development or change affecting one Municipal Obligation
would also affect other Municipal Obligations. For example, a Fund may so invest
in (a) Municipal Obligations the interest on which is paid solely from revenues
of similar projects such as hospitals, electric utility systems, multi-family
housing, nursing homes, commercial facilities (including hotels), steel
companies or life care facilities, (b) Municipal Obligations whose issuers are
in the same state, or (c) industrial development obligations. The Funds will not
purchase securities (except U.S. Government Obligations) if more than 5% of its
total assets will be invested in the securities of any one issuer, except that
up to 25% of the total assets of the National Tax-Free Fund, and up to 50% of
the total assets of the Missouri Tax-Free Fund, may be invested without regard
to this 5% limitation (although not more than 25% of the Missouri Tax-Free
Fund's total assets will be invested in the securities of any one issuer).

As a matter of non-fundamental policy, no Fund may:

1. Purchase securities of other investment companies except
(a) purchases which are part of a plan of merger, consolidation, reorganization,
or acquisition, and (b) other purchases of the securities of investment
companies only if the purchases are of open-ended, no-load funds, are
conditioned on the waiver of management fees and further, if immediately
thereafter (i) not more than 3% of the total outstanding voting stock of such
company is owned by the Fund, (ii) not more than 5% of the Fund's total assets,
taken at market value, would be invested in the securities of any one investment
company, (iii) not more than 10% of the Fund's total assets, taken at market
value, would be invested in the aggregate in securities of investment companies

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<PAGE>

as a group, and (iv) the Fund, together with other investment companies having
the same investment adviser and companies controlled by such companies, owns not
more than 10% of the total outstanding stock of any one investment company.

2. Make short sales of securities or maintain a short
position, except that a Fund may make short sales against-the-box (defined as
the extent to which a Fund contemporaneously owns or has the right to obtain at
no added cost securities identical to those sold short).

3. Invest in illiquid securities and securities of unseasoned
issuers, if as a result more than 15% of its net assets would be invested in
such securities.

4. Make investments for the purpose of exercising control or
management.

5. Invest in warrants if at the time of acquisition a Fund's
investment in warrants would exceed 10% of the value of the Fund's net assets.

6. Invest in real estate limited partnership interests or
participations or other direct interests in or enter into leases with respect to
oil, gas or other mineral exploration or development programs if, as a result
thereof, more than 5% of the value of the total assets of a Fund would be
invested in such programs, except that a Fund may invest in securities issued by
companies that engage in oil, gas or other mineral exploration of development
activities.

7. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof with respect to more than 25% (5% with respect to the
National Tax-Free Intermediate Bond and Missouri Tax-Free Intermediate Bond
Funds) of the value of its net assets.

As a matter of non-fundamental policy, the International
Equity Fund will engage in futures contracts and options thereon only for bona
fide hedging, total return enhancement, and risk management purposes, in each
case in accordance with rules and regulations of the CFTC. Initial margin
deposits and premiums on options for non-hedging purposes will not equal more
than 5% of the Fund's net assets.

1. With regard to the Growth and Income, Growth, MidCap,
International Equity, Balanced, Short-Term Government and Bond Funds:

Each Fund will limit its investments so that, with respect to
75% of a Fund's total assets: (i) not more than 5% of a Fund's
total assets will be invested in the securities or any one
issuer; (ii) not more than 25% of a Fund's total assets will
be invested in the securities of issuers in any one industry;
and (iii) not more than 10% of the outstanding voting
securities of any one issuer will be held by a Fund.
Securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements
collateralized by such securities are excepted from these
limitations. Each Fund may borrow money from banks for
temporary or emergency purposes or to meet redemption requests
and may enter

-40-
<PAGE>

into reverse repurchase agreements, provided that the Fund
maintains asset coverage of at least 300% for all such
borrowings.

2. With regard to the National Tax-Free Intermediate Bond and
Missouri Tax-Free Intermediate Bond Funds:

Each Fund will limit its investments so that less than 25% of
the Fund's total assets will be invested in the securities of
issuers in any one industry. For the purposes of this
restriction, state and municipal governments and their
agencies and instrumentalities are not deemed to be industries
in connection with the issuance of tax-exempt securities.
Thus, a Fund may invest 25% or more of the value of its total
assets in Municipal Obligations which are related in such a
way that an economic, business or political development or
change affecting one Municipal Obligation would also affect
the other Municipal Obligations. For example, a Fund may so
invest in (a) Municipal Obligations the interest on which is
paid solely from revenues of similar projects such as
hospitals, electric utility systems, multi-family housing,
nursing homes, commercial facilities (including hotels), steel
companies or life care facilities, (b) Municipal Obligations
whose issuers are in the same state, or (c) industrial
development obligations. The Funds will not purchase
securities (except U.S. Government Obligations) if more than
5% of its total assets will be invested in the securities of
any one issuer, except that up to 25% of the total assets of
the National Tax-Free Intermediate Bond Fund, and up to 50% of
the total assets of the Missouri Tax-Free Intermediate Bond
Fund, may be invested without regard to this 5% limitation
(although not more than 25% of the Fund's total assets will be
invested in the securities of any one issuer). Additionally, a
Fund may not borrow money, except from banks for temporary or
short-term purposes, provided that the Fund maintains asset
coverage of 300% for all such borrowings.

PRICING OF SHARES

The net asset value per share for each Fund of The Commerce
Funds is calculated separately for Institutional and Service Shares by adding
the value of all portfolio securities and other assets belonging to the Fund
that are allocable to a particular class, subtracting the liabilities charged to
such class of the Fund, and dividing the result by the number of shares
outstanding of such class of the Fund. Assets which belong to the Fund consist
of the consideration received upon the issuance of shares of the Fund together
with all income, earnings, profits and proceeds derived from the investment
thereof, including any proceeds from the sale of such investments, any funds or
payments derived from any reinvestment of such proceeds, and a portion of any
general assets of The Commerce Funds not belonging to a particular investment
portfolio. Assets belonging to a particular class of a Fund are charged with the
direct liabilities of that class and with a share of the general

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<PAGE>

liabilities of The Commerce Funds which are normally allocated in proportion to
the relative net asset values of all of The Commerce Funds' investment
portfolios at the time of allocation. Payments under The Commerce Funds'
Shareholder Administrative Services Plans for Institutional Shares and Service
Shares are allocated to the Shares in proportion to the relative net asset
values of the Funds. Payments under the Distribution Plan pursuant to Rule 12b-1
are applicable only to the Service Shares of the Growth and Income, Growth,
MidCap, International Equity, Balanced, Short-Term Government and Bond Funds.

As stated in their Prospectuses, a Fund's investments will be
valued at market value or, in the absence of a market value with respect to any
portfolio securities, at fair value as determined by or under the direction of
The Commerce Funds' Board of Trustees. A security that is primarily traded on a
domestic securities exchange (including securities traded through the National
Market System) is valued at the last sale price on that exchange or, if there
were no sales during the day, at the current quoted bid price. Securities traded
on only over-the-counter markets are valued on the basis of closing
over-the-counter bid prices. Securities for which there were no transactions are
valued at the average of the current bid and asked prices. Restricted securities
and securities for which market quotations are not readily available are valued
at fair value as determined in good faith by the Board of Trustees.

The value of a Fund's portfolio securities that are traded on
stock exchanges outside the United States are based upon the price on the
exchange as of the close of business of the exchange immediately preceding the
time of valuation, except when an occurrence subsequent to the time a value was
so established is likely to have changed such value; then the fair value of
those securities will be determined through consideration of other factors by or
under the direction of The Commerce Funds' Board of Trustees. Securities trading
in over-the-counter markets in European and Pacific Basin countries is normally
completed well before 4:00 p.m. Eastern time. In addition, European and Pacific
Basin securities trading may not take place on all Business Days (as defined in
the Prospectus). Furthermore, trading takes place in Japanese markets on certain
Saturdays and in various foreign markets on days which are not considered to be
Business Days. The calculation of the net asset value of the Fund may not take
place contemporaneously with the determination of the prices of portfolio
securities used in such calculation. Events affecting the values of portfolio
securities that occur between the time their prices are determined and 4:00 p.m.
Eastern time, and at other times may not be reflected in the calculation of net
asset value of the Fund.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares of the Funds are offered and sold on a continuous basis
by The Commerce Funds' Distributor, Goldman, Sachs & Co., acting as agent for
The Commerce Funds. Service Shares of the Funds are sold to investors at the
public offering price based on a Fund's net asset value plus a front-end sales
charge as described in the Prospectus. Institutional Shares of the Funds are
sold to investors at the net asset value next determined after a purchase order
is received.

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<PAGE>

Institutional Shares are offered primarily to:
- ----------------------------------------------

o investors maintaining qualified accounts at bank trust departments or
trust companies, for funds held within those accounts, including
institutions affiliated with Commerce Bancshares, Inc. and its
subsidiaries (for example, Commerce Bank Investment Management Group
clients);

o participants in employer-sponsored defined contribution plans when
such plans offer The Commerce Funds as one of their investment
options;

o any investor who has been a continuous shareholder in The Commerce
Funds since January 1, 1997 or before;

o employees, directors, advisory directors, officers and retirees (as
well as their spouses and legal dependents) of the Commerce
Bancshares, Inc., Goldman, Sachs & Co., State Street Bank and Trust
Company and National Financial Data Services, Inc. or their
subsidiaries or affiliates; and

o financial planners and their clients.

Service Shares are offered primarily to:
- ----------------------------------------

o individuals, corporations or other entities, purchasing for their own
accounts or for the accounts of others, and to qualified banks,
savings and loan associations, and broker/dealers on behalf of their
customers; and

o financial planners and their clients.

An illustration of the computation of the public offering
price per share of the Institutional and Service Shares of the Growth and
Income, Growth, MidCap, International Equity, Balanced, Short-Term Government
and Bond Funds and the Institutional Shares of the National Tax-Free
Intermediate Bond Fund and the Missouri Tax-Free Intermediate Bond Funds, based
on the value of the total net assets and total number of shares outstanding on
October 31, 1999, is as follows:

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<PAGE>

Public Offering Price
- ---------------------
<TABLE>
<CAPTION>

============================== ======================= ======================== ======================= ==========================
Bond Fund Balanced Fund Growth & Income Fund Growth Fund
Institutional Service Institutional Service Institutional Service Institutional Service
============================== ======================= ======================== ======================= ==========================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Assets (in 000's) $374,121 $1,180 $124,245 $2,735 $74,591 $989 $445,923 $14,468
- ------------------------------ ------------ ---------- ------------ ----------- ----------- ----------- -------------- -----------
Number of Shares Outstanding 20,151,163 63,571 4,913,263 108,256 3,485,571 46,182 11,661,074 380,056
- ------------------------------ ------------ ---------- ------------ ----------- ----------- ----------- -------------- -----------
Net Asset Value
Per Share $18.57 $18.57 $25.29 $25.27 $21.40 $21.41 $38.24 $38.07
- ------------------------------ ------------ ---------- ------------ ----------- ----------- ----------- -------------- -----------
Sales Charge, 3.50 percent of
offering price (3.63
percent of
net asset value per share) -- 0.67 -- 0.92 -- 0.78 -- 1.38
- ------------------------------ ------------ ---------- ------------ ----------- ----------- ----------- -------------- -----------
Offering Price
to Public $18.57 $19.24 $25.29 $26.19 $21.40 $22.19 $38.24 $39.45
============================== ============ ========== ============ =========== =========== =========== ============== ===========
</TABLE>

============================== ======================= ========================= ===================== =========================
National Tax-Free Missouri Tax-Free
MidCap Fund International Equity Fund Intermediate Bond Fund Intermediate Bond Fund
Institutional Service Institutional Service Institutional Service Institutional Service
- ------------------------------ ----------- ----------- ------------ ------------ --------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Assets (in 000's) $143,892 $3,384 $128,018 $499 $40,243 $42,641
- ------------------------------ ----------- ----------- ------------ ------------ --------------------- -------------------------

Number of Shares Outstanding 3,590,812 85,130 4,673,700 18,285 2,205,663 2,360,087
- ------------------------------ ----------- ----------- ------------ ------------ --------------------- -------------------------
Net Asset Value
Per Share $40.07 $39.75 $27.39 $27.30 $18.24 $18.07
- ------------------------------ ----------- ----------- ------------ ------------ --------------------- -------------------------
Sales Charge, 3.50 percent of
offering price (3.63
percent of
net asset value per share) -- 1.44 -- 0.99 -- --
- ------------------------------ ----------- ----------- ------------ ------------ --------------------- -------------------------
Offering Price
to Public $40.07 $41.19 $27.39 $28.29 $18.24 $18.07
============================== =========== =========== ============ ============ ===================== =========================
</TABLE>

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<PAGE>

================================================================================
Short-Term
Government Fund
Institutional Service
- --------------------------------------------------------------------------------
Net Assets (in 000's) $116,163 $1,022
- --------------------------------------------------------------------------------
Number of Shares Outstanding 6,431,860 56,577
- --------------------------------------------------------------------------------
Net Asset Value
Per Share $18.06 $18.07
- --------------------------------------------------------------------------------
Sales Charge, 2.00 percent of
offering price (2.04 percent of net
asset value per share) -- 0.37
- --------------------------------------------------------------------------------
Offering Price
to Public $18.06 $18.44
================================================================================

Additional Redemption Information
- ---------------------------------

Under the 1940 Act, a Fund may suspend the right of redemption
or postpone the date of payment for shares during any period when (a) trading on
the New York Stock Exchange is restricted by applicable rules and regulations of
the SEC; (b) the Exchange is closed for other than customary weekend and holiday
closing; (c) the SEC has by order permitted such suspension; or (d) an emergency
exists as determined by the SEC. (The Commerce Funds may also suspend or
postpone the recordation of the transfer of shares upon the occurrence of any of
the foregoing conditions.)

In addition to the situations described in the Prospectuses
under "How To Sell Shares," The Commerce Funds may redeem shares involuntarily
to reimburse the Funds for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to a transaction effected for the benefit of a
shareholder which is applicable to shares of the Funds as provided in the
Prospectuses.

In an exchange, the redemption of shares being exchanged will
be made at the per share net asset value of the shares to be redeemed next
determined after the exchange request is received. The shares of the Fund to be
acquired will be purchased at the per share net asset value of those shares
(plus any applicable sales charge) next determined after acceptance of the
purchase order by The Commerce Funds in accordance with its customary policies
for accepting investments.

A Fund may make payment for redemption in securities or other
property if it appears appropriate to do so in light of the Fund's
responsibilities under the 1940 Act. In the event shares are redeemed for
securities or other property, shareowners may incur additional

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<PAGE>

costs in connection with the conversion thereof to cash. Redemption in kind is
not as liquid as a cash redemption. Shareowners who receive a redemption in kind
may receive less than the redemption value of their shares upon sale of the
securities or property received, particularly where such securities are sold
prior to maturity.

Retirement Plans
- ----------------

Profit-Sharing Plan. The Commence Funds have available a
profit-sharing plan (including a 401(k) option) (the "Profit-Sharing/401(k)
Plan") for use by both self-employed individuals (sole proprietorships and
partnerships) and corporations who wish to use shares of the Funds as a funding
medium for a retirement plan qualified under the Internal Revenue Code (the
"Code").

The Code provides certain tax benefits for contributions by a
self-employed individual or corporation to the Profit-Sharing/401(k) Plan. For
example, contributions to the Plan are deductible (subject to certain limits)
and earnings on the contributions are not taxed until distributed. However,
distribution of amounts from the Profit-Sharing/401(k) Plan to a participant
before the participant attains age 59 1/2 will (with certain exceptions) result
in an additional 10% tax on the amount included in the participant's gross
income.

