WESTWOOD FUNDS, 497, 1996-02-06

WESTWOOD FUNDS
497, 1996-02-06

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The Westwood Funds
==================

RETAIL CLASS PROSPECTUS - January 30, 1996

The Westwood Funds (the "Trust") is an open-end, diversified, management
investment company, known as a mutual fund, which currently consists of four
separate investment portfolios that offer two separate classes of shares. The
portfolios are referred to as the Westwood Equity Fund, the Westwood
Intermediate Bond Fund, the Westwood Balanced Fund and the Westwood Cash
Management Fund (which is a money market fund portfolio) (collectively, the
"Funds"). The Funds offer two classes of shares. This Prospectus provides
information about "Retail Class" shares (formerly known as "Institutional"
shares). Retail Class shares are offered exclusively to investors who have not
purchased their shares through an entity that has signed a Dealer Agreement with
Gabelli & Company, Inc. (the "Distributor"), with the exception of certain
dealer-sold retirement plan programs. Each Fund has a separate investment
objective, as set forth below. There is no assurance that any of these
investment objectives will be achieved.

WESTWOOD EQUITY FUND (the "Equity Fund") seeks as its primary goal to
provide investors with capital appreciation; income is a secondary, but
nonetheless an important goal. The net asset value per share of the Equity Fund
will fluctuate.

WESTWOOD INTERMEDIATE BOND FUND (the "Intermediate Bond Fund") seeks to
maximize total return, while maintaining a level of current income consistent
with the maintenance of principal and liquidity. The net asset value per share
of the Intermediate Bond Fund will fluctuate.

WESTWOOD BALANCED FUND (the "Balanced Fund") seeks to realize both capital
appreciation and current income resulting in a high total investment return
consistent with prudent investment risk and a balanced investment approach. The
net asset value per share of the Balanced Fund will fluctuate.

Westwood Cash Management Fund (the "Cash Management Fund") seeks to provide
investors with as high a level of current income as is consistent with
preservation of capital and liquidity. The average weighted portfolio maturity
of the Cash Management Fund will not exceed 90 days and the Fund will attempt to
maintain a constant net asset value of $1.00 per share. Currently, The Cash
Management Fund has not commenced operations.

AN INVESTMENT IN THE CASH MANAGEMENT FUND IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THIS FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.

This Prospectus sets forth concisely information about the Funds that an
investor should know before investing. It should be read and retained for future
reference.

Part B (also known as the Statement of Additional Information), dated
January 30, 1996, which may be revised from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. For a free copy, write to
the Westwood Funds at One Corporate Center, Rye, New York 10580-1434 or call
1-(800)WESTWOOD (1-800-937-8966). Purchase orders and redemption requests may be
directed to the Westwood Funds at P.O. Box 8308, Boston, Massachusetts
02266-8909.

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

<PAGE>

Teton Advisers LLC (the "Adviser"), a limited liability company formed by
Gabelli Funds, Inc. ("Gabelli") and Westwood Management Corp. ("Westwood"), is
adviser to the Funds pursuant to an investment advisory agreement with the Trust
(the "Investment Advisory Agreement"). The Adviser has entered into a
sub-advisory agreement with Westwood and the Trust whereby Westwood (the
"Sub-Adviser") serves as sub-adviser to the Funds (the "Sub-Advisory
Agreement"). Prior to serving as Sub-Adviser, Westwood acted as adviser to the
Funds from their inception through October 6, 1994. The Adviser oversees the
administration of each Fund's business and affairs and in this connection is
responsible for maintaining certain of the Funds' books and records and
providing other administrative services. (See "Management of the Funds.")

Fee Table - Retail Class

Each Fund is authorized to issue two separate classes of shares. Service
Class shares will be offered exclusively to investors who have purchased their
shares through an entity that has signed a Dealer Agreement with the
Distributor. Retail Class shares will be offered to all other investors,
including certain retirement plans offered through broker-dealers. Retail Class
shares and Service Class shares are identical in all respects, except that
Service Class shares bear a sales load and higher expenses incurred in the
distribution and marketing of such shares ("12b-1 Fees"). Retail Class shares
bear no sales load and lower 12b-1 Fees. The table below sets forth certain
information regarding annual operating expenses incurred by the Retail Class for
the fiscal year ended September 30, 1995 including the amounts of these fees.

<TABLE>
<CAPTION>
Cash
Equity Intermediate Balanced Management
Fund Bond Fund Fund Fund+
---- --------- ---- -----
<S> <C> <C> <C> <C>

Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases ............ None None None None
Annual Fund Operating Expenses:
Management Fees (after waivers)* ................. 0.31% 0.00% 0.16% 0.30%
12b-1 Fees ....................................... 0.25% 0.25% 0.25% 0.25%
Other Expenses ................................... 0.94% 0.75% 0.84% 0.25%
Total Fund Operating Expenses (after waivers and
expense reimbursements)** ....................... 1.50% 1.00% 1.25% 0.80%
</TABLE>

- -------
* Management Fees (before waivers) would be 1.00%, .60% and .75% for the
Equity Fund, Intermediate Bond Fund and Balanced Fund respectively.
** Management fees, have been being waived/reimbursed for the Equity Fund,
Intermediate Fund and Balanced Fund. Prior to any waivers and expense
reimbursements, total fund operating expenses for the Equity Fund, the
Intermediate Bond Fund and the Balanced Fund for Retail Shares would have
been 2.16%, 2.18% and 1.85%, respectively.
+ Since the Cash Management Fund has not commenced operations, annual
expenses are based on estimates.

Example:

An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Equity Fund .................. $ 18 $ 55 $ 95 $206
Intermediate Bond Fund ....... $ 11 $ 35 $ 61 $134
Balanced Fund ................ $ 15 $ 47 $ 82 $179
Cash Management Fund ......... $ 8 $ 26 $ 44 $ 99

The amounts listed in the example should not be considered as
representative of past or future expenses and actual expenses may be greater or
less than those indicated. Moreover, while the example assumes a 5% annual
return, a Fund's actual performance will vary and may result in an actual return
greater or less than 5%. The purpose of the foregoing table is to assist you in
understanding the various costs and expenses that investors will bear, directly
or indirectly, the payment of which will reduce investors' return on an annual
basis. (See "Management of the Funds".) The information set forth above with
respect to the Cash Management Fund is based on estimated projections. The
information with respect to the other Funds is based on actual expenses incurred
for the fiscal year ended September 30, 1995.

2
<PAGE>

Management's Discussion and Analysis of the Funds' performance during the
fiscal year ended September 30, 1995 is included in the Funds' Annual Report to
Shareholders dated September 30, 1995. The Funds' Annual Report to Shareholders
may be obtained upon request and without charge by writing or calling the Fund
at the address or telephone number listed on the Prospectus cover.

Financial Highlights

The following information for each of the five years (four years for
Intermediate Bond Fund and Balanced Fund) for the period ended September 30,
1995 have been audited by Price Waterhouse LLP, the Funds' independent
accountants, whose report on the Financial Statements which incorporate such
information appears in the Statement of Additional Information. All such
information should be read in conjunction with the related financial statements
and notes thereto, which are included in the Statement of Additional
Information, and are available upon request.

<TABLE>
<CAPTION>
For a share outstanding throughout each period+

Equity Fund-Retail Class(a)
---------------------------
Year Ended September 30
-----------------------

1995 1994 1993 1992 1991 1990 1989 1988 1987*
---- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Operating Performance:
Net Asset Value, Beginning
of Period $ 5.50 $ 9.91 $14.19 $ 14.23 $ 12.62 $ 15.11 $ 12.02 $ 15.12 $ 11.50
------- ------ ------ -------- -------- -------- -------- -------- --------
Net investment income 0.04 0.10 0.05 0.27 0.46 0.53 0.61 0.42 0.13
Net realized and unrealized gain
(loss) on investments 1.31 0.64 2.12 0.34 1.92 (2.04) 2.89 (2.15) 3.49
------- ------ ------ -------- -------- -------- -------- -------- --------
Total from Investment
Operations 1.35 0.74 2.17 0.61 2.38 (1.51) 3.50 (1.73) 3.62
------- ------ ------ -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment
income (0.06) (0.07) (0.55) (0.51) (0.61) (0.56) (0.41) (0.30) --
Distributions from net realized
capital gains (0.20) (5.08) (5.90) (0.14) (0.16) (0.42) -- (1.07) --
------- ------ ------ -------- -------- -------- -------- -------- --------
Total Distributions (0.26) (5.15) (6.45) (0.65) (0.77) (0.98) (0.41) (1.37) --
------- ------ ------ -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $ 6.59 $ 5.50 $ 9.91 $ 14.19 $ 14.23 $ 12.62 $ 15.11 $ 12.02 $ 15.12
======= ====== ====== ======== ======== ======== ======== ======== ========
Total Return 25.85% 9.14% 20.16% 4.16% 19.61% 10.59% 30.08% 10.40% 31.47%
------- ------ ------ -------- -------- -------- -------- -------- --------
Net Assets End of Period
(in thousands) $14,903 $8,637 $5,172 $13,161 $52,884 $51,754 $57,763 $46,245 $42,835
Ratios to average net assets of:
Net investment income 0.77% 1.63% 0.40% 1.85% 3.06% 3.74% 4.57% 4.24% 1.38%**
Expenses net of waivers++/
reimbursements 1.61% 0.71% 1.95% 1.40% 1.29% 1.26% 1.27% 1.48% 1.29%**
Expenses before waivers++/
reimbursements 2.29% 1.94% 2.32% 1.54% 1.29% 1.26% 1.27% 1.62% 1.34%**
Portfolio Turnover Rate 107% 137% 102% 75% 143% 127% 151% 198% 221%**
</TABLE>

- --------
+ Per share based on the average number of shares outstanding during the
period.
++ Effective 1995, the ratios do not include a reduction of expenses for
custodian fee credits on cash balances maintained with the custodian.
Including such custodian fee credits, the expense ratios would be 1.50% and
1.72% for Equity Retail and Service Class, respectively, net of waivers and
2.16% and 2.38% for Equity Retail and Service Class before waivers,
respectively.
* January 2, 1987 commencement of operations.
** Not annualized.
(a) Formerly named "Institutional Class."

3
<PAGE>

Financial Highlights

For a share outstanding throughout each period+

Intermediate Bond Fund - Retail Class(a)

Net Asset Value, End of Period $ 9.98 $ 9.48 $ 10.73 $ 10.65
========= ========= ========= =========
Total Return 11.13% (5.46%) 10.24% 11.87%
--------- --------- --------- ---------
Net Assets End of Period (in thousands) $ 4,729 $ 7,339 $ 2,849 $ 3,153
Ratios to Average Net Assets of:
Net investment income 5.38% 4.86% 3.74% 5.25%
Expenses net of waivers/reimbursements 1.17% 0.92% 2.40% 1.94%
Expenses before waivers/reimbursements 2.47% 1.75% 3.46% 3.40%
Portfolio Turnover Rate 165% 203% 222% 198%

Balanced Fund -- Retail Class(a)

Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30,
1995 1994 1993 1992*
------------- ------------- ------------- -------------
Operating Performance:
Net Asset Value, Beginning of Period $ 7.12 $ 10.89 $ 10.45 $ 10.00
--------- --------- --------- ---------
Income from Investment Operations:
Net investment income 0.19 0.12 0.20 0.31
Net realized and unrealized gain on
investments 1.35 0.42 1.44 0.49
--------- --------- --------- ---------
Total from Investment Operations 1.54 0.54 1.64 0.80
--------- --------- --------- ---------
Less Distributions:
Dividends from net investment income (0.19) (0.13) (0.24) (0.31)
Distributions from net realized capital gain -- (4.18) (0.96) (0.04)
--------- --------- --------- ---------
Total Distributions (0.19) (4.31) (1.20) (0.35)
--------- --------- --------- ---------
Net Asset Value, End of Period $ 8.47 $ 7.12 $ 10.89 $ 10.45
========= ========= ========= =========
Total Return 21.98% 5.30% 17.60% 7.32%
--------- --------- --------- ---------
Net Assets End of Period (in thousands) $ 6,912 $ 3,081 $ 1,583 $ 3,716
Ratios to Average Net Assets of:
Net investment income 2.47% 1.55% 1.90% 3.13%
Expenses net of waivers/reimbursements++ 1.35% 1.68% 1.82% 1.44%
Expenses before waivers/reimbursements++ 1.86% 2.36% 2.97% 2.38%
Portfolio Turnover Rate 133% 168% 192% 178%
</TABLE>

- --------
+ Per share based on the average number of shares outstanding during the
period.
++ Effective 1995, the ratios do not include a reduction of expenses for
custodian fee credits on cash balances maintained with the custodian.
Including such custodian fee credits, the expense ratios would be for the
Intermediate Bond Fund: 1.00% and 1.41% net of waivers for the Retail and
Service Class, respectively, and 2.18% and 4.23% before waivers for the
Retail and Service Class, respectively. For the Balanced Fund: expenses net
of waivers would be 1.25% and 1.50% for the Retail and Service Class,
respectively, and 1.85% and 2.11% before waivers for the Retail and Service
Class, respectively.
* Commencement of operations October 1, 1991.
(a) Formerly named "Institutional Class."

4
<PAGE>

Description of the Funds

Investment Objectives

Each Fund's investment objectives, as previously set forth on the cover
page of this Prospectus, are fundamental policies which cannot be changed
without approval by the holders of a majority (as defined in the Investment
Company Act of 1940) of each Fund's outstanding voting shares. There can be no
assurance that a Fund's investment objectives will be achieved.

Management Policies

Equity Fund - The Equity Fund attempts to achieve its goals by investing
primarily (i.e., in normal circumstances), at least 65% of its total assets in
common stocks, some of which may pay dividends, or securities convertible into
common stocks (see "Convertible Securities" below for a complete description).
The Equity Fund invests in securities issued by seasoned companies (generally
with market capitalizations in excess of $500,000,000 and continuous operating
histories of at least three years) believed to have proven records and
above-average historical earnings growth when compared to published indexes,
such as those published by the Department of Commerce, and in smaller companies
(generally with market capitalizations greater than $100,000,000 but less than
$500,000,000) believed to have outstanding potential for capital appreciation,
in both cases in industries which the Adviser has identified as appropriate in
light of the then current status of the economic and business cycles. These
securities may have above-average price/earnings ratios or less than average
current yields, when compared to published indexes, such as the Standard &
Poor's 500 Composite Stock Price Index. Price/earnings ratio is a comparison of
a security's market price to its earnings per share, usually expressed as a
simple numeral, and current yield expresses the income on an amount invested.
The Equity Fund also may invest, in normal circumstances, up to 35% of its total
assets in U.S. dollar- and foreign currency-denominated debt securities of
domestic and foreign issuers, which are rated at least "BBB" by Standard &
Poor's Corporation ("S&P") or "Baa" by Moody's Investors Service, Inc.
("Moody's") (except with respect to investments in commercial paper which will
consist only of direct obligations that at the time of purchase are rated in the
highest rating category by Moody's or S&P) or, if unrated, are determined to be
of comparable quality by the Adviser, or in index options when it believes they
hold less risk or greater potential for capital appreciation than equity
securities. Such investments are made without regard to the remaining maturities
of such securities. The Equity Fund may invest up to 10% of its total assets in
debt securities (other than commercial paper) that are rated or, if unrated,
determined to be below investment grade. (Investment grade debt securities are
those which are rated at least "BBB" by S&P or "Baa" by Moody's). These
investments generally carry a high degree of risk and are sometimes referred to
as "high yield, high risk" securities by the investment community (see "Lower
Rated Securities" below for more complete information).

Debt securities rated "BBB" by S&P or "Baa" by Moody's are considered
medium grade obligations. Securities rated "Baa" by Moody's lack outstanding
investment characteristics and in fact have speculative characteristics as well,
while those rated "BBB" by S&P are regarded as having an adequate capacity to
pay principal and interest. Securities rated in these categories are generally
more sensitive to economic changes than higher rated securities. See the
"Appendix" in the Statement of Additional Information for more details on the
ratings of Moody's and S&P.

The Equity Fund may invest in U.S. Government securities, certificates of
deposit, bankers' acceptances and other short-term debt instruments or high
quality corporate bonds, and repurchase agreements in respect of the foregoing.

Common stocks, debt securities in periods of declining interest rates, and
index options provide opportunities for capital growth. Dividend paying common
stocks, covered call options written by the Equity Fund and debt securities are
expected to provide income for the Equity Fund. The securities purchasable for
temporary defensive purposes provide income, but little opportunity for capital
growth.

The majority of the Equity Fund's investments are in securities listed on
the New York Stock Exchange or other national securities exchanges. The Equity

5
<PAGE>

Fund also may invest in unlisted securities; but these generally will be
securities that have an established over-the-counter market, although the depth
and liquidity of that market may vary from time to time and from security to
security. Generally, these securities are issued by smaller companies than those
whose securities are listed on national securities exchanges. The market prices
of equity securities of smaller companies may tend to be more volatile than the
market prices of equity securities generally.

The Equity Fund may invest up to 25% of its total assets in the securities
of foreign issuers, either directly, or in the form of American Depository
Receipts ("ADRs") or other similar arrangements, such as European Depository
Receipts ("EDRs"). ADRs are receipts typically issued by a United States bank or
trust company which evidence ownership of underlying securities issued by a
foreign corporation. Generally, ADRs in registered form are designed for use in
United States securities markets. EDRs are similar to ADRs and are issued and
traded in Europe.

It is a fundamental policy of the Equity Fund that it may invest (together
with all other securities which are not readily marketable - see "Certain
Fundamental Policies" below and "Investment Restrictions" in the Statement of
Additional Information) up to 10% of the value of its net assets in securities
that have not been registered under the Securities Act of 1933, as amended, and
therefore are subject to restrictions on resale, provided such investments are
consistent with the Equity Fund's goals. When purchasing unregistered
securities, the Equity Fund will endeavor to obtain the right to registration at
the expense of the issuer. Generally, there will be a lapse of time between the
Equity Fund's decision to publicly offer any such security and the registration
of the security permitting such offer. During any such period, the price of the
securities will be subject to market fluctuations.