Individual Retirement Accounts. The Commerce Funds have
available an individual retirement account (the "regular IRA") for use by
individuals with compensation for services rendered (including earned income
from self-employment) who wish to use shares of the Funds as a funding medium
for individual retirement saving. The Code limits the amount an individual may
contribute to an IRA and such contributions and earnings thereon are not subject
to federal income tax until distributed. Except for rollover distributions, an
individual who has attained, or will attain, age 70 1/2 before the end of the
taxable year may no longer contribute to a regular IRA held in his or her
behalf. Distribution of an individual's regular IRA assets (and earnings
thereon) before the individual attains age 59 1/2 will result in an additional
10% tax on the amount included in the individual's gross income.

The Commerce Funds permit certain employers (including
self-employed individuals) to make contributions to an employee's regular IRA if
the employer establishes a Simplified Employee Pension ("SEP") plan. A SEP
permits an employer to make discretionary contributions to all of its employees'
regular IRAs equal to a uniform percentage of each employee's compensation
(subject to certain limits). The Code provides certain tax benefits to employees
who contribute to an employee's regular IRA pursuant to a SEP. For example,
employer contributions to an employee's regular IRA pursuant to a SEP are
deductible (subject to certain limits).

The Commerce Funds also have available a Roth individual
retirement account (the "Roth IRA") for use by individuals with compensation for
services rendered. Individuals whose adjusted gross income ("AGI") is within the
applicable income limitations (an AGI of

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<PAGE>

up to $110,000 for a single individual and an AGI of up to $160,000 for married
couples filing jointly) may contribute at any age to a Roth IRA for the
individual and for his or her nonworking spouse. Roth IRA contributions are not
deductible. Earnings on amounts contributed to a Roth IRA, however, may be
withdrawn tax and penalty-free if the Roth IRA has been held for at least five
years and the distribution is due to the account owner's attainment of age 59
1/2 or another qualifying event. Distributions which do not meet these criteria
are generally subject to a 10% withdrawal tax.

Savings Incentive Match Plan for Employees of Small Employers.
Finally, The Commerce Funds offer a simplified tax-favored retirement plan for
employees of small employers (a "SIMPLE IRA Plan"). Each eligible employee of
participating employers may choose to defer a percentage of his or her pre-tax
compensation to the employee's SIMPLE individual retirement account (a "SIMPLE
IRA"). The employer must generally make an annual, non-discretionary
contribution to the SIMPLE IRA of each eligible employee. The Code provides
certain tax benefits for contributions by an employer, pursuant to a SIMPLE IRA
Plan, to an employee's SIMPLE IRA. For example, these contributions are
deductible (subject to certain limits) and not subject to federal income tax
until distributed.

In the Profit-Sharing/401(k) Plan and in the IRAs available
through the Funds, distributions of net investment income and capital gains will
be automatically reinvested.

The foregoing brief descriptions are not complete or
definitive explanations of the Profit-Sharing/401(k) Plan or IRAs available for
investment in the Funds. In addition, the foregoing plans are not available for
purposes of the National Tax-Free Intermediate Bond and Missouri Tax-Free
Intermediate Bond Funds. Any person who wishes to establish a retirement plan
account may do so by contacting The Commerce Funds directly. The complete Plan
and IRA documents and applications will be provided to existing or prospective
shareowners upon request, without obligation. The Commerce Funds recommends that
investors consult their attorneys or tax advisers to determine if the retirement
programs described herein are appropriate for their needs.

DESCRIPTION OF SHARES

Under the Funds' Trust Instrument, the shares of beneficial
interest in The Commerce Funds shall be divided into such transferable shares of
one or more separate and distinct series or classes of a series, as the Trustees
shall from time to time create and establish. The Trustees may, from time to
time and without vote of the shareowners, issue shares to a party or parties and
for such amount and type of consideration and on such terms, subject to
applicable law, as the Trustees may deem appropriate. The Trustees may issue
fractional shares and shares held in the treasury. Also, the Trustees may from
time to time divide or combine the shares into a greater or lesser number
without thereby changing the proportionate beneficial interests in The Commerce
Funds. The proceeds received by each Fund for each issue or sale of its shares,
and all net investment income, realized and unrealized

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<PAGE>

gain and proceeds thereof, subject only to the rights of creditors, will be
specifically allocated to and constitute the underlying assets of that Fund. The
underlying assets of each Fund will be segregated on the books of account.

The Growth and Income, Growth, MidCap, International Equity,
Balanced, Short-Term Government and Bond Funds offer two classes of shares:
Institutional Shares and Service Shares. The National Tax-Free Intermediate Bond
Fund and the Missouri Tax-Free Intermediate Bond Fund offer only Institutional
Shares.

Fund shares have no preemptive rights and only such conversion
and exchange rights as the Board of Trustees may grant in its discretion. All
shares issued as described in the Prospectuses will be fully paid and
non-assessable.

Each share of a series shall represent an equal beneficial
interest in the net assets of such series. Each holder of shares of a series
shall be entitled to receive distributions of income and capita gains, if any,
which are made with respect to such series and which are attributable to such
shares. Upon redemption of shares, such shareowner shall be paid solely out of
the funds and property of such series of The Commerce Funds.

The Trustees shall have full power and authority, in their
sole discretion, and without obtaining any prior authorization or vote of
shareowners of any series of The Commerce Funds, to establish and designate and
to change in any manner any such series of shares or any classes of initial or
additional series and to fix such relative preferences, voting powers, rights
and privileges of such series or classes thereof as the Trustees may from time
to time determine, to divide or combine the shares or any series or classes
thereof into a greater or lesser number, to classify or reclassify any issued
shares or any series or classes thereof into one or more series or classes of
shares, and to take such other action with respect to the shares as the trustees
may deem desirable.

In the event of a liquidation or dissolution of The Commerce
Funds or an individual Fund, the Trustees may sell and convey all or
substantially all of the assets of The Commerce Funds or any series to another
entity or to a separate series of shares thereof, for adequate consideration.
The sale or conveyance may include the assumption of all outstanding
obligations, taxes and other liabilities and may include shares of beneficial
interest, stock or other ownership interests. In the alternative, the Trustees
may sell and convert into money all of the assets of The Commerce Funds or any
series. After such actions, the Trustees will distribute the remaining proceeds
or assets (as the case may be) of each series (or class) ratably among the
holders of shares of those series then outstanding.

Rule 18f-2 under the 1940 Act provides that any matter
required by the provisions of the 1940 Act or applicable state law, or
otherwise, to be submitted to the holders of the outstanding voting securities
of an investment company shall not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of each
investment portfolio affected by such matter. Rule 18f-2 further provides that
an

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<PAGE>

investment portfolio shall be deemed to be affected by a matter unless the
interests of each investment portfolio in the matter are substantially identical
or the matter does not affect any interest of the investment portfolio. Under
the Rule, the approval of an investment advisory agreement or any change in a
fundamental investment policy would be effectively acted upon with respect to an
investment portfolio only if approved by a majority of the outstanding shares of
such investment portfolio. However, the Rule also provides that the ratification
of the appointment of independent accountants, the approval of principal
underwriting contracts and the election of Trustees may be effectively acted
upon by shareowners of The Commerce Funds voting together in the aggregate
without regard to a particular investment portfolio.

The shareowners have the power to vote only for the election
of Trustees, for the removal of Trustees and with respect to such additional
matters relating to The Commerce Funds as may be required by law, by the Trust
Instrument, or as the Trustees may consider desirable. The Trustees may also
determine that a matter affects only the interests of one or more classes of a
series, in which case any such matter shall be voted on by such class or
classes. Each whole share shall be entitled to one vote as to any matter on
which it is entitled to vote, and each fractional share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy or in any manner
provided for in the By-laws. A proxy may be given in writing, by telefax, or in
any other manner provided for in the By-laws.

Special meetings of the shareowners of any series may be
called by the Trustees and shall be called by the Trustees upon the written
request of shareowners owning at least 10% of the outstanding shares entitled to
vote. Whenever ten or more shareowners meeting the qualifications set forth in
Section 16(c) of the 1940 Act seek the opportunity of furnishing materials to
the other shareowners with a view to obtaining signatures on such a request for
a meeting, the Trustees shall provide shareowners access to The Commerce Funds'
list of record shareowners or the mailing of such materials to such record
shareowners, subject to the applicable provisions of the 1940 Act. Notice shall
be sent by mail or such other means as determined by the Trustees at least 15
days prior to any such meeting. One-third of the shares entitled to vote in
person or by proxy shall be a quorum for the transaction of business at a
shareowners' meeting, except that where any provision of law or of the Trust
Instrument permits or requires that holders of any series shall vote as a series
(or that holders of a class shall vote as a class), then one-third of the
aggregate number of shares of that series (or that class) entitled to vote shall
be necessary to constitute a quorum for the transaction of business by that
series (or that class). Any action which may be taken by the shareowners of The
Commerce Funds or of a series may be taken without a meeting if shareowners
holding more than a majority of the shares entitled to vote, except when a
larger vote is required by law or by any provision of the Trust Instrument,
shall consent to the action in writing, provided that such action by written
consent is approved by the Board of Trustees.

When used in the Prospectuses or in this Statement of
Additional Information, a "majority" of shareowners of The Commerce Funds or a
particular Fund means, with respect to the approval of an investment advisory
agreement or a change in an investment

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<PAGE>

objective or a fundamental investment policy, the vote of the lesser of (1) 67%
of the shares of The Commerce Funds or the Fund present at a meeting if the
holders of more than 50% of the outstanding shares are present in person or by
proxy, or (2) more than 50% of the outstanding shares of The Commerce Funds or
the Fund.

The Trust Instrument provides that the Trustees, when acting
in their capacity, will not be personally liable to any person other than The
Commerce Funds or a beneficial owner for any act, omission or obligation of The
Commerce Funds or any Trustee. A Trustee shall not be liable for any act or
omission in his capacity as Trustee, or for any act or omission of any officer
or employee of The Commerce Funds or of any other person or party, provided that
nothing contained in the Trust Instrument or in the Delaware Business Trust law
shall protect any Trustee against any liability to The Commerce Funds or to
shareowners to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee.

ADDITIONAL INFORMATION CONCERNING TAXES

Federal Taxes

Each Fund intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code, and to distribute out its
income to shareholders each year, so that each Fund itself generally will be
relieved of federal income and excise taxes. If a Fund were to fail to so
qualify: (1) the Fund would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction.

The International Equity Fund. It is expected that the
International Equity Fund will be subject to foreign withholding taxes with
respect to dividends or interest received from sources in foreign countries. The
International Equity Fund may make an election to treat a proportionate amount
of such taxes as constituting a distribution to each shareowner, which would
allow each shareowner either (1) to credit such proportionate amount of taxes
against U.S. federal income tax liability or (2) to take such amount as an
itemized deduction.

Federal Tax-Exempt Information

The National Tax-Free Intermediate Bond and Missouri Tax-Free
Intermediate Bond Funds' distributions will generally constitute tax-exempt
income for shareowners for federal income tax purposes. It is possible,
depending upon the Funds' investments, that a portion of the Funds'
distributions could be taxable to shareowners as ordinary income or capital
gains, but the Funds do not expect that this will be the case.

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<PAGE>

State and local income taxes generally apply to interest on
bonds of states and political subdivisions outside of the state in which the tax
is imposed. Missouri exempts interest on (i) its own obligations, (ii) the
obligations of its political subdivisions, (iii) U.S. Government obligations,
and (iv) obligations of certain U.S. territories and possessions, from its
personal income tax and general corporate income tax. The Funds' distributions
from these sources will retain their exempt character in the hands of
shareowners.

Interest on indebtedness incurred by a shareholder to purchase
or carry shares of the Funds generally will not be deductible for federal income
tax purposes.

You should note that a portion of the exempt-interest
dividends paid by the Funds may constitute an item of tax preference for
purposes of determining federal alternative minimum tax liability.
Exempt-interest dividends will also be considered along with other adjusted
gross income in determining whether any Social Security or Railroad Retirement
payments received by you are subject to federal income taxes.

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<PAGE>

MANAGEMENT OF THE COMMERCE FUNDS

Trustees and Officers of the Trust

The Board of Trustees of the Trust is responsible for the
management of the business and affairs of the Trust. The Trustees and executive
officers of the Trust and their principal occupations for the last five years
are set forth below. Each Trustee has an address c/o The Commerce Funds, 922
Walnut Street, Kansas City, Missouri 64141.

Position(s) Held with
Name, Address and Age the Trust Principal Occupation(s) During Past 5 Years
- --------------------- --------------------- -------------------------------------------
<S> <C> <C>
John Eric Helsing Trustee and Chairman Retired. Former Professor and Chairman, Department of
c/o The Commerce Funds Business Administration and Economics of William Jewell
922 Walnut Street College since September 1990. Former Lecturer at William
Kansas City, MO 64141 Jewell College. Director, Valentine Radford Communications
DOB: 11/6/33 and Trustee, Midwest Research Institute.

*Warren W. Weaver Trustee and President Retired. Former Vice Chairman, Commerce Bancshares, Inc. and
c/o The Commerce Funds Commerce Bank, N.A. Director, Milbank Mfg. Company; Director,
922 Walnut Street Roddis Lumber Company; Advisory Director of Aon.
Kansas City, MO 64141
DOB: 10/10/30

*Randall D. Barron Trustee and Treasurer Retired. Former President, Missouri Division, Southwestern
c/o The Commerce Funds Bell Telephone Company since 1984. Former Director, Commerce
922 Walnut Street Bancshares, Inc.
Kansas City, MO 64141
DOB: 10/25/29

David L. Bodde Charles N. Kimball Professor of Technology and Innovation,
c/o The Commerce Funds Trustee University of Missouri, Kansas City since July 1996. Vice
922 Walnut Street President, Midwest Research Institute since January 1991.
Kansas City, MO 64141 Executive Director, Commission on Engineering, National
DOB: 1/27/43 Academy of Sciences from April 1986 to January 1991; Director,
Missouri Technological Corporation. Director, Kansas City
Power & Light Company since 1994.

John Joseph Holland Trustee President and CEO, January 1999 to present, Executive Vice
c/o The Commerce Funds President from June 1998 to January 1999, Butler Manufacturing
922 Walnut Street Company and Vice President and Chief Financial Officer from
Kansas City, MO 64141 January 1990-June 1998; Director, Allendale Insurance Company.
DOB: 3/05/50

*Trustees who are "interested persons" of The Commerce Funds, as defined in the
1940 Act.
</TABLE>

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<PAGE>

Position(s) Held with
Name, Address and Age the Trust Principal Occupation(s) During Past 5 Years
- --------------------- --------------------- -------------------------------------------
<S> <C> <C>
Nancy L. Mucker Vice President Vice President, Goldman Sachs since April 1985. Manager of
Goldman Sachs Asset Management Shareholder Services for Goldman Sachs Asset Management Funds
4900 Sears Tower Group since November 1989.
Chicago, IL 60606
DOB: 7/26/49

James A. McNamara Vice President Vice President, Goldman Sachs since April 1998. Senior Vice
Goldman Sachs Asset Management President and Eastern Regional Manager for Dreyfus
4900 Sears Tower Institutional Service Corp. from 1996 to 1998. From 1993 to
Chicago, IL 60606 1996 Vice President, Institutional Sales Representative,
DOB: 10/2/62 Midwestern United States for Dreyfus.

John Perlowski Vice President Vice President, Goldman Sachs & Co., since July 1995.
Goldman, Sachs & Co. Director/Fund Accounting & Custody, Investors Bank & Trust
One New York Plaza Co., November 1993 to July 1995. Formerly, Manager, Audit
New York, NY 10004 Division, Arthur Andersen, September 1986 to November 1993.
DOB: 11/7/64

Philip V. Giuca, Jr. Assistant Treasurer Assistant Treasurer and Vice President, Goldman, Sachs & Co.
Goldman, Sachs & Co. (May 1992 - present)
10 Hanover Square
New York, NY 10004
DOB: 03/03/62

W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle & Reath LLP,
Drinker Biddle & Reath LLP Philadelphia, Pennsylvania.
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103-6996
DOB: 02/07/43

Michael J. Richman, Esq. Assistant Secretary Vice President and Assistant General Counsel of Goldman Sachs
Goldman, Sachs & Co. and Counsel to the Funds Group of Goldman Sachs Asset
12th Floor Management since June 1992. Associate General Counsel to
Legal Department Goldman Sachs Asset Management since February 1994. Formerly
85 Broad Street Partner, Hale and Dorr from September 1991 to June 1992.
New York, NY 10004 Attorney-at-law, Gaston & Snow prior thereto.
DOB: 10/24/60
</TABLE>

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<PAGE>

Position(s) Held with
Name, Address and Age the Trust Principal Occupation(s) During Past 5 Years
- --------------------- --------------------- -------------------------------------------
<S> <C> <C>
Howard B. Surloff Assistant Secretary Counsel to Goldman Sachs and the Funds Group of Goldman Sachs
Goldman, Sachs & Co. Asset Management since November 1993. Assistant General
12th Floor Counsel since November 1995 and Vice President of Goldman
Legal Department Sachs since May 1994. Formerly Associate of Shereff,
85 Broad Street Friedman, Hoffman & Goodman.
New York, NY 10004
DOB: 6/21/65

</TABLE>
* * *

Certain of the officers and the organizations with which they
are associated have had in the past, and may have in the future, transactions
with Goldman Sachs and its respective affiliates. The Commerce Funds has been
advised by such officers that all such transactions have been and are expected
to be in the ordinary course of business and the terms of such transactions,
including all loans and loan commitments by such persons, have been and are
expected to be substantially the same as the prevailing terms for comparable
transactions for other customers. Messrs. Guica, Perlowski, Richman and Surloff
and Ms. Mucker hold similar positions with one or more investment companies that
are advised by Goldman Sachs.

Each Trustee receives a fee of $1,500 for each regular meeting
of the Board of Trustees, plus $750 for each special meeting of the Board of
Trustees. All Trustees are reimbursed for out of pocket expenses incurred in
connection with attendance at meetings. Drinker Biddle & Reath LLP, of which Mr.
McConnel is a partner, receives legal fees as counsel to the Trust. The
following chart provides certain information about the Trustee fees paid by the
Trust for the fiscal year ended October 31, 1999:

PENSION OR
RETIREMENT
BENEFITS ACCRUED
NAME OF AGGREGATE COMPENSATION AS PART OF FUND AGGREGATE
PERSON/POSITION FROM THE TRUST EXPENSES COMPENSATION FROM THE FUND
--------------- -------------- -------- --------------------------
<S> <C> <C> <C>
JOHN ERIC HELSING, Trustee, $6,000 $0 N/A
Chairman

WARREN W. WEAVER, $6,000 $0 N/A
Trustee, President

RANDALL D. BARRON, $6,000 $0 N/A
Trustee, Treasurer

DAVID L. BODDE, Trustee $6,000 $0 N/A

JOHN JOSEPH HOLLAND, $6,000 $0 N/A
Trustee
</TABLE>

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<PAGE>

Each Trustee is entitled to participate in The Commerce Funds
Deferred Compensation Plan (the "Plan"). Under the Plan, a Trustee may elect to
have his or her deferred fees treated as if they had been invested by The
Commerce Funds in the shares of one or more portfolios in The Commerce Funds,
and the amount paid to the Trustees under the Plan will be determined based upon
the performance of such investments. Deferral of Trustees' fees will have no
effect on a portfolio's assets, liabilities, and net income per share, and will
not obligate The Commerce Funds to retain the services of any Trustee or
obligate a portfolio to any level of compensation to the Trustee. The Commerce
Funds may invest in underlying securities without shareowner approval.

The Trustees and officers of The Commerce Funds as a group
held less than 1% of each of the Institutional and Service Classes of the Funds.

Investment Advisor
- ------------------

The Funds are advised by Commerce Bank, N.A., a subsidiary of
Commerce Bancshares, Inc., a registered multi-bank holding company. Commerce
Bank, N.A. (or its predecessor organizations) have provided investment
management services to The Commerce Funds since 1994, to private and public
pension funds, endowments and foundations since 1946 and to individuals since
1906.

In the Advisory Agreement with The Commerce Funds, the Advisor
has agreed to manage each Fund's investments and to be responsible for, place
orders for, and make decisions with respect to, all purchases and sales of each
Fund's securities. For the advisory services provided and expenses assumed under
the Advisory Agreement, the Advisor is entitled to receive a fee calculated as a
percentage of the Funds' average daily net assets as stated below:

Annual Rate
-----------
Short-Term Government Fund..................................... 0.50%
Bond Fund...................................................... 0.50%
Balanced Fund.................................................. 1.00%
Growth Fund.................................................... 0.75%
Growth and Income Fund......................................... 0.75%
MidCap Fund.................................................... 0.75%
International Equity Fund...................................... 1.50%
National Tax-Free Intermediate Bond Fund....................... 0.50%
Missouri Tax-Free Intermediate Bond Fund....................... 0.50%

For the fiscal years ended October 31, 1999, 1998 and 1997,
The Commerce Funds paid the Advisor fees for advisory services as follows:

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<PAGE>

<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
October 31, 1999 October 31, 1998 October 31, 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Short-Term Government Fund $494,601 $286,805 $198,802

Bond Fund $1,769,193 $1,338,581 $867,384

Balanced Fund $1,327,241 $1,250,959 $865,907

Growth and Income Fund (1) $653,007 $603,694 $106,879

Growth Fund $3,583,753 $3,026,752 $2,132,218

MidCap Fund $1,106,384 $977,933 $664,643

International Equity Fund $1,628,135 $1,406,013 $1,020,685

National Tax-Free Intermediate Bond
Fund $193,766 $145,111 $104,058

Missouri Tax-Free Intermediate Bond
Fund $200,106 $144,482 $97,420
</TABLE>

- --------------------
(1) Commenced investment operations on March 3, 1997.

For the fiscal years ended October 31, 1999, 1998 and 1997,
the Advisor voluntarily agreed to waive a portion of its advisory fee for
certain portfolios. During the periods stated, these waivers reduced advisory
fees by the following:

Fiscal year ended Fiscal year ended Fiscal year ended
October 31, 1999 October 31, 1998 October 31, 1997
----------------- ----------------- ----------------
<S> <C> <C> <C>
Short-Term Government Fund $197,844 $114,722 $79,521

Balanced Fund $444,964 $426,241 $216,475

International Equity Fund $582,116 $485,815 $346,574

National Tax-Free Intermediate Bond Fund $58,130 $33,187 --

Missouri Tax-Free Intermediate Bond Fund $80,043 $57,793 $38,968
</TABLE>

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<PAGE>

In addition, for the fiscal years ended October 31, 1999, 1998
and 1997, the Advisor voluntarily agreed to reimburse the expenses of certain of
the Funds. The effect of these reimbursements during the period was to reduce
expenses as follows:

<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
October 31, 1999 October 31, 1998 October 31, 1997
----------------- ----------------- ----------------
<S> <C> <C> <C>
Short-Term Government Fund $35,653 $89,204 $88,977

Balanced Fund $21,939 $12,972 $128,384

International Equity Fund $0 $0 $0

National Tax-Free Intermediate Bond

Fund $29,663 $54,535 $61,410

Missouri Tax-Free Intermediate Bond

Fund $26,626 $50,592 $69,387

Growth and Income Fund(1) $0 $0 $116,567

- -------------------
(1) Commenced investment operations on March 3, 1997.

</TABLE>

Under the terms of the Advisory Agreement, the Advisor is
obligated to manage the investment of the Funds' assets in accordance with
applicable laws and regulations, including, to the extent applicable, the
regulations and rulings of the U.S. Comptroller of the Currency relating to
fiduciary powers of national banks. These regulations provide, in general, that
assets managed by a national bank as fiduciary may not be invested in stock or
obligations of, or property acquired from, the bank, its affiliates or their
directors, officers or employees, and further provide that fiduciary assets may
not be sold or transferred, by loan or otherwise, to the bank or persons
connected with the bank as described above.

The Advisor will not accept The Commerce Funds' shares as
collateral for a loan which is for the purpose of purchasing The Commerce Funds'
shares, and will not make loans to The Commerce Funds. Inadvertent overdrafts of
The Commerce Funds' account with the Custodian occasioned by clerical error or
by failure of a shareholder to provide available funds in connection with the
purchase of shares will not be deemed to be the making of a loan to The Commerce
Funds by the Advisor.

The Advisor's own investment portfolio may include bank
certificates of deposit, bankers' acceptances, and corporate debt obligations,
any of which may also be purchased by The Commerce Funds. Joint purchase of
investments for The Commerce Funds and for the Advisor's own investment
portfolio will not be made. The Advisor's Commercial

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<PAGE>

Banking Department may have deposit, loan and other commercial banking
relationships with issuers of securities purchased by The Commerce Funds,
including outstanding loans to such issuers which may be repaid in whole or in
part with the proceeds of securities purchased by The Commerce Funds.

Under the Advisory Agreement, the Advisor is not liable for
any error of judgment or mistake of law or for any loss suffered by The Commerce
Fund in connection with the performance of such Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Advisor in the performance of its
duties or from its reckless disregard of its duties and obligations under the
Agreement.

Investment Sub-Advisor
- ----------------------

Rowe Price-Fleming International, Inc. ("Price-Fleming"), as
sub-advisor, manages the investment assets of the International Equity Fund.
Price-Fleming was incorporated in Maryland in 1979 as a joint venture between T.
Rowe Price Associates, Inc. ("T. Rowe Price") and Robert Fleming Holdings
Limited ("Flemings").

T. Rowe Price was incorporated in Maryland in 1947 as
successor to the investment counseling business founded by the late Thomas Rowe
Price, Jr. in 1937. Flemings was incorporated in 1974 in the United Kingdom as
successor to the business founded by Robert Fleming in 1873. Flemings is a
diversified investment organization which participates in a global network of
regional investment offices in New York, London, Zurich, Geneva, Johannesburg,
Bangkok, Bombay, Jakarta, Singapore, Tokyo, Hong Kong, Manila, Kuala Lumpur,
Seoul, and Taipei.

The common stock of Price-Fleming is 50% owned by a
wholly-owned subsidiary of T. Rowe Price, 25% by a subsidiary of Flemings and
25% by a subsidiary of Jardine Fleming Group Limited ("Jardine Fleming").
(Jardine Fleming is owned by Flemings.) T. Rowe Price has a right to elect a
majority of the Board of Directors of Price-Fleming, and Flemings has the right
to elect the remaining directors, one of whom will be nominated by Jardine
Fleming.

For the services provided and expenses assumed under the
Sub-Advisory Agreement, the Advisor will pay the Sub-Advisor a monthly
management fee at an annual rate of 0.75% of the first $20 million of the Fund's
average daily net assets; 0.60% of the next $30 million of average daily net
assets; and 0.50% of average daily net assets above $50 million. When the Fund's
assets reach $200 million, the Sub-Advisor has agreed to waive fees in excess of
0.50% on an annualized basis of the average daily net assets of the Fund. For
the fiscal year ended October 31, 1999, Price-Fleming received advisory fees at
the effective annual rate of 0.585% of the International Equity Fund's average
daily net assets.

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<PAGE>

For the fiscal years ended October 31, 1999, 1998 and 1997,
the Advisor paid the Sub-Advisor sub-advisory fees of $622,712, $548,671 and
$420,324 respectively.

Under the Sub-Advisory Agreement, Price-Fleming provides the
International Equity Fund with investment advisory services. Specifically,
Price-Fleming is responsible for supervising and directing the investments of
the Fund in accordance with the Fund's investment objective, policies and
restrictions as provided in the Prospectus and this Statement of Additional
Information. Price-Fleming is also responsible for effecting all security
transactions on behalf of the Fund, including the negotiation of commissions and
the allocation of principal business and portfolio brokerage.

The Sub-Advisory Agreement also provides that Price-Fleming,
its directors, officers or employees will only be liable to the Fund for losses
resulting from bad faith, willful misconduct or gross negligence for losses
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services.

Under the Sub-Advisory Agreement, Price-Fleming is permitted
to utilize the services or facilities of others to provide it or the Funds with
statistical and other factual information, advice regarding economic factors and
trends, advice as to occasional transactions in specific securities, and such
other information, advice or assistance as Price-Fleming may deem necessary,
appropriate, or convenient for the discharge of its obligations under the
Sub-Advisory Agreement or otherwise helpful to the Funds.

Price-Fleming has entered into separate letters of agreement
with Fleming Investment Management Limited ("FIM") and Jardine Fleming
International Holdings Limited ("JFIH"), wherein FIM and JFIH have agreed to
render investment research and administrative support to Price-Fleming for which
each receives from Price-Fleming a fee of 0.075% of the market value of all
assets in equity accounts under Price-Fleming's management. In addition to the
research provided under these agreements, Price-Fleming has access to the
publicly-available research materials produced by FIM and JFIH. FIM is a
wholly-owned subsidiary of Robert Fleming Asset Management Limited which is a
wholly-owned subsidiary of Robert Fleming Holdings Limited ("Robert Fleming
Holdings"). JFIH is an indirect wholly-owned subsidiary of Jardine Fleming Group
Limited. Under the letters of agreement, these companies will provide
Price-Fleming with research material containing statistical and other factual
information, advice regarding economic factors and trends, advice on the
allocation of investments among countries and as between debt and equity classes
of securities, and research and occasional advice with respect to specific
companies.

Robert Fleming Holdings personnel have extensive research
resources throughout the world. A strong emphasis is placed on direct contact
with companies in the research universe. Robert Fleming personnel, who
frequently speak the local language, have access to the full range of research
products available in the market place and are encouraged to produce independent
works dedicated solely to portfolio investment management, which adds value to
that generally available.

-59-
<PAGE>

Custodian and Transfer Agent
- ----------------------------

State Street Bank serves as Custodian of each Fund's assets
pursuant to a Custody Agreement under which it has agreed, among other things,
to (i) maintain a separate account in the name of each Fund; (ii) hold and
disburse portfolio securities on account of each Fund; (iii) collect and receive
all income and other payments and distributions on account of each Fund's
portfolio investments; (iv) make periodic reports to The Commerce Funds
concerning each Fund's operations; (v) provide various accounting services to
The Commerce Funds and to the Administrator for the benefit of The Commerce
Funds; and (vi) act as foreign custody manager pursuant to Rule 17f-5 of the
1940 Act with respect to the monitoring of the Funds' assets held by eligible
foreign sub-Custodians. The Custodian is authorized to select one or more banks
or trust companies to serve as sub-Custodian on behalf of the Funds, provided
that the Custodian shall remain liable for the performance of all of its duties
under its respective Custody Agreement and will hold The Commerce Funds and
Funds harmless from losses caused by the negligence or willful misconduct of any
bank or trust company serving as sub-Custodian. State Street is located at 225
Franklin Street, Boston, Massachusetts 02110.

As compensation for custodial services provided, The Commerce
Funds will pay the Custodian fees of 1/100th of 1% of a Fund's average monthly
net assets up to one billion, 1/133rd of 1% of the next one billion of such
assets and 1/200th of 1% of such assets in excess of two billion based on the
aggregate average daily net assets of the Funds, plus a transaction charge for
certain transactions and out-of-pocket expenses.

State Street Bank also serves as the Funds' Transfer Agent and
dividend disbursing agent. State Street has appointed NFDS, an indirect
subsidiary, to act as the Funds' Transfer Agent, as permitted in the Transfer
Agency Agreement, provided that State Street Bank shall remain liable for the
performance of all of its duties and will hold The Commerce Funds and Fund or
Funds harmless from losses caused by the negligence or willful misconduct of any
appointee. Under the Transfer Agency Agreement, NFDS will, among other things,
(i) receive purchase orders and redemption requests for shares of the Funds;
(ii) issue and redeem shares of the Funds; (iii) effect transfers of shares of
the Funds; (iv) prepare and transmit payments for dividends and distributions
declared by the Funds; (v) maintain records of accounts for the Funds,
shareowners and advise each shareholder to the foregoing; (vi) record the
issuance of shares of each Fund and maintain a record of and provide the Fund on
a regular basis with the total number of shares of each Fund which are
authorized, issued and outstanding; (vii) perform the customary services of a
Transfer Agent, a dividend disbursing agent and Custodian of certain retirement
plans and, as relevant, agent in connection with accumulation, open account or
similar plans; and (viii) provide a system enabling the Funds to monitor the
total number of shares sold in each State.