The Equity Fund may invest up to 2% of its net assets in warrants, except
that this limitation does not apply to warrants acquired in units or attached to
securities. A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specified amount of the issuer's securities
at a set price for a specified period of time.

The Equity Fund also may invest in securities of closed-end investment
companies subject to the provisions of the Investment Company Act of 1940. The
return on such investments will be reduced by the operating expenses, including
investment advisory and administration fees, of such companies. See "Investment
Objectives and Management Policies - Closed-End Investment Company Securities"
in the Statement of Additional Information.

Intermediate Bond Fund - The Intermediate Bond Fund will pursue its
objective by investing, in normal circumstances, at least 65% of its total
assets in bonds of various types and with various maturities. Although it will
not be a fundamental policy of the Intermediate Bond Fund and there will be no
restrictions as to the maximum or minimum maturity of any individual security in
which the Fund may invest, the Intermediate Bond Fund will normally have a
dollar weighted average portfolio maturity of three to ten years. (See the
discussion below under "Description of Securities and Other Investment
Practices" for special information regarding the maturities of certain of the
Intermediate Bond Fund's permissible investments.)

To achieve its investment objective, the Intermediate Bond Fund invests
primarily in a diversified portfolio of investment grade, U.S. dollar or foreign
currency denominated bonds of domestic and foreign issuers. The Fund's portfolio
consists of bonds issued by both corporate and government entities. In pursuing
its investment objective, the Intermediate Bond Fund may also invest in other
types of investment grade debt securities, including debentures, notes,
convertible debt securities, municipal securities, mortgage-related securities,
and other collateralized securities that are backed by a pool of assets, such as
loans or receivables which generate cash flow to cover the payments due on the
collateralized securities, as well as zero coupon and payment in kind
securities. The Intermediate Bond Fund's portfolio, consisting primarily of
investment grade debt securities, will include bonds rated "BBB" or better by
S&P or "Baa" or better by Moody's, commercial paper rated "A-2" or better by S&P
or "P-2" or better by Moody's, mortgage and asset-backed securities rated "AA"
or better by S&P or "Aa" or better by Moody's and other investment grade-rated
debt securities or those which are unrated but determined to be of comparable
quality by the Adviser. The Intermediate Bond Fund does not intend to invest in
preferred stock or other equity securities (except convertible debt securities)

6
<PAGE>

and does not expect to invest more than 25% of its assets in securities of
foreign issuers.

Although the lowest rated investment grade securities and those which are
unrated in the Intermediate Bond Fund's portfolio may produce a higher return,
they are subject to a greater degree of market fluctuation and credit risks than
the high quality securities in which the Fund may invest and may be regarded as
having speculative characteristics as well. The Intermediate Bond Fund may also
invest up to 10% of its total assets in debt securities that are rated or, if
unrated, determined to be below investment grade. These investments generally
carry a high degree of risk and are sometimes referred to as "high yield, high
risk" securities by the investment community (see "Lower Rated Securities" below
for more complete information).

In view of the expected maturity of the Intermediate Bond Fund's portfolio,
in normal market conditions, it is anticipated that the Fund may experience a
higher yield and less stable net asset value than a fund which invests primarily
in shorter-term securities. Conversely, it is also anticipated that the
Intermediate Bond Fund may experience a lower yield and more stable net asset
value than a fund which invests primarily in longer-term securities.

The net asset value of the Intermediate Bond Fund will vary in response to
fluctuations in prevailing interest rates and changes in the value of its
portfolio securities. When interest rates decline, the value of securities
already held in the Intermediate Bond Fund's portfolio can be expected to rise.
Conversely, when interest rates rise, the value of existing portfolio security
holdings can be expected to decline. Although the lowest investment grade
securities and those which are unrated in the Intermediate Bond Fund's portfolio
may produce a higher return, they are subject to a greater degree of market
fluctuation and credit risks than the high quality securities in which the
Intermediate Bond Fund may invest. In addition, the Intermediate Bond Fund may
invest in zero coupon and payment in kind securities which may be subject to
greater fluctuations in value due to changes in interest rates than other debt
securities.

In normal circumstances, the Intermediate Bond Fund may invest up to 35% of
its total assets in short-term, money market instruments of at least comparable
quality to the Fund's longer-term investments, and in repurchase agreements.
However, as a temporary "defensive" measure during, or in anticipation of, a
declining market or rising interest rates, or for other reasons when, in the
opinion of the Fund's investment adviser, it is advisable to do so, the
Intermediate Bond Fund may invest up to 100% of its total assets in high quality
short-term investments.

Balanced Fund - The Balanced Fund pursues its objective through a balanced
and diversified program of investing in equity securities and debt instruments.

With respect to its investments in equity securities, the Balanced Fund
invests between 30% to 70% of its assets in common stocks, some of which may pay
dividends, or securities convertible into common stocks. With respect to the
equity portion of its portfolio, the Balanced Fund invests in equity securities
using the same investment criteria as the Equity Fund.

The remaining 70% to 30% of the Balanced Fund's assets are invested in U.S.
dollar or foreign currency denominated debt securities of domestic and foreign
issuers, including debt securities of corporate and government issuers,
commercial paper and mortgage and asset-backed securities, for the relative
stability of income and principal. With respect to these investments, at least
25% of the Balanced Fund's total assets will be invested in fixed income senior
securities. The debt securities in which the Balanced Fund invests are the same
types of securities used by the Intermediate Bond Fund.

As noted above, the Adviser may also select other equity securities in
addition to common stocks for investment by the Balanced Fund, such as preferred
stocks, high grade securities convertible into common stocks and warrants. The
Balanced Fund may invest up to 25% of its total assets in the securities of
foreign issuers, either directly, or in the form of American or European
Depository Receipts, and up to 10% of the value of its net assets, together with
all other investments which are not readily marketable, in securities which have
not been registered under the Securities Act of 1933, as amended, and which
therefore are subject to restrictions on resale. (See the information set forth
above under "Management Policies - Equity Fund" for more information on these
types of investments.) The Balanced Fund does not invest more than 5% of its net

7
<PAGE>

assets in warrants, no more than 2% of which will be invested in warrants which
are not listed on the New York or American Stock Exchanges.

In addition, the Balanced Fund may invest up to 100% of its total assets in
U.S. Government securities, certificates of deposit, bankers' acceptances, time
deposits, repurchase agreements and other high quality debt instruments in order
to maintain a temporary "defensive" posture when, in the opinion of the Adviser,
it is advisable to do so.

Cash Management Fund - The Cash Management Fund pursues its objective by
investing in a broad range of high quality, short-term money market instruments
and repurchase agreements. The money market instruments in which the Fund may
invest have remaining maturities not exceeding thirteen months and are
determined by Fund management to present minimal credit risk pursuant to
procedures established by the Board of Trustees. Such instruments include: U.S.
Government securities; bank obligations, such as negotiable certificates of
deposit, bankers' acceptances and fixed time deposits; commercial paper;
corporate debt securities; variable and floating rate demand notes and master
demand notes. The average weighted portfolio maturity of the Cash Management
Fund does not exceed 90 days and it attempts to maintain a net asset value of
$1.00 per share, although there is no assurance that it will be able to do so.
The Cash Management Fund has not commenced operations as of the date of this
Prospectus.

Generally, the securities in which the Cash Management Fund may invest will
not earn as high a yield as securities of longer maturity, and/or of lesser
quality which are more susceptible to market volatility. At the time of
investment by the Cash Management Fund, each security in which it may invest
must be (i) rated within the two highest ratings categories of at least two of
the nationally recognized statistical rating organizations that have rated the
security; (ii) if rated by only one such rating organization, rated within the
two highest rating categories of that rating organization; or (iii) if unrated,
determined by the Adviser to be of an investment quality comparable to the rated
securities in which the Cash Management Fund may invest pursuant to guidelines
established by the Board of Trustees. Such securities will include, for example,
commercial paper rated "A-2" or better by S&P or "P-2" or better by Moody's,
corporate debt securities rated "AA" or better by S&P or "Aa" or better by
Moody's, and notes rated "SP-2" or better by S&P or "MIG-2" or "VMIG-2" or
better by Moody's. Investments in securities rated within the second highest
rating categories will be limited to no more than 5% of the Cash Management
Fund's assets. See the "Appendix" in the Statement of Additional Information for
a description of Moody's and S&P's ratings. The acquisition of each security
which qualifies for investment by the Cash Management Fund under (ii) or (iii)
above must also be approved or ratified by the Board of Trustees. In addition,
the Board will ratify the assessment of minimal credit risk relating to each
security acquired pursuant to guidelines established by the Board of Trustees.