-60-
<PAGE>

Administrator
- -------------

Goldman Sachs Asset Management is the Administrator for the
Funds. GSAM is located at 32 Old Slip, New York, New York 10005. GSAM is a unit
of the Investment Management Division of Goldman, Sachs & Co., the Distributor
of the Funds. Under the Administration Agreement with The Commerce Funds, GSAM
administers the business affairs of The Commerce Funds, subject to the
supervision of the Board of Trustees, and in connection therewith, furnishes The
Commerce Funds with office facilities and is responsible for ordinary clerical,
recordkeeping and bookkeeping services required to be maintained by The Commerce
Funds (excluding those maintained by The Commerce Funds' Custodian, Transfer
Agent, Advisor and any Sub-Advisor), preparation and filing of documents
required to comply with federal and state securities laws, supervising the
activities of the Custodian and Transfer Agent, providing assistance in
connection with meetings of the Board of Trustees and shareowners and other
administrative services necessary to conduct the business of The Commerce Funds.
For these services and facilities, GSAM is entitled to receive a monthly fee
from each Fund at an annual rate of 0.15% of its average daily net assets. For
the fiscal year ended October 31, 1999, GSAM received administration fees at the
annual rate of 0.15% of the average daily net assets of each Fund. For the
fiscal years ended October 31, 1999, 1998 and 1997, the fees paid by the Funds
for administration services were as follows:

<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
October 31, 1999 October 31, 1998 October 31, 1997
----------------- ----------------- ----------------
<S> <C> <C> <C>
Short-Term Government Fund $148,379 $86,042 $59,641

Bond Fund $530,758 $401,574 $260,215

Balanced Fund $199,089 $187,644 $129,886

Growth and Income Fund(1) $130,601 $120,739 $21,376

Growth Fund $716,750 $605,350 $426,443

MidCap Fund $221,277 $199,587 $132,929

International Equity Fund $162,812 $140,601 $102,068

National Tax-Free Intermediate Bond
Fund $58,219 $43,526 $31,217

Missouri Tax-Free Intermediate Bond
Fund $60,031 $43,344 $29,226

</TABLE>

- ---------
(1) Commenced investment operations on March 3, 1997.

-61-
<PAGE>

Distributor
- -----------

The Commerce Funds' shares are offered on a continuous basis
through Goldman, Sachs & Co., which acts under the Distribution Agreement as
Distributor for The Commerce Funds. Goldman is located at 85 Broad Street, New
York, New York 10004. Goldman, Sachs & Co. may receive a portion of the sales
load imposed on the sale of shares of the Funds and has advised The Commerce
Funds that it has retained approximately $18,000, $22,000 and $47,000 of such
sales loads for the fiscal years ended October 31, 1999, 1998 and 1997,
respectively.

THE DISTRIBUTION PLAN AND THE SHAREHOLDER ADMINISTRATIVE SERVICES PLANS

The Distributor is entitled to payment on a monthly basis at
an annual rate not exceeding 0.25% of the average daily net assets of Service
Shares from the Trust for distribution expenses incurred pursuant to the
Distribution Plan (the "12b-1 Plan") adopted on behalf of the Service Shares.
Under the 12b-1 Plan, the Trust may pay the Distributor (or any other person)
for: (i) direct out-of-pocket promotional expenses incurred by the Distributor
in advertising and marketing Service Shares; (ii) expenses incurred in
connection with preparing, printing, mailing, and distributing or publishing
advertisements and sales literature for Service Shares; (iii) expenses incurred
in connection with printing and mailing prospectuses and statements of
additional information to other than current Service Class shareowners; (iv)
periodic payments or commissions to one or more securities dealers, brokers,
financial institutions or other industry professionals, such as investment
advisors, accountants, and estate planning firms with respect to a Fund's
Service Shares beneficially owned by customers for whom the distribution
organization is the record or holder of record of such Service Shares; or (v)
for such other services as may be construed, by any court or governmental agency
or commission, including the Securities and Exchange Commission, to constitute
distribution services under the 1940 Act or rules and regulations thereunder.

During the fiscal year ended October 31, 1999, The Commerce
Funds paid the Distributor $56,082 in the aggregate under the Funds' 12b-1 Plan.

The Commerce Funds may enter into Servicing Agreements with
Service Organizations, which may include the Advisor and its affiliates,
pursuant to the Shareholder Administrative Services Plans for Institutional
Shares and Service Shares (the "Services Plans"). The Servicing Agreements
provide that the Service Organizations will render shareholder administrative
support services to their customers who are the beneficial owners of
Institutional and Service Shares of the Growth and Income, Growth, MidCap,
International Equity Funds, Balanced, Short-Term Government, Bond and
Institutional Shares of the National Tax-Free Intermediate Bond and Missouri
Tax-Free Intermediate Bond Funds in consideration for a Fund's payment of up to
0.25% (on an annualized basis) of the average daily net asset value of the
shares of the Fund beneficially owned by such customers and held

-62-
<PAGE>

by the Service Organizations. At The Commerce Fund's option, it may reimburse
the Service Organizations' out-of-pocket expenses as well. Such services may
include: (i) processing dividend and distribution payments from a Fund; (ii)
providing information periodically to customers showing their share positions in
Institutional and Service Shares; (iii) arranging for bank wires; (iv)
responding to customer inquiries concerning their investments in shares; (v)
providing subaccounting with respect to shares beneficially owned by customers
or the information necessary for such subaccounting; (vi) if required by law,
forwarding shareholder communications; (vii) processing share exchange and
redemption requests from customers; (viii) assisting customers in changing
dividend options, account designations and addresses; (ix) establishing and
maintaining accounts and records relating to customers that invest in shares;
(x) responding to customer inquiries relating to the services performed by the
Service Organization; and (xi) other similar services requested by the Commerce
Funds. Banks acting as Service Organizations are prohibited from engaging in any
activity primarily intended to result in the sale of Fund shares. However,
Service Organizations other than banks may be requested to provide marketing
assistance (e.g., forwarding sales literature and advertising to their
customers) in connection with the distribution of Fund shares. For the fiscal
year ended October 31, 1999, an aggregate of $1,023,350 in fees were accrued
under the Services Plans.

The Services Plans are subject to annual reapproval by a
majority of the Trust's Board of Trustees, including a majority of the
Non-Interested Trustees and is terminable without penalty at any time with
respect to any Fund by a vote of a majority of the Non-Interested Trustees or by
vote of the holders of a majority of the outstanding shares of each Class of the
Fund involved. Any agreement entered into pursuant to the Services Plans with a
Service Organization is terminable with respect to any Fund without penalty, at
any time, by vote of a majority of the Non-Interested Trustees, by vote of the
holders of a majority of the outstanding shares of each Class of such Fund, or
by the Service Organizations. Each agreement will also terminate automatically
in the event of its assignment.

The Trust's Board of Trustees has concluded that there is a
reasonable likelihood that the Services Plans will benefit the Funds and their
shareowners.

PORTFOLIO TRANSACTIONS

Brokerage Transactions and Commissions
- --------------------------------------

Transactions on U.S. stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of Commerce transactions may vary among different brokers.
Transactions in the over-the-counter market are generally principal transactions
with dealers and the costs of such transactions involve dealer spreads rather
than brokerage commissions. With respect to over-the-counter transactions, the
Advisor will normally deal directly with the dealers who make a market in the
securities involved except in those circumstances where better prices and

-63-
<PAGE>

execution are available elsewhere or as described below. Unlike transactions on
U.S. stock exchanges which involve the payment of negotiated brokerage
commissions, transactions in foreign securities generally involve the payment of
fixed brokerage commissions, which are generally higher than those in the United
States.

Debt securities purchased and sold by the Funds are generally
traded in the over-the-counter market on a net basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.

The Advisory Agreements for the Funds provide that, in
executing portfolio transactions and selecting brokers or dealers, the Advisor
will use reasonable efforts to seek the best overall terms available on behalf
of each Fund. In assessing the best overall terms available for any transaction,
the Advisor will consider all factors it deems relevant, including the breadth
of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. In addition, the Agreements authorize the Advisor,
subject to the prior approval of the Board of Trustees, to cause the Funds to
pay a broker/dealer furnishing brokerage and research services a higher
commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that it determines in good faith that
such commission is reasonable in relation to the value of the brokerage and
research services provided by such broker/dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the Advisor to the
particular Fund and to The Commerce Funds. Such brokerage and research services
might consist of reports and statistics of specific companies or industries,
general summaries of groups of stocks or bonds and their comparative earnings
and yields, broad overviews of the stock, bond and government securities markets
and the economy, and advice as to the value of securities, as well as the
advisability of investing in, purchasing or selling securities and the
availability of securities or purchasers or sellers of securities.

Supplementary research information so received is in addition
to, and not in lieu of, services required to be performed by the Advisor and
does not reduce the advisory fees payable by the Funds. The Board of Trustees
will periodically review the commissions paid by the Funds to consider whether
the commissions paid over representative periods of time appear to be reasonable
in relation to the benefits inuring to the Funds. It is possible that certain
supplementary research or other services received will primarily benefit one or
more other investment companies or other accounts for which investment
discretion is exercised. Conversely, a Fund may be the primary beneficiary of
the research or services received as a result of portfolio transactions effected
for such other account or investment company.

-64-
<PAGE>

During the last fiscal year, the following brokers effected
brokerage transactions on behalf of the Funds and provided research services in
connection with such brokerage transactions:

- ---------------------------------------------- ---------------------- --------------------- ---------------------------
Amount of Amount of Broker/
Fund Transaction Commission Paid Dealer
- ---------------------------------------------- ---------------------- --------------------- ---------------------------
<S> <C> <C> <C>
Balanced Fund $483,303 $345 Capital Institional Services
$6,266,308 $8,515 Fact Set Data Systems
$493,628 $720 Standard & Poor's
$763,532 $942 Thomson Institutional
- ---------------------------------------------- ---------------------- --------------------- ---------------------------
Growth and Income Fund(1) $436,835 $900 Capital Institutional Services
$2,905,728 $5,637 Fact Set Data Systems
- ---------------------------------------------- ---------------------- --------------------- ---------------------------
Growth Fund $12,312,825 $7,290 Capital Institutional Services
$21,449,206 $24,333 Fact Set Data Systems
$5,914,514 $5,635 Thomson Institutional
- ---------------------------------------------- ---------------------- --------------------- ---------------------------
MidCap Fund $3,571,415 $5,226 Capital Institutional Services
$13,663,941 $22,181 Fact Set Data Systems
$5,421,246 $8,468 Thomson Institutional
- ---------------------------------------------- ---------------------- --------------------- ---------------------------
International Equity Fund $2,855,285 $5,695 Instinet
$37,467 $93 Merrill Lynch
$617,562 $1,221 Warburg Dillon Read
- --------------------------------------------- ---------------------- --------------------- ----------------------------
</TABLE>

- ----------
(1) Commenced investment operations on March 3, 1997.

A Fund's portfolio securities will not be purchased from or
sold to (and savings deposits will not be made in and repurchase and reverse
repurchase agreements will not be entered into with) the Advisor, Sub-Advisor,
Goldman, Sachs & Co. or any affiliated person (as such term is defined in the
1940 Act) thereof acting as principal or broker, except to the extent permitted
by the SEC. However, The Commerce Funds' Board of Trustees has authorized the
Advisor to allocate purchase and sale orders for portfolio securities to
broker/dealers and other financial institutions including, in the case of agency
transactions, institutions which are affiliated with the Advisor, to take into
account the sale of Fund shares if the Advisor believes that the quality of the
transaction and the amount of the commission are comparable to what they would
be with other qualified brokerage firms, provided such transactions comply with
the requirements of Rule 17e-1 under the 1940 Act. In addition, the Funds will
not purchase securities during the existence of any underwriting or selling
group relating thereto of which the Advisor, Goldman, Sachs & Co., or any
affiliated person thereof is a member, except to the extent permitted by the
SEC. Under certain circumstances, the Funds may be at a disadvantage when
compared to other investment companies which have similar investment objectives
but that are not subject to such limitations.

Investment decisions for each Fund are made independently from
those made for the other Funds and from those made for other investment
companies and accounts advised or managed by the Advisor. Such other investment
companies and accounts may also invest in the same securities as the Funds. When
a purchase or sale of the same security is made at substantially the same time
on behalf of any Fund and another investment company or account, that
transaction will be aggregated (where not inconsistent with the policies set
forth in the Prospectuses) and allocated as to amount in a manner which the
Advisor believes to be equitable and consistent with its fiduciary obligations
to the Fund involved and such other investment company or account. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained by a Fund.

The Commerce Funds are required to identify any securities of
its "regular brokers or dealers" acquired by the Funds during the most recent
fiscal year. During the

-65-
<PAGE>

fiscal year ended October 31, 1999, the Funds held securities of their regular
broker/dealers as follows:

-66-
<PAGE>

<TABLE>
<CAPTION>
Aggregate Amount
Of Securities Held
Fund Broker/Dealer (000's omitted)
- ---- ------------- ---------------
<S> <C> <C>
Short-Term Government Fund Prudential Securities $ 4,304
Bear Stearns Securities 198

Bond Fund Merrill Lynch & Company 7,182
Bear Stearns Securities 791
Donaldson Lufkin and Jenrette, Inc. 1,229
Prudential Securities 2,375

Balanced Fund Morgan Stanley, Dean Witter, Discover
and Company 1,623
Merrill Lynch & Company 1,949
Lehman Brothers 732
Donaldson Lufkin and Jenrette, Inc. 744
Prudential Securities 396

Growth Fund Morgan Stanley, Dean Witter, Discover
and Company 8,637
</TABLE>

During the fiscal year ended October 31, 1999, the Funds
entered into repurchase agreement transactions with State Street Bank and Trust
Company, which was one of the broker/dealers that engaged as principal in the
largest dollar amount of portfolio transactions with the Funds. At October 31,
1999, the value of each Fund's outstanding repurchase agreement transactions
with State Street Bank and Trust Company was as follows:

<S> <C>
Short-Term Government Fund $ 2,994,000
Bond Fund $ 1,096,000
Balanced Fund $ 1,874,000
Growth and Income Fund $ 1,158,000
Growth Fund $ 25,595,000
MidCap Fund $ 3,361,000
International Equity Fund $ 11,515,000
National Tax-Free Intermediate Bond Fund $ 0
Missouri Tax-Free Intermediate Bond Fund $ 223,000
</TABLE>

For the fiscal years ended October 31, 1999, 1998 and 1997, the Growth
and Income, Growth, MidCap, International Equity and Balanced Funds paid
brokerage commissions as follows:

-67-
<PAGE>

<TABLE>
<CAPTION>
Total
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transactions Paid to
Brokerage Paid to on Which Brokers Who
Commissions Affiliated Commissions Provided
Paid Persons Were Paid Research
---- ------- --------- --------

Fiscal year ended October 31, 1999:
- -----------------------------------
<S> <C> <C> <C> <C>
Balanced Fund $110,039 $ 8,358 $106,492,411 $10,522

Growth Fund $285,421 $10,204 $264,252,562 $37,258

MidCap Fund $268,457 $11,443 $294,079,058 $35,875

Growth and Income Fund $193,496 $22,740 $224,905,661 $6,537

International Equity $122,914 $10,213 $64,066,092 $7,009
Fund

Fiscal year ended October 31, 1998:
- -----------------------------------

Balanced Fund $136,290 $7,252 $130,841,484 $18,707

Growth Fund $381,711 $7,044 $394,070,735 $14,188

MidCap Fund $222,034 $4,840 $205,724,362 $3,088

Growth and Income Fund $187,548 $37,434 $132,543,055 $19,569

International Equity $106,724 $15,819 $47,880,746 $0
Fund

Fiscal year ended October 31, 1997:
- -----------------------------------

Balanced Fund $60,007 $0 $44,338,406 $7,789

Growth Fund $226,998 $0 $190,623,385 $38,228

MidCap Fund $170,066 $0 $95,860,725 $24,770

Growth and Income

Fund(1) $70,590 $6,542 $40,963,033 $0

International Equity
Fund $121,982 $10,271 $42,752,888 $0
</TABLE>

- ----------
(1) Commenced investment operations on March 3, 1997.

-68-
<PAGE>

For the fiscal years ended October 31, 1999, 1998 and 1997, the
following affiliated persons received brokerage commissions on behalf of
Institutional Shares of the International Equity Fund.

<TABLE>
<CAPTION>
% of Total Total Amount of % of Total Amount of
Commissions Paid to Transactions on Transactions on
Affiliated Persons Which Commissions Which Commissions
Commissions Paid to in Most Recent Fiscal Were Paid to Were Paid to
Broker Name Affiliated Persons Year Affiliated Persons Affiliated Persons
- ----------- ------------------ ---- ------------------ ------------------

Year Ended October 31, 1999
- ---------------------------
<S> <C> <C> <C> <C>
Goldman, Sachs & Co. $171 0.14% $172,394 0.26%

Goldman Sachs $7,052 5.74% $4,777,341 7.08%
International, Ltd.

Jardine Fleming $348 0.28% $562,223 0.83%

Jardine Fleming Hong $883 0.72% $309,693 0.46%
Kong

Robert Fleming & Co., $139 0.11% $63,655 0.09%
London

Robert Fleming $1,620 1.32% $951,862 1.41%
Securities, Ltd.

Year Ended October 31, 1998
- ---------------------------

Goldman, Sachs & Co. $2,175 2.04% $1,313,217 2.74%

Goldman Sachs $9,763 9.15% $5,231,312 10.93%
International, Ltd.

Jardine Fleming $228 0.21% $215,366 0.45%

Jardine Fleming Hong Kong $476 0.45% $67,442 0.14%

Robert Fleming & Co.,
London $2,265 2.12% $1,100,256 2.30%

Robert Fleming
Securities, Ltd. $912 0.85% $457,503 0.95%
</TABLE>

-69-
<PAGE>

% of Total Total Amount of % of Total Amount of
Commissions Paid to Transactions on Transactions on
Affiliated Persons Which Commissions Which Commissions
Commissions Paid to in Most Recent Fiscal Were Paid to Were Paid to
Broker Name Affiliated Persons Year Affiliated Persons Affiliated Persons
- ----------- ------------------ ------------------- ------------------ ------------------

Year Ended October 31, 1997
- ---------------------------
<S> <C> <C> <C> <C>
Flemings Securities, $691 0.57% $168,512 0.39%
Ltd.

Goldman, Sachs & Co. $825 0.68% $206,187 0.48%

Goldman Sachs $5,270 4.32% $1,954,939 4.57%
International, BA

Goldman Sachs $111 0.09% $55,641 0.13%
International, Ltd.

Goldman Sachs $336 0.28% $168,325 0.39%
International Finance,
London.

Jardine Fleming $888 0.73% $145,617 0.34%
Kong Hong

Robert Fleming & Co., $2,048 1.68% $867,879 2.03%
London

Robert Fleming $102 0.08% $ 40,582 0.09%
Securities, Ltd.

</TABLE>

-70-
<PAGE>

Flemings Securities, Ltd., Flemings, Jardine Fleming, Jardine
Fleming Hong Kong, Robert Fleming & Co., London, Robert Fleming Securities, Ltd.
and Robert Fleming Securities, Inc. are affiliates of the Sub-Advisor to The
International Equity Fund. Goldman, Sachs & Co. is the Distributor for The
Commerce Funds. Goldman Sachs International, Ltd. is an affiliate of the
Distributor.

INDEPENDENT AUDITORS

KPMG LLP, 1000 Walnut Street, Suite 1600, Kansas City,
Missouri 64106, serves as independent auditors for The Commerce Funds.

COUNSEL

Drinker Biddle & Reath LLP, (of which Mr. McConnel, Secretary
of The Commerce Funds, is a partner), One Logan Square, 18th and Cherry Streets,
Philadelphia, Pennsylvania 19103-6996, are counsel to The Commerce Funds.

ADDITIONAL INFORMATION ON PERFORMANCE

From time to time, yield and total return of the Funds for
various periods may be quoted in advertisements, shareholder reports or other
communications to shareowners. The performance of each Fund may also be compared
to those of other mutual funds with similar investment objectives and to stock,
bond and other relevant indices or to rankings prepared by independent services
or other financial or industry publications that monitor the performance of
mutual funds.

Yield Calculations. A Fund's yield is calculated by dividing
-------------------
its net investment income per share (as described below) earned during a 30-day
period by the maximum offering price per share on the last day of the period and
annualizing the result on a semi-annual basis by adding one to the quotient,
raising the sum to the power of six, subtracting one from the result and then
doubling the difference. A Fund's net investment income per share earned during
the period may be different than that determined for accounting purposes and is
based on the average daily number of shares outstanding during the period
entitled to receive dividends and includes dividends and interest earned during
the period minus expenses accrued for the period, net of reimbursements. This
calculation can be expressed as follows:

Yield = 2 [(a-b ) ]
[(--- + 1) to the 6th power - 1]
[(cd ) ]

-71-
<PAGE>

Where: a = dividends and interest earned during the period.

b = expenses accrued for the period (net of reimbursements).

c = the average daily number of shares
outstanding during the period that
were entitled to receive dividends.

d = maximum offering price per share on the last day of the
period.

For the purpose of determining net investment income earned
during the period (variable "a" in the formula), dividend income on equity
securities held by a Fund is recognized by accruing 1/360 of the stated dividend
rate of the security each day that the security is held in its portfolio. A Fund
calculates interest earned on any debt obligations held in its portfolio by
computing the yield to maturity of each obligation held by it based on the
market value of the obligation (including actual accrued interest) at the close
of business on the last business day of each month, or, with respect to
obligations purchased during the month, the purchase price (plus actual accrued
interest), and dividing the result by 360 and multiplying the quotient by the
market value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the subsequent
month that the obligation is in the portfolio. For purposes of this calculation,
it is assumed that each month contains 30 days. The maturity of an obligation
with a call provision is the next call date on which the obligation reasonably
may be expected to be called or, if none, the maturity date. With respect to
debt obligations purchased at a discount or premium, the formula generally calls
for amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.

With respect to mortgage-related obligations which are
expected to be subject to monthly payments of principal and interest ("pay
downs"), (a) gain or loss attributable to actual monthly pay downs are accounted
for as an increase or decrease to interest income during the period; and (b) a
Fund may elect either (i) to amortize the discount and premium on the remaining
security, based on the cost of the security, to the weighted average maturity
date, if such information is available, or to the remaining term of the
security, if any, if the weighted average maturity date is not available, or
(ii) not to amortize discount or premium on the remaining security.

Undeclared earned income may be subtracted from the maximum
offering price per share (variable "d" in the formula). Undeclared earned income
is the net investment income which, at the end of the 30-day base period, has
not been declared as a dividend, but is reasonably expected to be and is
declared as a dividend shortly thereafter.

-72-
<PAGE>

The Commerce Funds do not calculate a 30-day yield for the
Balanced, Growth and Income, Growth, MidCap and International Equity Funds.
Based on the foregoing calculations, for the 30-day period ended October 31,
1999, the yields for the Short-Term Government, Bond, National Tax-Free
Intermediate Bond and Missouri Tax-Free Intermediate Bond Funds, were as
follows:

<TABLE>
<CAPTION>
Yield Assuming Maximum
Yield Assuming Maximum Sales Load and Without
Sales Load and With Fee Fee Waivers or
Waivers and Reimbursements Reimbursements
-------------------------- --------------
<S> <C> <C>
Short-Term Government Fund
Institutional Shares

Service Shares 5.81% 5.55%
5.44% 5.18%
Bond Fund
Institutional Shares 6.58% N/A
Service Shares 6.11% N/A

National Tax-Free
Intermediate Bond Fund 4.23% 4.06%

Missouri Tax-Free
Intermediate Bond Fund 4.31% 4.11%
</TABLE>

The Distribution Rate for a specified period is calculated by
dividing the total distribution per unit by the maximum offering price or net
asset value on the last day of the period and then annualizing such amount. For
the 30 day period ended October 31, 1999, the Distribution Rates for the
Short-Term Government, Bond, National Tax-Free Intermediate Bond and Missouri
Tax-Free Intermediate Bond Funds, were as follows:

-73-
<PAGE>

Rate Assuming Rate Assuming Rate Assuming No Rate Assuming No
Maximum Sales Load Maximum Sales Load Sales Load and With Sales Load and
and With Fee Waivers and Without Fee Fee Waivers and Without Fee Waivers
and Reimbursements Waivers and Reimbursements Reimbursements and Reimbursements
------------------ -------------------------- -------------- ------------------
<S> <C> <C> <C> <C>
Short-Term Government Fund
Institutional Shares
Service Shares 5.67% 5.42% 5.67% 5.42%
5.42% 5.07% 5.42% 5.17%

Bond Fund
Institutional Shares 6.23% N/A 6.23% N/A
Service Shares 5.99% N/A 5.99% N/A

National Tax-Free
Intermediate Bond Fund
Institutional Shares 3.96% 3.72% 3.96% 3.72%

Missouri Tax-Free
Intermediate Bond Fund
Institutional Shares 4.01% 3.73% 4.01% 3.73%
</TABLE>

A tax-exempt Fund's "tax-equivalent" yield is computed as
follows: (a) by dividing the portion of the Fund's yield (calculated as above)
that is exempt from both federal and state income taxes by one minus a stated
combined federal and state income tax rate; (b) dividing the portion of the
Fund's yield (calculated as above) that is exempt from federal income tax by one
minus a stated federal income tax rate; and (c) adding the quotient to that
portion, if any, of the Fund's yield that is not exempt from federal income tax.

The tax-equivalent yields for the 30-day period ended October
31, 1999 for the National Tax-Free Intermediate Bond Fund and Missouri Tax-Free
Intermediate Bond Fund, with and without fee waivers (assuming a 39.6% federal
tax rate for both Funds and a 6.0% Missouri tax rate for the Missouri Tax-Free
Intermediate Bond Fund) were as follows:

-74-
<PAGE>

<TABLE>
<CAPTION>
Yield Assuming Maximum Yield Assuming Maximum
Sales Load and With Fee Sales Load and Without Fee
Waivers and Waivers
Reimbursements or Reimbursements
-------------- -----------------
<S> <C> <C>
National Tax-Free
Intermediate Bond Fund 6.56% 6.16%

Missouri Tax-Free
Intermediate Bond Fund 7.06% 6.57%
</TABLE>

The foregoing calculations are made assuming that (1) all
dividends and capital gain distributions are reinvested on the reinvestment
dates at the price per share existing on the reinvestment date, and (2) all
recurring fees charged to all shareowner accounts are included. The ending
redeemable value (variable "ERV" in the formula) is determined by assuming
completed redemption of the hypothetical investment after deduction of all
nonrecurring charges at the end of the measuring period. In addition, the Funds'
yields and distribution rates will reflect the deduction of the maximum sales
load charged in connection with purchases of shares. The yield and distribution
rate calculations do not include fees that may be imposed by institutions on
their customers. If the foregoing fees had been included in the yields and
distribution rates reported above, performance of these Funds would have been
lower. For current yield information, please contact The Commerce Funds at the
telephone number on the cover page of this Statement of Additional Information.

Total Return Calculations. Each Fund computes its "average
annual total return" by determining the average annual compounded rates of
return during specified periods that equate the initial amount invested to the
ending redeemable value of such investment. This is done by dividing the ending
redeemable value of a hypothetical $1,000 initial payment by $1,000 and raising
the quotient to a power equal to one divided by the number of years (or
fractional portion thereof) covered by the computation and subtracting one from
the result. This calculation can be expressed as follows:

-75-
<PAGE>

P (1 + T) to the nth power = ERV

Where: P = hypothetical initial payment of $1,000.

T = average annual total return.

n = number of years.

ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods at
the end of the 1, 5 or 10 year periods (or
fraction thereof).

The Funds compute their "aggregate total return" by
determining the aggregate rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:

T = (ERV - 1 )
(--- )
( P )

The calculations of average annual total return and aggregate
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the period and include all
recurring fees charged to all shareholder accounts, assuming an account size
equal to the Fund's mean (or median) account size for any fees that vary with
the size of the account. The maximum sales load and other charges deducted from
payments are deducted from the initial $1,000 payment (variable "P" in the
formula). The ending redeemable value (variable "ERV" in each formula) is
determined by assuming complete redemption of the hypothetical investment and
the deduction of all nonrecurring charges at the end of the period covered by
the computations.

Based on the foregoing calculations, the average annual total
returns for the Funds were as follows:

-76-
<PAGE>

Return Assuming
Return Assuming Maximum Sales Load Return Assuming No Return Assuming No
Maximum Sales Load and Without Fee Sales Load and With Sales Load and
and With Fee Waivers Waivers and Fee Waivers and Without Fee Waivers
and Reimbursements Reimbursements Reimbursements and Reimbursements
------------------ -------------- -------------- ------------------

Average Annual Return for the period from commencement of operations through
October 31, 1999.

Short-Term Government
Fund(1)
<S> <C> <C> <C> <C>
Institutional Shares 6.50% 6.10% 6.50% 6.10%
Services Shares 4.55% 4.12% 5.29% 4.85%

Bond Fund(1)
Institutional Shares 7.60% N/A 7.60% N/A
Services Shares 4.21% N/A 5.54% N/A

Balanced Fund(1)
Institutional Shares 15.52% 14.28% 15.52% 14.28%
Services Shares 9.97% 8.07% 11.36% 9.97%

Growth Fund(1)
Institutional Shares 25.02% N/A 25.02% N/A
Services Shares 18.20% N/A 19.69% N/A

MidCap Fund(1)
Institutional Shares 21.09% N/A 21.09% N/A
Service Shares 14.86% N/A 16.32% N/A

International Equity

Fund(1)
Institutional Shares 10.28% 9.42% 10.28% 9.42%
Service Shares 8.25% 7.70% 9.63% 9.07%

Growth and Income Fund
Institutional Shares(2)
8.07% 5.68% 8.07% 5.68%
Service Shares 6.39% 3.96% 7.81% 5.42%
</TABLE>

-77-
<PAGE>

Missouri Tax Free
Intermediate Bond Fund(3) 4.41% 3.72% 4.41% 3.72%

</TABLE>

- --------------------
(1) Commenced investment operations on December 12, 1994.
(2) Commenced investment operations on March 3, 1997.

(3) Commenced investment operations on February 21, 1995.

-78-
<PAGE>

Average Annual Total Returns for the one-year period ended October 31, 1999.