In pursuing its investment objective, the Cash Management Fund reserves
freedom of action to invest more than 25% of its total assets in instruments
issued by domestic banks, which could increase the Fund's exposure to economic
or regulatory developments related to or affecting such banks. Banks are subject
to extensive governmental regulation which may limit both the amounts and types
of loans and other financial commitments they can make and the interest rates
and fees they can charge. The profitability of banks is largely dependent on the
availability and cost of capital funds, and can fluctuate significantly when
interest rates change. In addition, general economic conditions are important to
the operations of banks, with exposure to credit losses resulting from possible
financial difficulties of borrowers potentially having an adverse effect.

Description of Securities and Other Investment Practices

Convertible Securities (The Equity Fund and the Balanced Fund) - A
convertible security is a fixed- income security, such as a bond or preferred
stock, which may be converted at a stated price within a specified period of
time into a specified number of shares of common stock of the same or a
different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-
convertible debt securities. While providing a fixed income stream (generally
higher in yield than the income derivable from a common stock but lower than
that afforded by a similar non-convertible debt security), a convertible

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security also affords an investor the opportunity, through its conversion
feature, to participate in the capital appreciation of the common stock into
which it is convertible.

In general, the market value of a convertible security is the higher of its
"investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e., the value of the underlying shares of common stock if
the security is converted). As a fixed-income security, the market value of a
convertible security generally increases when interest rates decline and
generally decreases when interest rates rise. However, the price of a
convertible security also is influenced by the market value of the security's
underlying common stock.

U.S. Government Securities (All Funds) - Securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ only in their interest rates, maturities and times of
issuance. Treasury Bills have initial maturities of one year or less; Treasury
Notes have initial maturities of one to ten years; and Treasury Bonds generally
have initial maturities of greater than ten years. Some obligations issued or
guaranteed by U.S. Government agencies and instrumentalities, for example,
Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, by the right of the issuer to borrow from
the U.S. Treasury; others, such as those issued by the Federal National Mortgage
Association, by discretionary authority of the U.S. Government to purchase
certain obligations of the agency or instrumentality; and others, such as those
issued by the Student Loan Marketing Association, only by credit of the agency
or instrumentality. While the U.S. Government provides financial support to such
U.S. Government-sponsored agencies or instrumentalities, no assurance can be
given that it will always do so since it is not so obligated by law. A Fund will
invest in such securities only when it is satisfied that the credit risk with
respect to the issuer is minimal.

Repurchase Agreements (All Funds) - Repurchase agreements involve the
acquisition by a Fund of a security, subject to an obligation of the seller to
repurchase, and the Fund to resell, the security at a fixed price, usually not
more than one week after its purchase. The Funds' custodian will have custody
of, and will hold in a segregated account, securities acquired by the Fund under
a repurchase agreement. Repurchase agreements are considered by the staff of the
Securities and Exchange Commission to be loans by a Fund. In an attempt to
reduce the risk of incurring a loss on the repurchase agreement, a Fund will
enter into repurchase agreements only with domestic banks with total assets in
excess of one billion dollars or primary government securities dealers reporting
to the Federal Reserve Bank of New York, with respect to highest rated
securities of the type in which a Fund may invest. It will also require that the
repurchase agreement be at all times fully collateralized in an amount at least
equal to the repurchase price including accrued interest earned on the
underlying securities, and that the underlying securities be marked to market
every business day to assure that the repurchase agreement remains fully
collateralized. Certain costs may be incurred by a Fund in connection with the
sale of the securities if the seller does not repurchase them in accordance with
the repurchase agreement. In addition, the maturities of the underlying
securities will have to be taken into account by the Cash Management Fund in
calculating its average weighted portfolio maturity in the event the seller of
the repurchase agreement fails to perform under the agreement. If bankruptcy
proceedings are commenced with respect to the seller of the securities,
realization on the securities by the Fund may be delayed or limited. A Fund will
consider on an ongoing basis the creditworthiness of the institutions with which
it enters into repurchase agreements.

Bank Obligations (All Funds) - Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time (in no event
longer than seven days) at a stated interest rate. Time deposits which may be
held by a Fund will not benefit from insurance from the Bank Insurance Fund or
the Savings Association Insurance Fund administered by the Federal Deposit
Insurance Corporation. Certificates of deposit are certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time. Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity.

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and financial institutions (see "Variable and Floating Rate Demand and Master
Demand Notes" below for more details) as well as similar taxable and tax-exempt
instruments issued by government agencies and instrumentalities. Each Fund
establishes its own standards of creditworthiness for issuers of such
instruments.

Other Mutual Funds (All Funds) - Each Fund may invest in shares of other
management investment companies, subject to the limitations of the 1940 Act and
subject to such investments being consistent with the overall objective and
policies of the Fund making such investment, provided that any such purchases
will be limited to short-term investments in shares of unaffiliated investment
companies. The purchase of securities of other mutual funds results in
duplication of expenses such that investors indirectly bear a proportionate
share of the expenses of such mutual funds including operating costs, and
investment advisory and administrative fees.

Corporate Debt Securities (All Funds) - A Fund's investments in corporate
debt may include U.S. dollar or foreign currency denominated corporate bonds,
debentures, notes and other similar corporate debt instruments of domestic and
foreign issuers, which meet the previously disclosed minimum ratings and
maturity criteria established for each Fund under the direction of the Board of
Trustees and the Adviser or, if unrated, are in the Adviser's opinion comparable
in quality to rated corporate debt securities in which each Fund may invest. The
Cash Management Fund may only invest in U.S. dollar-denominated corporate debt
securities. The rate of return or return of principal on some debt obligations
in which the Funds may invest may be linked or indexed to the level of exchange
rates between the U.S. dollar and a foreign currency or currencies.

Variable and Floating Rate Demand and Master Demand Notes (All Funds) - A
Fund may, from time to time, buy variable or floating rate demand notes issued
by corporations, bank holding companies and financial institutions and similar
taxable and tax-exempt instruments issued by government agencies and
instrumentalities. These securities will typically have a maturity over one year
but carry with them the right of the holder to put the securities to a
remarketing agent or other entity at designated time intervals and on specified
notice. The obligation of the issuer of the put to repurchase the securities may
be backed up by a letter of credit or other obligation issued by a financial
institution. The purchase price is ordinarily par plus accrued and unpaid
interest. Generally, the remarketing agent will adjust the interest rate every
seven days (or at other specified intervals) in order to maintain the interest
rate of the prevailing rate for securities with a seven-day or other designated
maturity. The Cash Management Fund only purchases demand instruments which
provide that the Fund may receive the principal amount of the note upon not more
than 30 days' notice. A Fund's investment in demand instruments which provide
that the Fund will not receive the principal note amount within seven days'
notice, in combination with the Fund's other investments which are not readily
marketable, will be limited to an aggregate total of 10% of that Fund's net
assets.

A Fund may also buy variable rate master demand notes. The terms of these
obligations permit a Fund to invest fluctuating amounts at varying rates of
interest pursuant to direct arrangements between the Fund, as lender, and the
borrower. These instruments permit weekly and, in some instances, daily changes
in the amounts borrowed. The Fund has the right to increase the amount under the
note at any time up to the full amount provided by the note agreement, or to
decrease the amount, and the borrower may repay up to the full amount of the
note without penalty. The notes may or may not be backed by bank letters of
credit. Because the notes are direct lending arrangements between a Fund and
borrower, it is not generally contemplated that they will be traded, and there
is no secondary market for them, although they are redeemable (and, thus,
immediately repayable by the borrower) at principal amount, plus accrued
interest, at any time. In connection with any such purchase and on an ongoing
basis, the Adviser will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and interest on
demand, including a situation in which all holders of such notes make demand
simultaneously. While master demand notes, as such, are not typically rated by
credit rating agencies, a Fund may, under its minimum rating standards, invest
in them only if, at the time of an investment, the issuer meets the criteria set
forth in this Prospectus for commercial paper obligations.

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<PAGE>

for such securities ordinarily take place within 45 days after the date of the
commitment to purchase. The payment obligation and the interest rate that will
be received on such securities are fixed at the time the Fund enters into the
commitment. The Fund will make commitments to purchase such securities only with
the intention of actually acquiring the securities, but the Fund may sell these
securities before the settlement date if it is deemed advisable. The Fund will
not accrue income in respect of a when-issued or delayed-delivery security prior
to its stated delivery date. No additional when-issued commitments will be made
if more than 20% of a Fund's net assets would be so committed.

Securities purchased on a when-issued or delayed-delivery basis and certain
other securities held in a Fund's portfolio are subject to changes in value
(both generally changing in the same way, i.e., appreciating when interest rates
decline and depreciating when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Securities purchased on a
when-issued or delayed-delivery basis may expose a Fund to the risk that such
fluctuations will occur prior to their actual delivery. Purchasing securities on
a when-issued or delayed-delivery basis can involve an additional risk that the
yield available in the market when the delivery takes place actually may be
higher than that obtained in the transaction itself. A segregated account of a
Fund consisting of cash, cash equivalents or U.S. Government securities or other
liquid debt securities at least equal at all times to the amount of the
when-issued commitments will be established and maintained at the Fund's
custodian bank.