Short-Term Government
Fund
<S> <C> <C> <C> <C>
Institutional Shares 1.83% 1.59% 1.83% 1.59%
Service Shares (0.44)% (0.67)% 1.57% 1.34%

Bond Fund
Institutional Shares 0.59% N/A 0.59% N/A
Service Shares (3.22)% N/A 0.29% N/A

Balanced Fund
Institutional Shares 7.60% 2.83% 7.60% 2.83%
Service Shares 3.62% (1.18)% 7.38% 2.62%

Growth Fund
Institutional Shares 18.24% N/A 18.24% N/A
Service Shares 13.85% N/A 17.97% N/A

MidCap Fund
Institutional Shares 28.96% N/A 28.96% N/A
Services Shares 24.11% N/A 28.63% N/A

International Equity Fund
Institutional Shares
Service Shares 19.58% 18.96% 19.58% 18.96%
15.21% 14.60% 19.39% 18.75%

Growth and Income Fund
Institutional Shares
Service Shares 0.29% N/A 0.29% N/A
(3.49)% N/A 0.02% N/A
</TABLE>

-79-
<PAGE>

Missouri Tax Free
Intermediate Bond Fund (0.95)% (1.22)% (0.95)% (1.22)%

</TABLE>

-80-
<PAGE>

Based on the foregoing calculations, the aggregate total
returns for the Funds were as follows:

<TABLE>
<CAPTION>
Return Assuming Return Assuming
Maximum Sales Load Maximum Sales Load Return Assuming No Return Assuming No
and With Fee and Without Fee Sales Load and With Sales Load and
Waivers and Waivers and Fee Waivers and Without Fee Waivers
Reimbursements Reimbursements Reimbursements and Reimbursements
-------------- -------------- -------------- ------------------

Aggregate Total Return for the period from commencement through October 31,
1999.
<S> <C> <C> <C> <C>
Short-Term Government
Fund(1)
Institutional Shares 36.06% 33.56% 36.06% 33.56%
Service Shares 13.43% 12.10% 15.71% 14.36%

Bond Fund(1)
Institutional Shares 43.05% N/A 43.03% N/A
Service Shares 12.39% N/A 16.47% N/A

Balanced Fund(1)
Institutional Shares 102.53% 90.65% 102.53% 90.65%
Service Shares 30.87% 24.05% 35.60% 28.53%

Growth and Income Fund(2)
Institutional Shares
Service Shares 23.00% 15.07% 23.00% 15.07%
17.94% 10.37% 22.20% 14.35%

Growth Fund(1)
Institutional Shares 198.03% N/A 198.03% N/A
Service Shares 60.50% N/A 66.29% N/A

MidCap Fund(1)
Institutional Shares 154.98% N/A 154.98% N/A
Service Shares 48.02% N/A 53.39% N/A

International Equity
Fund(1)
Institutional Shares 61.36% 55.34% 61.36% 55.34%
Service Shares 25.17% 23.35% 29.72% 27.84%
</TABLE>

-81-
<PAGE>

Missouri Tax Free
Intermediate Bond Fund(3) 22.49% 18.70% 22.49% 18.70%
</TABLE>

- --------------------
(1) Commenced investment operations on December 12, 1994.
(2) Commenced investment operations on March 3, 1997.
(3) Commenced investment operations on February 21, 1995.

The average annual total return and aggregate total return
information presented for the Funds in the foregoing Tables is based on average
annual total return and aggregate total return, respectively, of Institutional
Shares of the Short-Term Government, Bond, Balanced, Growth, Growth and Income,
MidCap and International Equity Funds and Shares of the National Tax-Free
Intermediate Bond and Missouri Tax-Free Intermediate Bond Funds during the
periods indicated, as adjusted to reflect the effect of the maximum sales charge
of 2.00% on purchases of Institutional Shares of the Short-Term Government Fund
and 3.50% on purchases of Institutional Shares of the Bond, Balanced, Growth,
Growth and Income, MidCap, International Equity, National Tax-Free Intermediate
Bond and Missouri Tax-Free Intermediate Bond Funds and the maximum payments
under the Shareholder Administrative Services Plans applicable to Institutional
and Service Shares and the distribution expenses pursuant to the 12b-1 Plan
applicable to Service Shares. The sales charge was removed from the
Institutional Shares of the Short-Term Government, Bond, Balanced, Growth,
Growth and Income, MidCap and International Equity Funds as of May 29, 1998 and
was removed from the Institutional Shares of the National Tax-Free Intermediate
Bond and Missouri Tax-Free Intermediate Bond Funds as of October 31, 1998. The
average annual total returns and aggregate total returns do not include fees
that may be imposed by institutions upon their customers. If such fees had been
included in the returns reported above, performance of these Funds would have
been lower.

-82-
<PAGE>

The Funds may also from time to time include in
advertisements, sales literature, communications to shareowners and other
materials ("Literature") a total return figure in order to compare more
accurately its performance with other measures of investment return. For
example, in comparing a Fund's total return with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of an index, the Fund may
calculate its total return for the period of time specified in the advertisement
or communication by assuming the investment of $10,000 in shares and assuming
the value on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. The Fund does not, for these
purposes, deduct from the initial value invested any amount representing sales
charges. The Fund will, however, disclose the maximum sales charge and will also
disclose that the performance data do not reflect sales charges and that
inclusion of sale charges would reduce the performance quoted.

The Funds may also from time to time include discussions or
illustrations of the effects of compounding in Literature. "Compounding" refers
to the fact that, if dividends or other distributions on a Fund investment are
reinvested by being paid in additional Fund shares, any future income or capital
appreciation of the Fund would increase the value, not only of the original Fund
investment, but also of the additional Fund shares received through
reinvestment. As a result, the value of the Fund investment would increase more
quickly than if dividends or other distributions had been paid in cash.

-83-
<PAGE>

In addition, the Funds may also include in Literature
discussions and/or illustrations of the potential investment goals of a
prospective investor, investment management strategies, techniques, policies or
investment suitability of the Fund (such as value investing, market timing,
dollar cost averaging, asset allocation, constant ratio transfer, automatic
accounting rebalancing, the advantages and disadvantages of investing in
tax-deferred and taxable investments), economic conditions, the relationship
between sectors of the economy and the economy as a whole, various securities
markets, the effects of inflation and historical performance of various asset
classes, including but not limited to, stocks, bonds and Treasury securities.
From time to time, Literature may summarize the substance of information
contained in shareholder reports (including the investment composition of the
Fund), as well as the views of the Advisor as to current market, economy, trade
and interest rate trends, legislative, regulatory and monetary developments,
investment strategies and related matters believed to be of relevance to the
Fund. The Fund may also include in Literature charts, graphs or drawings which
compare the investment objective, return potential, relative stability and/or
growth possibilities of the Fund and/or other mutual funds, or illustrate the
potential risks and rewards of investment in various investment vehicles,
including but not limited to, stocks, bonds, Treasury securities and shares of
the Fund and/or other mutual funds. Literature may include a discussion of
certain attributes or benefits to be derived by an investment in the Fund and/or
other mutual funds, shareholder profiles and hypothetical investor scenarios,
timely information on financial management, tax and retirement planning and
investment alternatives to certificates of deposit and other financial
instruments. Such Literature may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail therein.

MISCELLANEOUS

As of January 27, 2000, the Advisor held of record 97% of the
outstanding shares of the Short-Term Government Fund; 91% of the outstanding
shares of the Institutional Class of the Bond Fund; 75% of the outstanding
shares of the Institutional Class of the Balanced Fund; 80% of the outstanding
shares of the Institutional Class of the Growth Fund; 87% of the outstanding
shares of the Institutional Class of the MidCap Fund; 96% of the outstanding
shares of the Institutional Class of the International Equity Fund; 96% of the
outstanding shares of the Institutional Class of the Growth & Income Fund; 93%
of the outstanding shares of the Institutional Class of the National Tax-Free
Intermediate Bond Fund; and 84% of the outstanding shares of the Institutional
Class of the Missouri Tax-Free Intermediate Bond Fund, as fiduciary or agent on
behalf of its customers.

Any persons or organizations listed above as owning 25% or
more of the outstanding shares of a Fund may be presumed to "Control" (as that
term is defined in the 1940 Act) the Fund. As a result, those persons or
organizations could have the ability to vote a majority of the shares of the
Institutional Class of a Fund on any matter requiring the approval of
shareowners of the Fund.

-84-
<PAGE>

As of January 27, 2000, the following shareowners owned of
record 5% or more of the Short-Term Government Fund's outstanding Institutional
Shares: Hoco and Co. Mutual Funds, P.O. Box 13366, Kansas City, MO, 59%; Mori
and Co. Mutual Funds, P.O. Box 13366, Kansas City, MO, 37%; and GEHA Pension
Plan, c/o Commerce Bank, N.A., 8000 Forsyth, St. Louis, MO, 5%, for which
beneficial ownership is disclaimed or presumed disclaimed.

As of the same date, the following shareowners owned of record
5% or more of the Bond Fund's outstanding Institutional Shares: Hoco and Co.
Mutual Funds, P.O. Box 13366, Kansas City, MO, 57%; and Mori and Co. Mutual
Funds, P.O. Box 13366, Kansas City, MO, 34%, for which beneficial ownership is
disclaimed or presumed disclaimed.

As of the same date, the following shareowner owned of record
5% or more of the Balanced Fund's outstanding Institutional Shares: Hoco and Co.
Mutual Funds, P.O. Box 13366, Kansas City, MO, 75%; GEHA Pension Plan, c/o
Commerce Bank, N.A., 8000 Forsyth, St. Louis, MO, 11% and Sunnen Employees
Profit Sharing Plan, c/o Commerce Bank, N.A., 8000 Forsyth, St. Louis, MO, 10%,
for which beneficial ownership is disclaimed or presumed disclaimed.

As of the same date, the following shareowners owned of record
5% or more of the Growth and Income Fund's outstanding Institutional Shares:
Hoco and Co. Mutual Funds, P.O. Box 13366, Kansas City, MO, 61%; and Mori and
Co. Mutual Funds, P.O. Box 13366, Kansas City, MO, 36%, for which beneficial
ownership is disclaimed or presumed disclaimed.

As of the same date, the following shareowners owned of record
5% or more of the Growth Fund's outstanding Institutional Shares: Hoco and Co.
Mutual Funds, P.O. Box 13366, Kansas City, MO, 66%; Mori and Co. Mutual Funds,
P.O. Box 13366, Kansas City, MO, 13%; Sunnen Employees Profit Sharing Plan, c/o
Commerce Bank, N.A., 8000 Forsyth, St. Louis, MO, 63105, 9%; and Investor
Fiduciary Trust Co., Attn: Trust Operations, 801 Pennsylvania Ave., Kansas City,
MO, 6%, for which beneficial ownership is disclaimed or presumed disclaimed.

As of the same date, the following shareowners owned of record
5% or more of the MidCap Fund's outstanding Institutional Shares: Hoco and Co.
Mutual Funds, P.O. Box 13366, Kansas City, MO, 62%; Mori and Co. Mutual Funds,
P.O. Box 13366, Kansas City, MO, 24%; and Sunnen Employees Profit Sharing Plan,
c/o Commerce Bank, N.A., 8000 Forsyth, St. Louis, MO, 6%, for which beneficial
ownership is disclaimed or presumed disclaimed.

As of the same date, the following shareowners owned of record
5% or more of the International Equity Fund's outstanding Institutional Shares:
Hoco and Co. Mutual Funds, P.O. Box 13366, Kansas City, MO, 68%; Mori and Co.
Mutual Funds, P.O. Box 13366,

-85-
<PAGE>

Kansas City, MO, 26%; and Enterprise Rent-A-Car International, c/o Commerce
Bank, N.A., 8000 Forsyth, St. Louis, MO, 14%.

As of the same date, the following shareowners owned of record
5% or more of the National Tax-Free Intermediate Bond Fund's outstanding
Institutional Shares: Mori and Co. Mutual Funds, P.O. Box 13366, Kansas City,
MO, 67%, for which beneficial ownership is disclaimed or presumed disclaimed;
Hoco and Co. Mutual Funds, P.O. Box 13366, Kansas City, MO, 26%; and Helen
Pierson Trust, c/o Commerce Bank, N.A., 8000 Forsyth, St. Louis, MO, 63105, 9%,
for which beneficial ownership is disclaimed or presumed disclaimed.

As of the same date, the following shareowners owned of record
5% or more of the Missouri Tax-Free Intermediate Bond Fund's outstanding
Institutional Shares: Mori and Co. Mutual Funds, P.O. Box 13366, Kansas City,
MO, 67%; and Hoco and Co. Mutual Funds, P.O. Box 13366, Kansas City, MO, 17%,
for which beneficial ownership is disclaimed or presumed disclaimed.

As of the same date, the following shareowners owned 5% or
more of the Short-Term Government Fund's outstanding Service Shares: Fringe
Benefits - Rockhurst High, Mutual Fund Processing, P.O. Box 13366, Kansas City,
MO 64199-3366, 21%; Juanita Phillips, 3035 E. Glenwood, Springfield, MO
65804-4199, 10%; and IRA Rollover, Charles J. Hart, 7355 Shaftesbury Avenue, St.
Louis, MO 63130-2243, 5%.

As of the same date, the following shareowners owned 5% or
more of the Bond Fund's outstanding Service Shares: Fringe Benefits - Rockhurst
High, Mutual Fund Processing, P.O. Box 13366, Kansas City, MO 64199-3366, 31%.

As of the same date, the following shareowner owned 5% or more
of the Balanced Fund's outstanding Service Shares: Fringe Benefits - Rockhurst
High, P.O. Box 13366, Kansas City, MO, 6%.

As of the same date, the following shareowner owned 5% or more
of the Growth and Income Fund's outstanding Service Shares: IRA, FBO, Deborah J.
Groves, 3029 Mimosa St. #2, Cape Girardeau, MO 63701-8243, 9%; Surgical Arts of
St. Louis Ltd., Robert V. Cralle TTEE, 11125 Dunn Road, Suite 301, St. Louis, MO
63136-6172, 5%.

As of the same date, the following shareowner owned 5% or more
of the Growth Fund's outstanding Service Shares: Fringe Benefits - Rockhurst
High, Mutual Fund Processing, P.O. Box 13366, Kansas City, MO 64199-3366, 7%.

As of the same date, the following shareowners owned 5% or
more of the MidCap Fund's outstanding Service Shares: Gary L. Fisher Tr. East
St. Louis Police

-86-
<PAGE>

Pension Fund, P.O. Box 607, E. St. Louis, IL 62202-0607, 15%; Earl E. & Myrtle
E. Walker Fndtn., 12071 Carberry Pl., St. Louis, MO 63131-3123, 11%; Kathleen S.
Muller, John D. Muller, 4739 Belleview, Kansas City, MO 64112-1316, 7%; Earl E.
Walker TTEE Earl E. Walker, II Amend. Indenture of Tr. U/A, 12071 Carberry Pl.,
St. Louis, MO 63131-3123, 6%; Myrtle E. Walker TTEE Myrtle E. Walker Indenture
of Tr. U/A 11/9/82, 12070 Carberry Pl., St. Louis, MO 63131-3123, 6%.

As of the same date, the following shareowners owned 5% of the
International Equity Fund's outstanding Service Shares: Boulevard Enterprises, A
Partnership, 2533 Southwest Blvd., Kansas City, MO 64108-2345, 17%; Columbus
Circle Trust Company Custody FBO DCCCA Inc., 403B, Metro Center, 1 Station Pl.,
Stamford, CT 06902-6800, 10%.

As used in the Statement of Additional Information and in the
Prospectuses of the same date, "assets belonging to a particular series of a
Fund" means the consideration received by The Commerce Funds upon the issuance
or sale of shares in that particular series of the Fund, together with all
income, earnings, profits and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange or liquidation of such
investments, any funds or payments derived from any reinvestments of such
proceeds, and a portion of any general assets of the Fund not belonging to a
particular series of the Fund. Assets belonging to a particular series of the
Fund are charged with the direct liabilities in respect of that particular
series of the Fund and with a share of the general liabilities of the particular
series of the Fund which are normally allocated in proportion to the relative
net asset levels of the respective series and Funds. Determinations by the Board
of Trustees as to the direct and allocable liabilities, and allocable portion of
any general assets, with respect to a particular series or Fund are conclusive.

FINANCIAL STATEMENTS

The Commerce Funds' Annual Report with respect to the Funds
for the fiscal year ended October 31, 1999 has been filed with the Securities
and Exchange Commission. The financial statements in such Annual Report (the
"Financial Statements") are incorporated by reference into this Statement of
Additional Information. The Financial Statements included in the Annual Report
for the Funds for the fiscal period ended October 31, 1999 have been audited by
The Commerce Funds' independent accountants, KPMG LLP, whose report thereon also
appears in such Annual Report and is incorporated herein by reference. The
Financial Statements in such Annual Report have been incorporated herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.