Foreign Securities (All Funds, except as specifically noted) - A Fund may
invest directly in both sponsored and unsponsored U.S. dollar- or foreign
currency-denominated corporate debt securities, certificates of deposit and
bankers' acceptances issued by foreign banks, and obligations of foreign
governments or their subdivisions, agencies and instrumentalities, international
agencies and supranational entities (the Cash Management Fund may only invest in
U.S. dollar-denominated foreign debt securities), and the Equity Fund and the
Balanced Fund may invest directly in foreign equity securities and in securities
represented by European Depository Receipts ("EDRs") or American Depository
Receipts ("ADRs"). ADRs are dollar-denominated receipts generally issued by
domestic banks, which represent the deposit with the bank of a security of a
foreign issuer, and which are publicly traded on exchanges or over-the-counter
in the United States. EDRs are receipts similar to ADRs and are issued and
traded in Europe.

There are certain risks associated with investments in unsponsored ADR
programs. Because the non-U.S. company does not actively participate in the
creation of the ADR program, the underlying agreement for service and payment
will be between the depository and the shareholder. The company issuing the
stock underlying the ADRs pays nothing to establish the unsponsored facility, as
fees for ADR issuance and cancellation are paid by brokers. Investors directly
bear the expenses associated with certificate transfer, custody and dividend
payment.

In an unsponsored ADR program, there also may be several depositories with
no defined legal obligations to the non-U.S. company. The duplicate depositories
may lead to marketplace confusion because there would be no central source of
information to buyers, sellers and intermediaries. The efficiency of
centralization gained in a sponsored program can greatly reduce the delays in
delivery of dividends and annual reports.

In addition, with respect to all ADRs and EDRs, there is always the risk of
loss due to currency fluctuations.

Zero Coupon and Payment In Kind Securities (The Intermediate Bond Fund and
the Balanced Fund) - A Fund may invest in zero coupon bonds, deferred interest
bonds and bonds on which the interest is payable in kind ("PIK securities").
Zero coupon and deferred interest bonds are debt obligations which are issued at
a significant discount from face value. The discount approximates the total
amount of interest the bonds will accrue and compound over the period until
maturity or the first interest accrual date at a rate of interest reflecting the
market rate of the security at the time of issuance. While zero coupon bonds do
not require the periodic payment of interest, deferred interest bonds provide
for a period of delay before the regular payment of interest begins. Although
this period of delay is different for each deferred interest bond, a typical
period is approximately one- third of the bond's term to maturity. PIK
securities are debt obligations which provide that the issuer thereof may, at
its option, pay interest on such bonds in cash or in the form of additional debt
obligations. Such investments benefit the issuer by mitigating its need for cash
to meet debt service, but also require a higher rate of return to attract

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<PAGE>

investors who are willing to defer receipt of such cash. Such investments
experience greater volatility in market value due to changes in interest rates
than debt obligations which provide for regular payments of interest. A Fund
will accrue income on such investments based on an effective interest method,
which is distributable to shareholders and which, because no cash is received at
the time of accrual, may require the liquidation of other portfolio securities
to satisfy the Fund's distribution obligations. As a result, a Fund may have to
sell securities at a time when it may be disadvantageous to do so.

Lower Rated Securities (All Funds, Except the Cash Management Fund) - Debt
securities rated lower than investment grade involve much greater risk of
principal and income, and often involve greater volatility of price, than
securities in the higher rating categories. They are also subject to greater
credit risks (including, without limitation, the possibility of default by or
bankruptcy of the issuers of such securities) than securities in higher rating
categories. In this connection, there have been recent instances of such
defaults and bankruptcies which were not foreseen by the financial and
investment communities. The lower quality and unrated obligations in which the
Funds may invest will have speculative characteristics in varying degrees. While
such obligations may have some quality and protective characteristics, these
characteristics can be expected to be offset or outweighed by large
uncertainties or major risk exposures to adverse conditions. The value of such
obligations may be more susceptible to real and perceived adverse economic or
industry conditions than is the case of higher rated securities. The Funds are
dependent on the Adviser's judgment, analysis and experience in the evaluation
of high yield obligations. In evaluating the creditworthiness of a particular
issue, whether rated or unrated, the Adviser will normally take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, the operating history of the
issuer, the ability of the issuer's management and regulatory matters. The
Adviser will attempt to reduce the risks of investing in lower rated or unrated
obligations through active portfolio management, diversification, credit
analysis and attention to current developments and trends in the economy and the
financial markets. The Funds will also take such action as they consider
appropriate in the event of anticipated financial difficulties, default or
bankruptcy of the issuers of any such obligation.

Derivatives

Call and Put Options on Specific Securities (The Equity Fund and the
Balanced Fund) - A Fund may invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options in respect of specific
securities. A Fund may write covered call and put option contracts to the extent
of 10% of the value of its net assets at the time such option contracts are
written. A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying security at the exercise price at
any time during the option period. Conversely, a put option gives the purchaser
of the option the right to sell, and obligates the writer to buy, the underlying
security at the exercise price at any time during the option period. A covered
call option written by the Fund, which is a call option with respect to which
the Fund owns the underlying security, exposes the Fund during the term of the
option to possible loss of opportunity to realize appreciation in the market
price of the underlying security or to possible continued holding of a security
which might otherwise have been sold to protect against depreciation in the
market price of the security. A covered put option sold by a Fund exposes the
Fund during the term of the option to a decline in price of the underlying
security. A put option sold by a Fund is covered when, among other things, cash,
cash equivalents or U.S. Government securities or other liquid debt securities
are placed in a segregated account to fulfill the obligation undertaken.

To close out a position when writing covered options, a Fund may make a
"closing purchase transaction", which involves purchasing an option on the same
security with the same exercise price and expiration date as the option which it
has previously written on the security. To close out a position as a purchaser
of an option, a Fund may make a "closing sale transaction," which involves
liquidating the Fund's position by selling the option previously purchased. A
Fund will realize a profit or loss from a closing purchase or sale transaction
depending on the difference between the amount paid to purchase an option and
the amount received from the sale thereof.

A Fund treats options in respect of specific securities that are not traded
on a national securities exchange, and the underlying security, as not readily

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<PAGE>

marketable and, therefore, subject to the limitations under "Certain Fundamental
Policies" below.

A Fund purchases options only to the extent permitted by the policies of
state securities authorities in states where shares of the Fund are qualified
for offer and sale.

Stock Index Options (The Equity Fund and the Balanced Fund) - A Fund may
purchase and write put and call options on stock indexes listed on national
securities exchanges as an investment vehicle for the purpose of realizing its
investment objectives or for the purpose of hedging its portfolio. A stock index
fluctuates with changes in the market values of the stocks included in the
index. Should a Fund seek to engage in transactions concerning put and call
options on stock indexes, options would be purchased or written with respect to
not more than 25% of the value of the Fund's net assets.

The effectiveness of purchasing or writing stock index options will depend
upon the extent to which price movements in a Fund's portfolio correlate with
price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund will realize a gain or loss from the
purchase or writing of options on an index depends upon movements in the level
of stock prices in the stock market generally or, in the case of certain
indexes, in an industry or market segments, rather than movements in the price
of a particular stock. Accordingly, successful use by a Fund of options on stock
indexes is subject to the Adviser's ability to predict correctly movements in
the direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks.

A Fund engages in stock index option transactions only when determined by
the Adviser to be consistent with the Fund's investment objectives. There can be
no assurance that the use of these portfolio strategies will be successful. When
a Fund writes an option on a stock index, the Fund will place in a segregated
account with its custodian, cash or U.S. Government securities in an amount at
least equal to the market value of the underlying stock index and will maintain
the account while the option is open or the Fund will otherwise cover the
transaction. Although a Fund intends to purchase or write only those stock index
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular option at
any specific time. In such event, it may not be possible to effect closing
transactions with respect to certain stock index options, with the result that a
Fund would have to exercise those options which it has purchased in order to
realize any profit. With respect to stock index options written by a Fund, the
inability to enter into a closing transaction may result in material losses to
the Fund. For example, because a Fund must maintain a covered position with
respect to any call option it writes, the Fund may not sell the underlying
securities used as cover during the period it is obligated under an option. This
requirement may impair the Fund's ability to sell a portfolio security or make
an investment at a time when such a sale or investment might be advantageous.

Futures Transactions - In General (All Funds as noted below, except the
Cash Management Fund) - The Funds are not commodity pools. However, the Funds
may engage in futures transactions, including those relating to indexes, as
described below.

A Fund's commodities transactions must constitute bona fide hedging or
other permissible transactions pursuant to regulations promulgated by the
Commodity Futures Trading Commission (the "CFTC"). In addition, a Fund may not
engage in such activities if the sum of the amount of initial margin deposits
and premiums paid for unexpired commodity options would exceed 5% of the fair
market value of a Fund's assets, after taking into account unrealized profits
and unrealized losses on such contracts it has entered into; provided, however,
that in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in calculating the 5%. In connection with
its futures transactions, a Fund will establish and maintain at its custodian
bank a segregated account consisting of cash or high quality money market
instruments in an amount generally equal to the market value of the underlying
commodity less any amount deposited as margin. The segregation of such assets
will have the effect of limiting a Fund's ability to otherwise invest those
assets.