-87-
<PAGE>

APPENDIX A

Commercial Paper Ratings

A Standard & Poor's commercial paper rating is a current
opinion of the creditworthiness of an obligor with respect to financial
obligations having an original maturity of no more than 365 days. The following
summarizes the rating categories used by Standard and Poor's for commercial
paper:

"A-1" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.

"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.

"A-3" - Obligations exhibit adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.

"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.

"D" - Obligations are in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating will be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.

Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:

A-1
<PAGE>

"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure 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.

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

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

"Not Prime" - Issuers do not fall within any of the Prime
rating categories.

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

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

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

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

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

A-2
<PAGE>

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

"D-4" - Debt possesses 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.

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

Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:

"F1" - Securities possess the highest credit quality. This
designation indicates the best capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.

"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.

"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.

"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.

"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.

"D" - Securities are in actual or imminent payment default.

Thomson Financial BankWatch short-term ratings assess the
likelihood of an untimely payment of principal and interest of debt instruments
with original maturities of one year or less. The following summarizes the
ratings used by Thomson Financial BankWatch:

A-3
<PAGE>

"TBW-1" - This designation represents Thomson Financial
BankWatch's highest category and indicates a very high likelihood that principal
and interest will be paid on a timely basis.

"TBW-2" - This designation represents Thomson Financial
BankWatch's second-highest category and indicates that while the degree of
safety regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."

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

"TBW-4" - This designation represents Thomson Financial
BankWatch's lowest rating category and indicates that the obligation is regarded
as non-investment grade and therefore speculative.

Corporate and Municipal Long-Term Debt Ratings
- ----------------------------------------------

The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:

"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.

"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.

"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.

"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded
as having significant speculative characteristics. "BB" indicates the least
degree of speculation and "C" the highest. While such obligations will likely
have some quality and protective

A-4
<PAGE>

characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.

"BB" - An obligation rated "BB" is less vulnerable to
nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.

"B" - An obligation rated "B" is more vulnerable to nonpayment
than obligations rated "BB," but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, financial or
economic conditions will likely impair the obligor's capacity or willingness to
meet its financial commitment on the obligation.

"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.

"CC" - An obligation rated "CC" is currently highly vulnerable
to nonpayment.

"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.

"D" - An obligation rated "D" is in payment default. The "D"
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace period. The
"D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.

PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.

"c" - The `c' subscript is used to provide additional
information to investors that the bank may terminate its obligation to purchase
tendered bonds if the long-term credit rating of the issuer is below an
investment-grade level and/or the issuer's bonds are deemed taxable.

"p" - The letter `p' indicates that the rating is provisional.
A provisional rating assumes the successful completion of the project financed
by the debt being rated and indicates that payment of debt service requirements
is largely or entirely dependent

A-5
<PAGE>

upon the successful, timely completion of the project. This rating, however,
while addressing credit quality subsequent to completion of the project, makes
no comment on the likelihood of or the risk of default upon failure of such
completion. The investor should exercise his own judgment with respect to such
likelihood and risk.

* Continuance of the ratings is contingent upon Standard &
Poor's receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.

"r" - The `r' highlights derivative, hybrid, and certain other
obligations that Standard & Poor's believes may experience high volatility or
high variability in expected returns as a result of noncredit risks. Examples of
such obligations are securities with principal or interest return indexed to
equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an `r'
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.

N.R. Not rated. Debt obligations of issuers outside the United
States and its territories are rated on the same basis as domestic corporate and
municipal issues. The ratings measure the creditworthiness of the obligor but do
not take into account currency exchange and related uncertainties.

The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:

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

"A" - Bonds 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.

A-6
<PAGE>

"Baa" - Bonds 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," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.

Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operating experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.

Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa." The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.

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

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

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

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

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

"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk

A-7
<PAGE>

that obligations will not be met when due. Debt rated "CCC" is well below
investment grade and has considerable uncertainty as to timely payment of
principal, interest or preferred dividends. Debt rated "DD" is a defaulted debt
obligation, and the rating "DP" represents preferred stock with dividend
arrearages.

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

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

"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.

"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.

"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.

"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is the lowest
investment grade category.

"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.

"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.

A-8
<PAGE>

"CCC," "CC" and "C" - Bonds have high default risk. Default is
a real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.

"DDD," "DD" and "D" - Bonds are in default. The ratings of
obligations in this category are based on their prospects for achieving partial
or full recovery in a reorganization or liquidation of the obligor. While
expected recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have the
highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.

Entities rated in this category have defaulted on some or all
of their obligations. Entities rated "DDD" have the highest prospect for
resumption of performance or continued operation with or without a formal
reorganization process. Entities rated "DD" and "D" are generally undergoing a
formal reorganization or liquidation process; those rated "DD" are likely to
satisfy a higher portion of their outstanding obligations, while entities rated
"D" have a poor prospect for repaying all obligations.

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

`NR' indicates the Fitch IBCA does not rate the issuer or
issue in question.

`Withdrawn': A rating is withdrawn when Fitch IBCA deems the
amount of information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.

RatingAlert: Ratings are placed on RatingAlert to notify
investors that there is a reasonable probability of a rating change and the
likely direction of such change. These are designated as "Positive," indicating
a potential upgrade, "Negative," for a potential downgrade, or "Evolving," if
ratings may be raised, lowered or maintained. RatingAlert is typically resolved
over a relatively short period.

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

A-9
<PAGE>

"AAA" - This designation indicates that the ability to repay
principal and interest on a timely basis is extremely high.

"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highest category.

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

"BBB" - This designation represents the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.

"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.

"D" - This designation indicates that the long-term debt is in
default.

PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.

Municipal Note Ratings
- ----------------------

A Standard and Poor's note rating reflects the liquidity
factors and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:

"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess a
very strong capacity to pay debt service are given a plus (+) designation.

"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.

"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.

A-10
<PAGE>

Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:

"MIG-1"/"VMIG-1" - This designation denotes best quality.
There is present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.

"MIG-2"/"VMIG-2" - This designation denotes high quality.
Margins of protection are ample although not so large as in the preceding group.

"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.

"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.

"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.

Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.

A-11
<PAGE>

APPENDIX B

The Growth, MidCap, International Equity, Balanced, Bond,
National Tax-Free Intermediate Bond and Missouri Tax-Free Intermediate Bond
Funds may enter into futures contracts and options. Such transactions are
described in this Appendix.

I. Interest Rate Futures Contracts.
-------------------------------

Use of Interest Rate Futures Contracts. Bond prices are
---------------------------------------
established in both the cash market and the futures market. In the cash market,
bonds are purchased and sold with payment for the full purchase price of the
bond being made in cash, generally within five business days after the trade. In
the futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.

A Fund presently could accomplish a similar result to that
which it hopes to achieve through the use of futures contracts by selling bonds
with long maturities and investing in bonds with short maturities when interest
rates are expected to increase, or conversely, selling short-term bonds and
investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures market
the protection is more likely to be achieved, perhaps at a lower cost and
without changing the rate of interest being earned by the Fund, by using futures
contracts.

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

B-1
<PAGE>

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

Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges -- principally, the Chicago Board
of Trade and the Chicago Mercantile Exchange and the New York Futures Exchange.
The Funds would deal only in standardized contracts on recognized exchanges.
Each exchange guarantees performance under contract provisions through a
clearing corporation, a nonprofit organization managed by the exchange
membership.

A public market now exists in futures contracts covering
various financial instruments including long-term Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities, three-month Treasury Bills; and ninety-day
commercial paper. A Fund may trade in any futures contract for which there
exists a public market, including, without limitation, the foregoing
instruments.

II. Stock Index Futures Contracts.
-----------------------------

General. A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market values
of the stocks included. Some stock index futures contracts are based on broad
market indexes, such as the Standard & Poor's 500 or the New York Stock Exchange
Composite Index. In contrast, certain exchanges offer futures contracts on
narrower market indexes, such as the Standard & Poor's 100 or indexes based on
an industry or market segment, such as oil and gas stocks. Futures contracts are
traded on organized exchanges regulated by the Commodity Futures Trading
Commission. Transactions on such exchanges are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.

A Fund will sell index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise result
from a market decline. A Fund may do so either to hedge the value of its
portfolio as a whole, or to protect against declines, occurring prior to sales
of securities, in the value of the securities to be sold. Conversely, a Fund
will purchase index futures contracts in anticipation of purchases of
securities. In a

B-2
<PAGE>

substantial majority of these transactions, a Fund will purchase such securities
upon termination of the long futures position, but a long futures position may
be terminated without a corresponding purchase of securities.

In addition, a Fund may utilize stock index futures contracts
in anticipation of changes in the composition of its holdings. For example, in
the event that a Fund expects to narrow the range of industry groups represented
in its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. A Fund may also
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of its portfolio will decline prior to the time of sale.

III. Futures Contracts on Foreign Currencies.
---------------------------------------

A futures contract on foreign currency creates a binding
obligation on one party to deliver, and a corresponding obligation on another
party to accept delivery of, a stated quantity of a foreign currency, for an
amount fixed in U.S. dollars. Foreign currency futures may be used by a Fund to
hedge against exposure to fluctuations in exchange rates between the U.S. dollar
and other currencies arising from multinational transactions.

IV. Margin Payments.
---------------

Unlike when a Fund purchases or sells a security, no price is
paid or received by a Fund upon the purchase or sale of a futures contract.
Initially, a Fund will be required to deposit with the broker or in a segregated
account with a Fund's custodian an amount of cash or cash equivalents, the value
of which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instrument fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
"marking-to-market." For example, when a Fund has purchased a futures contract
and the price of the contract has risen in response to a rise in the underlying
instruments, that position will have increased in value a Fund will be entitled
to receive from the broker a variation margin payment equal to that increase in
value. Conversely, where a Fund has purchased a futures contract and the price
of the future contract has declined in response to a decrease in the underlying
instruments, the position would be less valuable and a Fund would be required to
make a variation margin payment to the broker. At any time prior to expiration
of the futures contract, The Commerce Funds may elect to close the position by
taking an opposite

B-3
<PAGE>

position, subject to the availability of a secondary market, which will operate
to terminate a Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to a Fund, and a Fund realizes a loss or gain.

V. Risks of Transactions in Futures Contracts.
------------------------------------------

There are several risks in connection with the use of futures
by a Fund as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the futures and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being hedged.
If the price of the futures moves less than the price of the securities which
are the subject of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in an unfavorable direction, the
Fund would be in a better position than if it had not hedged at all. If the
price of the securities being hedged has moved in a favorable direction, this
advantage will be partially offset by the loss on the future. If the price of
the future moves more than the price of the hedged securities, a Fund involved
will experience either a loss or gain on the future which will not be completely
offset by movements in the price of the securities which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of securities being hedged if the volatility over a particular time
period of the prices of such securities has been greater than the volatility
over such time period of the future, or if otherwise deemed to be appropriate by
The Commerce Funds. Conversely, a Fund may buy or sell fewer futures contracts
if the volatility over a particular time period of the prices of the securities
being hedged is less than the volatility over such time period of the future
contract being used, or if otherwise deemed to be appropriate by The Commerce
Funds. It is also possible that, where a Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of securities held in a Fund may decline. If this occurred, a Fund would lose
money on the future and also experience a decline in value in its portfolio
securities.

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

In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain

B-4
<PAGE>

market distortions. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through off-setting transactions which
could distort the normal relationship between the cash and futures markets.
Second, with respect to financial futures contracts, the liquidity of the
futures market depends on participants entering into off-setting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced thus
producing distortions. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may also cause temporary price distortions. Due to the
possibility of price distortion in the futures market, and because of the
imperfect correlation between the movements in the cash market and movements in
the price of futures, a correct forecast of general market trends or interest
rate movements by The Commerce Funds may still not result in a successful
hedging transaction over a short time frame.

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

Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at a
price beyond the limit, thus preventing the liquidation of open futures
positions. The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.

Successful use of futures by the Funds is also subject to The
Commerce Funds' ability to predict correctly movements in the direction of the
market. For example, if a particular Fund has hedged against the possibility of
a decline in the market adversely affecting securities held in its Portfolio and
securities prices increase instead, a Fund will lose part or all of the benefit
to the increased value of its securities which it has hedged because it will

B-5
<PAGE>

have offsetting losses in its futures positions. In addition, in such
situations, if a Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market. A
Fund may have to sell securities at a time when it may be disadvantageous to do
so.

VI. Options on Futures Contracts
----------------------------

The Funds may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing, an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss.

Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase or sale of an option also entails the risk that changes
in the value of the underlying futures contract will not be fully reflected in
the value of the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Fund because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). The writing of an option on a futures contract involves risks similar to
those risks relating to the sale of futures contracts. Although permitted by
their fundamental investment policies, the Funds do not currently intend to
write futures options during the current fiscal year, and will not do so in the
future absent any necessary regulatory approvals.

VII. Accounting and Tax Treatment.
----------------------------

Accounting for futures contracts and options will be in
accordance with generally accepted accounting principles.

Generally, futures contracts held by the Funds at the close of
the Funds' taxable year will be treated for federal income tax purposes as sold
for their fair market value on the last business day of such year, a process
known as "mark-to-market." Forty

B-6
<PAGE>

percent of any gain or loss resulting from such constructive sale will be
treated as short-term capital gain or loss and sixty percent of such gain or
loss will be treated as long-term capital gain or loss without regard to the
length of time a Fund holds the futures contract ("the 40-60 rule"). The amount
of any capital gain or loss actually realized by a Fund in a subsequent sale or
other disposition of those futures contracts will be adjusted to reflect any
capital gain or loss taken into account by a Fund in a prior year as a result of
the constructive sale of the contracts. With respect to futures contracts to
sell, which will be regarded as parts of a "mixed straddle" because their values
fluctuate inversely to the values of specific securities held by a Fund, losses
as to such contracts to sell will be subject to certain loss deferral rules
which limit the amount of loss currently deductible on either part of the
straddle to the amount thereof which exceeds the unrecognized gain (if any) with
respect to the other part of the straddle, and to certain wash sales
regulations. Under short sales rules, which will also be applicable, the holding
period of the securities forming part of the straddle will (if they have not
been held for the long-term holding period) be deemed not to begin prior to
termination of the straddle. With respect to certain futures contracts,
deductions for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures contracts to
sell which are properly identified as such, a Fund may make an election which
will exempt (in whole or in part) those identified futures contracts from being
treated for federal income tax purposes as sold on the last business day of a
Fund's taxable year, but gains and losses will be subject to such short sales,
wash sales, loss deferral rules and the requirement to capitalize interest and
carrying charges. Under temporary regulations, a Fund would be allowed (in lieu
of the foregoing) to elect either (1) to offset gains or losses from portions
which are part of a mixed straddle by separately identifying each mixed straddle
to which such treatment applies, or (2) to establish a mixed straddle account
for which gains and losses would be recognized and offset on a periodic basis
during the taxable year. Under either election, the 40-60 rule will apply to the
net gain or loss attributable to the futures contracts, but in the case of a
mixed straddle account election, no more than 50% of any net gain may be treated
as long-term and no more than 40% of any net loss may be treated as short-term.
Opinions on futures contracts generally receive federal tax treatment similar to
that described above.

Certain foreign currency contracts entered into by the Funds
may be subject to the "mark-to-market" process. If the Fund makes a Capital
Asset Election with respect to such contracts, the contracts will be subject to
the 40-60 rule, described above. Otherwise, such gain or loss will be treated as
100% ordinary gain or loss. To receive such federal income tax treatment, a
foreign currency contract must meet the following conditions: (1) the contract
must require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department as has broad authority
to issue regulations under the provisions respecting foreign currency contracts.
As of the date of this Statement of Additional Information, the Treasury has not
issued any such

B-7
<PAGE>

regulations. Foreign currency contracts entered into by a Fund may result in the
creation of one or more straddles for federal income tax purposes, in which case
certain loss deferral, short sales, and wash sales rules and the requirement to
capitalize interest and carrying charges may apply.