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amount is subject to change by the exchange or board of trade on which the
contract is traded and members of such exchange or board of trade may impose
their own higher requirements. This amount is known as "initial margin" and is
in the nature of a performance bond or good faith deposit on the contract which
is returned to a Fund upon termination of the futures position, assuming all
contractual obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker will be made daily as the price of
the index underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
"marking-to-market." At any time prior to the expiration of a futures contract,
a Fund may elect to close the position by taking an opposite position at the
then prevailing price, which will operate to terminate the Fund's existing
position in the contract.

Although a Fund will intend to purchase or sell futures contracts only if
there is an active market for such contracts, no assurance can be given that a
liquid market will exist for any particular contract at any particular time.
Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. Futures contract prices could move to the daily
limit for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and potentially subjecting a
Fund to substantial losses. If it is not possible or a Fund determines not to
close a futures position in anticipation of adverse price movements, the Fund
will be required to make daily cash payments of variation margin. In such
circumstances, an increase in the value of the portion of the portfolio being
hedged, if any, may offset partially or completely losses on the futures
contract. However, no assurance can be given that the price of the securities
being hedged will correlate with the price movements in a futures contract and
thus provide an offset to losses on the futures contract.

In addition, due to the risk of an imperfect correlation between securities
in the Fund's portfolio that are the subject of a hedging transaction and the
futures contract used as a hedging device, it is possible that the hedge will
not be fully effective in that, for example, losses on the portfolio securities
may be in excess of gains on the futures contract or losses on the futures
contract may be in excess of gains on the portfolio securities that were the
subject of the hedge. In futures contracts based on indexes, the risk of
imperfect correlation increases as the composition of the Fund's portfolio
varies from the composition of the index. In an effort to compensate for the
imperfect correlation of movements in the price of the securities being hedged
and movements in the price of futures contracts, a Fund may buy or sell futures
contracts in a greater or lesser dollar amount than the dollar amount of the
securities being hedged if the historical volatility of the futures contract has
been less or greater than that of the securities. Such "over hedging" or "under
hedging" may adversely affect a Fund's net investment results if market
movements are not as accurately anticipated when the hedge is established.

Stock Index Futures (The Equity Fund and the Balanced Fund) - A Fund may
purchase and sell stock index futures contracts. A stock index future obligates
the seller to deliver (and the purchaser to take) an amount of cash equal to a
specific dollar amount times the difference between the value of a specific
stock index at the close of the last trading day of the contract and the price
at which the agreement is made. No physical delivery of the underlying stocks in
the index is made. A Fund will intend to purchase and sell futures contracts on
the stock index for which it can obtain the best price with consideration also
given to liquidity. A Fund may not purchase or sell stock index futures
contracts if, immediately thereafter, more than 25% of its net assets would be
hedged.

While incidental to its securities activities, a Fund may use stock index
futures as a substitute for a comparable market position in the underlying
securities.

There can be no assurance of a Fund's successful use of stock index futures
as a hedging device. In addition to the possibility that there may be an
imperfect correlation, or no correlation at all, between movements in the stock
index futures and portion of the portfolio being hedged, the price of stock
index futures may not correlate perfectly with the movement in the stock index
because of certain market distortions. First, all participants in the futures
market are subject to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through offsetting transactions which would distort the normal

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<PAGE>

relationship between the index and futures markets. Secondly, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than the margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market also may cause
temporary price distortions. Because of the possibility of price distortions in
the futures market and the imperfect correlation between movements in the stock
index and movements in the price of stock index futures, a correct forecast of
general market trends by the Adviser still may not result in a successful
hedging transaction.

Successful use of stock index futures by a Fund also is subject to the
Adviser's ability to predict correctly movements in the direction of the market.
For example, if a Fund has hedged against the possibility of a decline in the
market adversely affecting stocks held in its portfolio and stock prices
increase instead, a Fund will lose part or all of the benefit of the increased
value of its stocks which it has hedged because it will 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.

Interest Rate Futures (The Intermediate Bond Fund and the Balanced Fund) -
A Fund may purchase an interest rate futures contract in anticipation of a
decline in interest rates, and resulting increase in market price, in debt
securities the Fund intends to acquire. A Fund may sell an interest rate futures
contract in anticipation of an increase in interest rates, and resulting decline
in market price, in debt securities the Fund owns. An interest rate futures
contract is an agreement to purchase or sell an agreed amount of debt securities
at a set price for delivery on a future date. These transactions are subject to
similar risk factors as those described above with respect to stock index
futures. A Fund may not purchase or sell interest rate futures contracts if,
immediately thereafter, more than 25% of its net assets would be hedged.

Options on Futures (All Funds, except the Cash Management Fund) - A Fund
may purchase and write call and put options on futures contracts which are
traded on a United States exchange or board of trade. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract at a specified exercise price at any
time during the option period. Upon exercise of the option, the writer of the
option is obligated to convey the appropriate futures position to the holder of
the option. If an option is exercised on the last trading day before the
expiration date of the option, a cash settlement will be made in an amount equal
to the difference between the closing price of the futures contract and the
exercise price of the option. The risks associated with these transactions are
similar to those described above with respect to options on securities. A Fund
may not purchase or write options on futures if, immediately thereafter, more
than 25% of its net assets would be hedged.

Forward Foreign Currency Exchange Contracts (All Funds, except the Cash
Management Fund) - A Fund may enter into forward foreign currency exchange
contracts. A forward foreign currency exchange contract is a contract
individually negotiated and privately traded by currency traders and their
customers. A forward contract involves an obligation to purchase or sell a
specific currency for an agreed price at a future date, which may be any fixed
number of days from the date of the contract. A 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
determines that there is an established historical pattern of correlation
between the two currencies. The purpose of entering into these contracts is to
minimize the risk to a Fund from adverse changes in the relationship between the
U.S. Dollar and foreign currencies. In addition, a Fund may purchase forward
contracts for non-hedging purposes when the Adviser anticipates that the foreign
currency will appreciate in value, but securities denominated in that currency
do not present attractive investment opportunities. However, forward contracts
may limit potential gain from a positive change in the relationship between the
U.S. Dollar and foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance for a Fund than if it had not entered into
forward foreign currency exchange contracts.

Mortgage-Related Securities (The Intermediate Bond Fund and the Balanced
Fund) - Mortgage pass- through securities are securities representing interests
in "pools" of mortgages in which payments of both interest and principal on the

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securities are made monthly, in effect "passing through" monthly payments made
by the individual borrowers on the residential mortgage loans which underlie the
securities (net of fees paid to the issuer or guarantor of the securities).

Early repayment of principal on mortgage pass-through securities (arising
from prepayments of principal due to sale of the underlying property,
refinancing, or foreclosure, net of fees and costs which may be incurred) may
expose a Fund to a lower rate of return upon reinvestment of principal. Also, if
a security subject to repayment has been purchased at a premium, in the event of
prepayment the value of the premium would be lost. Like other fixed-income
securities, when interest rates rise, the value of a mortgage-related security
generally will decline; however, when interest rates decline, the value of
mortgage-related securities with prepayment features may not increase as much as
other fixed-income securities. In recognition of this prepayment risk to
investors, the Public Securities Association (the "PSA") has standardized the
method of measuring the rate of mortgage loan principal prepayments. The PSA
formula, the Constant Prepayment Rate (the "CPR") or other similar models that
are standard in the industry will be used by a Fund in calculating maturity for
purposes of its investment in mortgage- related securities.

Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association "GNMA"); or
guaranteed by agencies or instrumentalities of the U.S. Government (in the case
of securities guaranteed by the Federal National Mortgage Association ("FNMA")
or the Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported
only by the discretionary authority of the U.S. Government to purchase the
agency's obligations). Mortgage pass- through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers) may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance, and
letters of credit, which may be issued by governmental entities, private
insurers of the mortgage poolers.

Collateralized Mortgage Obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and prepaid principal on a CMO are paid,
in most cases, monthly. CMOs may be collateralized by whole mortgage loans but
are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured into multiple
classes, with each class bearing a different stated maturity and principal
payment schedule. To the extent a particular CMO is issued by an investment
company, a Fund's ability to invest in such CMOs will be limited. See
"Investment Restrictions" in the Statement of Additional Information.

The Adviser expects that governmental, government-related or private
entities may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage-collateralized investments in
addition to those described above. As new types of mortgage-related securities
are developed and offered to investors, the Adviser will, consistent with a
Fund's investment objectives, policies and quality standards, consider making
investments in such new types of mortgage-related securities and, if necessary,
the Prospectus will be revised accordingly.

Other Asset-Backed Securities (The Intermediate Bond Fund and the Balanced
Fund) - Other asset- backed securities (unrelated to mortgage loans) have been
offered to investors, such as Certificates for Automobile Receivables
("CARS(SM)"). CARS(SM) represent undivided fractional interests in a trust
("trust") whose assets consist of a pool of motor vehicle retail installment
sales contracts and security interests in the vehicles securing the contracts.
Payments of principal and interest on CARS(SM) are "passed through" monthly to
certificate holders and are guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution unaffiliated
with the trustee or originator of the trust or by the existence of a
subordinated class of securities. Underlying sales contracts are subject to
prepayment, which may reduce the overall return to certificate holders. If the
letter of credit is exhausted, certificate holders may also experience delays in
payment or losses on CARS(SM) if the full amounts due on underlying sales
contracts are not realized by the trust because of unanticipated legal or
administrative costs of enforcing the contracts, or because of depreciation,
damage or loss of the vehicles securing the contracts, or other factors. For

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<PAGE>

asset-backed securities, the industry standard uses a principal prepayment
model, the ABS model, which is similar to the PSA described previously under
"Mortgage-Related Securities". Either the PSA model, the ABS model or other
similar models that are standard in the industry will be used by a Fund in
calculating maturity for purposes of its investment in asset-backed securities.

Lending Portfolio Securities (All Funds) - To earn additional income, a
Fund may lend securities from its portfolio to brokers, dealers or other
financial institutions needing to borrow securities to complete certain
transactions. Such loans may not exceed 33% of a Fund's total assets. In
connection with such loans, a Fund will receive collateral which will be
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. A Fund can increase its income through
the investment of such collateral. A Fund continues to be entitled to payments
in amounts equal to the interest, dividends or other distributions payable on
the loaned security and receives interest on the amount of the loan. Such loans
will be terminable at any time upon specified notice. A Fund might experience
risk of loss if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with the Fund.

Certain Fundamental Policies (All Funds, except as noted below) - Each Fund
(i) may borrow money from banks, but only for temporary or emergency (not
leveraging) purposes, in an amount up to 5% of the value of its total assets
(including the amount borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made; (ii) may pledge, hypothecate, mortgage or otherwise encumber its assets,
but only in an amount up to 10% of the value of its total assets to secure
borrowings for temporary or emergency purposes, or up to 20% in connection with
the purchase and sale of put and call options; (iii) may invest up to 5% of the
value of its total assets in the securities of any one issuer (This restriction
applies only with respect to 75% of the total assets of each Fund, other than
the Cash Management Fund for which the restriction is applied to 100% of its
total assets); (iv) may invest up to 25% of its total assets in any single
industry, except with respect to the Cash Management Fund's investment in
domestic banks; and (v) may invest up to 10% of its total assets in time
deposits maturing from two business days through seven calendar days. The Equity
Fund may invest up to 10% of its net assets in securities that have not been
registered under the Securities Act of 1933, as amended, and therefore are
subject to restrictions on resale, in repurchase agreements providing for
settlement in more than seven days after notice and in securities that are not
readily marketable (including those options in respect of specific securities
that are not traded on a national securities exchange, and the underlying
security, which are not readily marketable). Subject to this limitation, the
Equity Fund may invest in securities eligible for resale pursuant to Rule144A of
the Securities Act of 1933 which have been determined to be liquid by the Fund's
Board of Trustees based upon the trading markets for the securities. Each of the
other Funds may invest up to 10% of its net assets in repurchase agreements
providing for settlement in more than seven days after notice and in securities
that are not readily marketable. Included in this limitation are "restricted"
securities and any other assets for which an active and substantial market does
not exist at the time of purchase or subsequent valuation. Restricted securities
for purposes of this limitation do not include investments by these Funds in
securities eligible for resale pursuant to Rule 144A of the Securities Act of
1933 which have been determined to be liquid by the Fund's Board of Trustees
based upon the trading markets for the securities (see "Investment Objectives
and Management Policies - Rule144A Securities" in the Statement of Additional
Information for further details). This paragraph describes fundamental policies
that cannot be changed without approval by the holders of a majority (as defined
in the Investment Company Act of 1940) of each Fund's outstanding voting shares.
See "Investment Objectives and Management Policies Investment Restrictions" in
the Statement of Additional Information.

Other Investment Considerations - Investment decisions for each Fund are
made independently from those of other investment advisory accounts that may be
advised by the Adviser or Sub-Adviser. However, if such other investment
advisory accounts are prepared to invest in, or desire to dispose of, securities
of the type in which a Fund invests at the same time as the Fund, available
investments or opportunities for sales will be allocated equitably to each of
them. In some cases, this procedure may adversely affect the size of the
position obtained for or disposed of by a Fund or the price paid or received by
the Fund.

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Management of the Funds

Investment Adviser and Administrator

Teton Advisers LLC, located at One Corporate Center, Rye, New York
10580-1434, is adviser to the Funds. The Adviser, formed in 1994, is a Texas
limited liability company. Gabelli and its affiliates own a majority of the
Adviser. Gabelli and Teton are registered investment advisers. The Adviser has
entered into a Sub-Advisory Agreement with Westwood. Under the Sub-Advisory
Agreement, the Adviser pays Westwood out of its advisory fees with respect to
the Funds a fee computed daily and payable monthly in an amount equal on an
annualized basis to the greater of (i) $150,000 per year on an aggregate basis
for all the Funds or (ii) 35% of the net revenues to the Adviser from the Funds.
Westwood Management Corp., formed in 1983 and located at 885 Third Avenue, New
York, New York 10022, is a registered investment adviser managing, as of
September 30, 1995, an aggregate of approximately $ million in separate
accounts, primarily corporate pension funds. Susan M. Byrne, President of the
Sub-Adviser since 1983, is responsible for the day-to-day management of the
Equity Fund's portfolio. Patricia R. Fraze, Senior Vice President of the
Sub-Adviser since 1992, is responsible for the day-to-day management of the
Intermediate Bond Fund's portfolio. Ms. Fraze joined the Sub-Adviser in 1990.
Ms. Byrne and Ms. Fraze are jointly responsible for the day-to-day management of
the Balanced Fund's portfolio. Westwood Management is a wholly owned subsidiary
of Southwest Securities Group, Inc., a Dallas based securities firm.

The Adviser is responsible for overseeing Westwood's activities. The
Investment Advisory Agreement provides that the Adviser will supervise and
manage each Fund's investment activities on a discretionary basis and oversee
the administration of each Fund's business and affairs. In this connection the
Adviser is responsible for maintaining certain of the Funds' books and records
and performing other administrative aspects of the Funds' operations to the
extent not performed by the Funds' custodians, transfer agents and dividend
disbursing agents. The Adviser is permitted to subcontract at its own expense
those administrative responsibilities to persons it believes are qualified to
perform such services and has retained Furman Selz LLC (the "Administrator") to
serve as administrator with respect to the Funds. As compensation for its
services and related expenses, the Trust will pay the Adviser a fee computed
daily and payable monthly in an amount equal on an annualized basis to 1.0% for
the Equity Fund, .50% for the Cash Management Fund, .60% for the Intermediate
Bond Fund and .75% for the Balanced Fund of each Fund's daily average net asset
value. The fees paid by the Trust for the Equity Fund and the Balanced Fund are
higher than the fees paid by most funds for such services and related expenses.
The Funds will also pay the Adviser or Distributor separately for any costs and
expenses incurred in connection with distribution of the classes of each Fund's
shares in accordance with the terms of their respective Plans of Distribution
adopted for such classes pursuant to Rule 12b-1 under the 1940 Act.

The Adviser has retained at its own cost Furman Selz LLC ("Furman Selz") to
provide administrative services with respect to the Funds. Furman Selz is
located at 230 Park Avenue, New York, New York 10169. Furman Selz is a
registered transfer agent and broker-dealer and acts as administrator and
general distribution agent for certain other investment companies.

Distributor

Gabelli & Company, Inc. serves as the distributor (the "Distributor") of
the Funds and is an indirect subsidiary of Gabelli Funds, Inc. The business
address of Gabelli & Company, Inc. is One Corporate Center, Rye, New York
10580-1434.

On September 30, 1994, the Funds' shareholders approved a Plan of
Distribution for the Retail Class shares pursuant to Rule 12b-1 (the "Retail
12b-1 Plan").

The Retail 12b-1 Plan authorizes payments by the Funds in connection with
the distribution of the Funds' Retail Class shares at an annual rate, as
determined from time to time by the Board of Trustees, of up to .25% of the
Funds' average daily net assets. Payments will be accrued daily and paid monthly
or at such other intervals as the Board may determine and may be paid in advance
of actual billing, based on estimates of actual expenditures incurred during the
period. Payments may be made in subsequent years for expenses incurred in prior
years if such payment is separately authorized by the Board. The Board, however,

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<PAGE>

has no legal obligation to authorize such payments in the future and thus may
not authorize them.