Some investments may be subject to special rules which govern
the federal income tax treatment of certain transactions denominated in terms of
a currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury regulations, preferred stock); (ii) the accruing of
certain trade receivables and payables; and (iii) the entering into or
acquisition of any forward contract, futures contract, option and similar
financial instrument. However, regulated futures contracts and non-equity
options are generally not subject to the special currency rules if they are or
would be treated as sold for their fair market value at year-end under the
"mark-to-market" rules, unless an election is made to have such currency rules
apply. The disposition of a currency other than the U.S. dollar by a U.S.
taxpayer is also treated as a transaction subject to the special currency rules.
With respect to transactions covered by the special rules, foreign currency gain
or loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. A taxpayer may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts, futures contracts and options that
are capital assets in the hands of the taxpayer and which are not part of a
straddle. In accordance with Treasury regulations, certain transactions subject
to the special currency rules that are part of a "section 988 hedging
transaction" (as defined in the Code and the Treasury regulations) will be
integrated and treated as a single transaction or otherwise treated consistently
for purposes of the Code. "Section 988 hedging transactions" are not subject to
the mark-to-market or loss deferral rules under the Code. It is anticipated that
some of the non-U.S. dollar denominated investments and foreign currency
contracts that a Fund may make or may ender into will be subject to the special
currency rules described above. Gain or loss attributable to the foreign
currency component of transactions engaged in by the Funds which are not subject
to special currency rules (such as foreign equity investments other than certain
preferred stocks) will be treated as capital gain or loss and will not be
segregated from the gain or loss on the underlying transaction.

Under the federal income tax provisions applicable to
regulated investment companies, less than 30% of a company's gross income must
be derived from gains realized on the sale or other disposition of securities
held for less than three months. With respect to futures contracts and other
financial instruments subject to the "mark-to-market" rules, the Internal
Revenue Service has ruled in private letter rulings that a gain realized from
such a futures contract or financial instrument will be treated as being derived
from a security held for three months or more (regardless of the actual period
for which the contract or instrument is held) if the gain arises as a result of
a constructive

B-8
<PAGE>

sale under the "mark-to-market" rules, and will be treated as
being derived from a security held for less than three months only if the
contract or instrument is terminated (or transferred) during the taxable year
(other than by reason of the mark-to-market rules) and less than three months
have elapsed between the date the contract or instrument is acquired and the
termination date. In determining whether the 30% test is met for a taxable year,
increases and decreases in the value of the Funds' futures contracts and other
investments that qualify as part of a "designated hedge," as defined in the
Code, may be netted.

B-9
<PAGE>

THE COMMERCE FUNDS
FORM N-1A

PART C. OTHER INFORMATION

Item 23. EXHIBITS

(a) Trust Instrument dated February 7, 1994./1/
(b) Bylaws of Registrant./1/
(c) Not applicable.

(d) (1) Advisory Agreement among Registrant, Commerce
Bank, N.A. (St. Louis) and Commerce Bank, N.A.
(Kansas City)./1/

(2) Sub-Advisory Agreement among Commerce Bank, N.A.
(St. Louis), Commerce Bank, N.A. (Kansas City) and
Rowe PriceFleming International, Inc./1/

(3) Addendum No. 1 to Advisory Agreement among
Registrant, Commerce Bank, N.A. (St. Louis) and
Commerce Bank, N.A. (Kansas City) with respect to
the Growth and Income Fund./3/

(e) Distribution Agreement between Registrant and Goldman,
Sachs & Co./3/

(1) Addendum No. 1 to Distribution Agreement between
Registrant and Goldman, Sachs & Co. with respect
to the Growth and Income Fund./3/

(f) Deferred Compensation Plan and Forms of Agreement./5/

(g) (1) Custodian Agreement between Registrant and State
Street Bank and Trust Company./1/

(h) (1) Administration Agreement between Registrant and
Goldman Sachs Asset Management./1/

(2) Addendum No. 1 to Administration Agreement between
Registrant and Goldman Sachs Asset Management with
respect to the Growth and Income Fund./3/

(3) Transfer Agency Agreement between Registrant and
State Street Bank and Trust Company./1/

C-1
<PAGE>

(4) Amended and Restated Shareholder Administrative
Services Plan for Institutional Shares and
related Servicing Agreement./5/

(5) Amended and Restated Shareholder Administrative
Services Plan for Service Shares and related
Servicing Agreement./5/

(i) Opinion of Counsel./4/

(j) (1) Consent of Drinker Biddle & Reath LLP.

(2) Consent of Independent Auditors.

(k) Not Applicable.

(l) (1) Purchase Agreement between Registrant and Initial
Trustee./1/

(2) Purchase Agreement between Registrant and Goldman,
Sachs & Co./1/

(3) Purchase Agreement between Registrant and Commerce
Bank, N.A. (Kansas City)./1/

(4) Purchase Agreement between Registrant and Goldman,
Sachs & Co./3/

(m) Amended and Restated Distribution Plan for Service
Shares./2/

(n) Amended and Restated Plan Pursuant to Rule 18f-3 for
Operation of a Multi-Class System./4/

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

1. Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 1 to Registrant's Registration Statement on
Form N-1A filed on June 30, 1995.

2. Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 4 to, Registrant's Registration Statement on
Form N-1A filed on December 13, 1996.

3. Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 6 to Registrant's Registration Statement
on Form N-1A filed on September 16, 1997.

C-2
<PAGE>

4. Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 7 to Registrant's Registration Statement on
Form N-1A filed on March 2, 1998.

5. Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 8 to Registrant's Registration Statement on
Form N-1A filed on December 18, 1998.

Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
-----------------------------------------------------------

Registrant is controlled by its Board of Trustees. As of the date of
this Registration Statement, no person is controlled by or under
common control with the Registrant.

Item 25. INDEMNIFICATION
----------------

Section IV of the Administration Agreement and Section XIII of the
Distribution Agreement between the Registrant and Goldman, Sachs & Co.
("Goldman") provides for indemnification of Goldman in connection with certain
claims and liabilities to which Goldman, in its capacity as Registrant's
Administrator and Distributor, may be subject. Copies of the Administration
Agreement and Distribution Agreement are incorporated herein by reference as
Exhibits 23(e) and (h), respectively.

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

In addition, Section 10.2 of Registrant's Trust Instrument, a copy of
which is incorporated herein by reference as Exhibit 23(a), provides for
indemnification of the Trustees and officers as follows:

Section 10.2 Indemnification. The Trust shall indemnify each of its
----------------
Trustees against all liabilities and expenses (including amounts paid
in satisfaction of judgments, in compromise, as fines and penalties,
and as counsel fees) reasonably incurred by him in connection with the
defense or disposition of any action, suit or other proceeding,
whether civil or criminal, in which he may be involved or with which
he may be threatened, while as a Trustee or thereafter, by reason of
his being or having been such a Trustee except with respect to any
------
matter as to which he shall have been adjudicated to have acted in bad
faith, willful misfeasance, gross negligence or reckless disregard of
his duties, provided that as to any matter disposed of by a compromise
--------
payment by such person, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses
shall be provided unless the Trust shall have received a written
opinion from independent legal counsel approved by the Trustees to the
effect that if either the matter or willful misfeasance, gross

C-3
<PAGE>

negligence or reckless disregard of duty, or the matter of bad faith had been
adjudicated, it would in the opinion of such counsel have been adjudicated in
favor of such person. The rights accruing to any person under these provisions
shall not exclude any other right to which he may be lawfully entitled,
provided that no person may satisfy any right of indemnity or reimbursement
hereunder except out of the property of the Trust. The Trustees may make advance
payments in connection with the indemnification under this Section 10.2,
provided that the indemnified persons hall have given a written undertaking
to reimburse the Trust in the event it is subsequently determined that he is
not entitled to such indemnification.

The Trust shall indemnify offices, and shall have the power to indemnify
representatives and employees of the Trust, to the same extent that Trustees are
entitled to indemnification pursuant to this Section 10.2.

Section 10.3 of Registrant's Trust Instrument provides for indemnification of
shareholder as follows:

Section 10.3 Shareholders. In case any Shareholder or former Shareholder
of any Series shall be held to be personally liable solely by reason of his
being or having been a Shareholder of such Series and not because of his acts or
omissions or for some other reason, the Shareholder or former Shareholder (or
his heirs, executors, administrators or other legal representatives, or in the
case of a corporation or other entity, its corporate or other general successor)
shall be entitled out of the assets belonging to the applicable Series to be
held harmless from and indemnified against all loss and expense arising from
such liability. The Trust. on behalf of the affected Series, shall, upon request
by the Shareholder, assume the defense of any claim made against the Shareholder
for any act or obligation of the Series and satisfy any judgment thereon from
the assets of the Series.

Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to Trustees, officers or controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a Trustee, officer or controlling person of 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,
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 Act and will governed by the final adjudication of such issue.

Item 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER

C-4
<PAGE>

(a) Commerce Bank, N.A., the Registrant's investment adviser, provides
a comprehensive range of financial services including investment management,
trust, retail, commercial, brokerage, and correspondent banking services.

Set forth below is a list of all of the directors and senior executive
officers or Commerce Bank, N.A. and, with respect to each such person, the name
and business address of the company or companies (if any) with which such person
has been connected at any time since November 1, 1997, as well as the capacity
in which such person was connected.

<TABLE>
<CAPTION>
========================================================================================
<S> <C> <C>
Name and Position with Name and Principal Connection with Other
Commerce Bank, N.A. Business Address of Other Company
Company
- ----------------------------------------------------------------------------------------
Mr. John O. Brown, Key Industries, Inc. Director
Vice Chairman and Director 523 East Wall
Ft. Scott, KS 66701-1554
- ----------------------------------------------------------------------------------------
Mr. Jonathan M. Kemper Tower Properties Company Director
Vice Chairman and Director 911 Main Street, Suite 100
Kansas City, MO 64106

Commerce Bancshares, Inc. Vice Chairman
1000 Walnut Street
Kansas City, MO 64106
- ----------------------------------------------------------------------------------------
Mr. Edward J. Reardon II None None
Executive Vice President and
Director
- ----------------------------------------------------------------------------------------
Mr. Robert C. Matthews, Jr. None None
Executive Vice President and
Director
- ----------------------------------------------------------------------------------------
</TABLE>

C-5

<PAGE>

<TABLE>
<CAPTION>
====================================================================================================
<S> <C> <C>
Name and Position with Name and Principal Connection with Other
Commerce Bank, N.A. Business Address of Other Company
Company
- ----------------------------------------------------------------------------------------------------

Mr. David W. Kemper Tower Properties Company Director
Chairman, President, CEO and 911 Main Street, Suite 100
Director Kansas City, MO 64106

Commerce Bancshares, Inc. Chairman, President and Chief
1000 Walnut Street Executive Officer
Kansas City, MO 64106

Business Men's Assurance Director
Company of America
One Penn Valley Park
Kansas City, MO 64108

Seafield Capital Corporation Director
2600 Grand Avenue Suite 500
Kansas City, MO 64108

Wave Technologies International, Director
Inc.
10845 Olive Blvd.
St. Louis, MO 63146

Ralcorp Holdings, Inc. Director
901 Chouteau Avenue
St. Louis, MO 63102
- ----------------------------------------------------------------------------------------------------
Mr. Seth M. Leadbeater None None
Executive Vice President and
Director
====================================================================================================
</TABLE>

(b) The information required by this Item 26 with respect to each
director and officer of Rowe Price-Fleming International, Inc. is incorporated
by reference to Form ADV and Schedules A and D filed by Rowe Price-Fleming
International, Inc. with the Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940 (File No. 801-14713).

Item 27. PRINCIPAL UNDERWRITERS
----------------------

(a) Goldman, Sachs & Co., or an affiliate or a division thereof,
currently serves as investment adviser and distributor of the units or shares of
Goldman Sachs Trust and Trust for Credit Unions, and as administrator and
distributor for the units of The Benchmark Funds and The Commerce Funds.

C-6

<PAGE>

(b) Set forth below is certain information pertaining to the executive
committee of Goldman Sachs & Co., Registrant's principal underwriter. None of
the members of the executive committee hold positions or offices with the
Registrant.

GOLDMAN SACHS EXECUTIVE COMMITTEE

Name and Principal
Business Address Position
---------------- --------

Jon S Corzine (1) Managing Director
Robert J Hurst (1) Managing Director
Henry M. Paulson, Jr. (1) Managing Director
John A. Thain (3) Managing Director
John L. Thornton (3) Managing Director
Roy J. Zuckerberg (2) Managing Director

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

(1) 85 Broad Street, New York, NY 10004
(2) One New York Plaza, New York, NY 10004
(3) Peterborough Court, 133 Fleet Street, London
EC4A 2BB, England

Item 28. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------

(1) Commerce Bank, N.A. 8000 Forsyth Boulevard, Clayton, Missouri, and 1000
Walnut Street, Kansas City, Missouri (records relating to their functions
as investment adviser to each of Registrant's vestment portfolios).

(2) Rowe-Price Fleming International, Inc., 100 East Pratt Street, Baltimore,
Maryland (records relating to its function as sub-investment adviser to
Registrant's International Equity Fund).

(3) Goldman, Sachs & Co, 32 Old Slip, New York, New York (records
relating to its function as administrator and distributor to each of
Registrant's investment portfolios).

(4) State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts (records relating to its function as custodian and transfer
agent to each of Registrant's investment portfolios).

(5) Drinker Biddle & Realth LLP, - One Logan Square 18th and Cherry Streets,
Philadelphia, Pennsylvania 19103-6996 (Registrant's Trust Instrument,
By-Laws and minute books).

C-7
<PAGE>

Item 29. MANAGEMENT SERVICES
--------------------

Not Applicable.

Item 30. UNDERTAKINGS
------------

Not Applicable.

C-8
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment No. 10 to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Mission
Hills, State of Kansas, on the 25th day of February, 2000.

THE COMMERCE FUNDS
Registrant

/s/ Warren W. Weaver
--------------------
Warren W. Weaver
President

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

Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Randall D. Barron
- ---------------------
Randall D. Barron Trustee, Treasurer February 25, 2000

/s/ David L. Bodde
- ------------------
David L. Bodde Trustee February 25, 2000

/s/ John Eric Helsing
- ---------------------
John Eric Helsing Trustee, Chairman February 25, 2000

/s/ John Joseph Holland
- ------------------------
John Joseph Holland Trustee February 25, 2000

/s/ Warren W. Weaver
- --------------------
Warren W. Weaver Trustee, President February 25, 2000

</TABLE>
<PAGE>

THE COMMERCE FUNDS
------------------

EXHIBIT INDEX
-------------

Exhibits
--------

23(j)(1) Consent of Drinker Biddle & Reath LLP.

23(j)(2) Consent of Independent Auditors.

<PAGE>

EXHIBIT 23(j)(1)

CONSENT OF COUNSEL
------------------

We hereby consent to the use of our name and to the reference to our Firm
under the caption "Counsel" in the Statement of Additional Information included
in Post-Effective Amendment No. 10 to the Registration Statement (1933 Act No.
33-80966; 1940 Act No. 811-8598) on Form N-1A under the Securities Act of 1933
and the Investment Company Act of 1940, as amended, of The Commerce Funds. This
consent does not constitute a consent under Section 7 of the Securities Act of
1933, and in consenting to the use of our name and the references to our Firm
under such caption we have not certified any part of the Registration Statement
and do not otherwise come within the categories of persons whose consent is
required under said Section 7 or the rules and regulations of the Securities and
Exchange Commission thereunder.

/s/ Drinker Biddle & Reath LLP
------------------------------
DRINKER BIDDLE & REATH LLP

Philadelphia, Pennsylvania

February 25, 2000

<PAGE>

EXHIBIT 23(j)(2)

Consent of Independent Auditors

The Board of Trustees and Shareholders of
The Commerce Funds:

We consent to the use of our report dated December 16, 1999, incorporated herein
by reference and to the references to our firm under the headings "Financial
Highlights" in the prospectuses and "Independent Auditors" and "Financial
Statements" in the statement of additional information.

/s/ KPMG LLP
KPMG LLP

Kansas City, Missouri
February 22, 2000