Payments may be made by the Funds under the Retail 12b-1 Plan for the
purpose of financing any activity primarily intended to result in the sale of
the Retail Class shares of the Funds as determined by the Board of Trustees.
Such activities typically include advertising, compensation for sales and sales
marketing activities of the distributor and other banks, broker-dealers and
service providers, shareholder account servicing, production and dissemination
of prospectus and sales and marketing materials, and capital or other expenses
of associated equipment, rent, salaries, bonuses, interest and other overhead.
To the extent any activity is one which the Funds may finance without a plan of
distribution, the Funds may also make payments to finance such activity outside
of the Retail 12b-1 Plan and not be subject to its limitations.

The Funds have entered into a Distribution Agreement with the Distributor
authorizing reimbursement of expenses (including overhead) incurred by the
Distributor and its affiliates as described above. Distribution activities
include, without limitation, advertising the Funds; compensating underwriters,
dealers, brokers, banks and other selling entities and sales and marketing
personnel of any of them for sales of shares of the Funds, whether in a lump sum
or on a continuous, periodic, contingent, deferred or other basis; compensating
underwriters, dealers, brokers, banks and other servicing entities and servicing
personnel of any of them (including the Adviser and its personnel) for providing
services to shareholders of the Funds relating to their investment in the Funds,
including assistance in connection with inquiries relating to shareholder
accounts; the production and dissemination of prospectuses (including statements
of additional information) of the Funds and the preparation, production and
dissemination of sales, marketing and shareholder servicing materials, ordinary
or capital expenses, such as equipment, rent, fixtures, salaries, bonuses,
reporting and recordkeeping and third party consultancy or similar direct and
indirect expenses relating to any activity for which payment is authorized by
the Board of Trustees. To the extent any of these payments is based on
allocations by the Distributor, the Funds may be considered to be participating
in joint distribution activities with other funds distributed by the
Distributor. Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing in the Funds'
Shares. In the unlikely event that a court were to find that these laws prevent
such banks from providing the services described above, the Funds would seek
alternative providers and expects that shareholders would not experience any
disadvantage.

Purchase of Shares

Retail Class Shares and both classes of Shares of the Cash Management Fund
are no-load. The minimum initial investment is $1,000. There is no minimum
initial investment for accounts establishing an Automatic Investment Plan.
Custodial accounts for minor children are also available. There is no minimum
for subsequent investments. Shares of the Funds are sold at the public offering
price based on the net asset value per share next determined after receipt of an
order by the Funds' Distributor or transfer agent in proper form with
accompanying check or bank wire payments arrangements satisfactory to the Funds.
Although most shareholders elect not to receive stock certificates, certificates
for whole shares only can be obtained on specific written request to the
Transfer Agent.

Shares of the Funds may be purchased through registered broker-dealers.
Certain broker-dealers may charge the investor a fee for their services.
Compensation to sales persons may vary depending upon which class of shares they
sell. Such fees may vary among broker-dealers, and such broker-dealers may
impose higher initial or subsequent investment requirements than those
established by the Funds. Services provided by broker-dealers may include
allowing the investor to establish a margin account and to borrow on the value
of such Fund's shares in that account.

Prospectuses, sales material and subscription order forms ("applications")
may be obtained from the Distributor. The Funds and the Distributor reserve the
right in their sole discretion (1) to suspend the offering of the Funds' shares
and (2) to reject purchase orders when, in the judgment of the Funds'
management, such rejection is in the best interest of the Funds. The calculation
of net asset value per share is performed at 12:00 noon for the Cash Management

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<PAGE>

Fund and at 4:15 p.m. for the other Funds on each day that the New York Stock
Exchange is open for business. Net asset value per share is computed by dividing
the value of a Fund's net assets (i.e., the value of its assets less its
liabilities) by the total number of shares outstanding. All expenses of the
Funds are accrued daily and taken into account for the purpose of determining
net asset value.

In determining net asset value, securities listed on an exchange are valued
on the basis of the last sale price prior to the time the valuation is made. If
there has been no sale since the immediately previous valuation, then the
current bid price is used. Quotations are taken for the exchange where the
security is primarily traded. Portfolio securities which are primarily traded on
foreign exchanges may be valued with the assistance of a pricing service and are
generally valued at the preceding closing values of such securities on their
respective exchanges, except that when an occurrence subsequent to the time a
foreign security is valued is likely to have changed such value, then the fair
value of those securities will be determined by consideration of other factors
by or under the direction of the Board of Trustees. Over-the-counter securities
are valued on the basis of the bid price at the close of business on each
business day. Securities for which market quotations are not readily available
are valued at fair value as determined in good faith by or at the direction of
the Board of Trustees. Notwithstanding the above, bonds and other fixed-income
securities are valued by using market quotations and may be valued on the basis
of prices provided by a pricing service approved by the Board of Trustees. All
assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars at the mean between the bid and asked prices of such
currencies against U.S. dollars as last quoted by any major bank.

With respect to written options contracts, the premium received is recorded
as an asset and equivalent liability, and thereafter the liability is adjusted
to the market value of the option determined in accordance with the preceding
paragraph. The premium paid for an option purchased by a Fund is recorded as an
asset and subsequently adjusted to market value. See "Determination of Net Asset
Value" in the Statement of Additional Information.

Mail

To make an initial purchase by mail, send a completed application with a
check for the amount of the investment payable to "The Westwood Funds," to:

The Westwood Funds
P.O. Box 8308
Boston, MA 02266-8308

You may also personally deliver a check made payable to "The Westwood
Funds" along with a completed application to:

The Westwood Funds
The BFDS Building, 7th Floor
Two Heritage Drive
North Quincy, MA 02171

Subsequent purchases do not require a completed application and can be made
by (1) mailing a check to the same address noted above or by (2) bank wire, as
indicated below. The exact name and number of the shareholder's account should
be clearly indicated.

Checks will be accepted if drawn in U.S. currency on a domestic bank for
less than $100,000. U.S. dollar checks drawn against a non-U.S. bank may be
subject to collection delays and will be accepted only upon actual receipt of
funds by the Transfer Agent. Bank collection fees may apply. Bank or certified
checks for investments of $100,000 or more will be required unless the investor
elects to invest by bank wire as described below.

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<PAGE>

Bank Wire

To initially purchase shares of the Funds using the wire system for
transmittal of money among banks, an investor should first telephone the Funds
at 1-800-WESTWOOD to obtain a new account number. The investor should instruct a
Federal Reserve System member bank to wire funds to:

State Street Bank and Trust Company
ABA #011-0000-28 REF DDA #99046187
Attn: Shareholder Services
Re: The Westwood Funds
A/C #
-------------------------------
Account of (Registered Owner)
-------------------------
225 Franklin Street, Boston, MA 02110

For initial purchases by wire, the investor should promptly complete and
mail the application to the address shown above for mail purchases. There may be
a charge by your bank for transmitting the money by bank wire but State Street
Bank and Trust Company does not charge investors in the Funds for the receipt of
wire transfers. If you are planning to wire funds, it is suggested that you
instruct your bank early in the day so the wire transfer can be accomplished the
same day.

Telephone Investment Plan

You may purchase additional shares of the Funds by telephone through the
Automated Clearinghouse (ACH) system as long as your bank is a member of the ACH
system and you have a completed, approved Investment Plan application on file
with our Transfer Agent. The funding for your purchase will be automatically
deducted from the ACH eligible account you designate on the application. Your
investment will normally be credited to your Westwood Fund account on the first
business day following your telephone request. Your request must be received no
later than 4:00 p.m. eastern time. There is a minimum of $100 for each telephone
investment. Any subsequent changes in banking information must be submitted in
writing and accompanied by a sample voided check. To initiate an ACH purchase,
please call 1-800-WESTWOOD. Fund shares purchased through the Telephone or
Automatic Investment Plan will not be available for redemption for up to fifteen
(15) days following the purchase date.

Automatic Investment Plan

The Funds offer an automatic monthly investment plan, details of which can
be obtained from the Distributor. There is no minimum initial investment for
accounts establishing an automatic investment plan.

Systematic Withdrawal Plan

The Funds offer a systematic withdrawal program for shareholders whereby
they can authorize an automatic redemption on a monthly, quarterly or annual
basis. Details can be obtained from the Distributor.

Other Investors

No minimum initial investment is required for officers, directors or
full-time employees of the Funds, other investment companies managed by the
Sub-Adviser, the Adviser, the Administrator, the Distributor or their
affiliates, including members, of the "immediate family" of such individuals and
retirement plans and trusts for their benefit. The term "immediate family"
refers to spouses, children and grandchildren (adopted or natural), parents,
grandparents, siblings, a spouse's siblings, a sibling's spouse and a sibling's
children.

Redemption of Shares

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<PAGE>

be mailed to the shareholder's address of record within seven days, but will not
be mailed until all checks in payment for the purchase of the shares to be
redeemed have been honored, which may take up to 15 days. The proceeds of a
redemption may be more or less than the amount invested and, therefore, a
redemption may result in gain or loss for income tax purposes. Redemption
requests may be made by letter to the Transfer Agent, specifying the name of the
Fund, the dollar amount or number of shares to be redeemed, and the account
number. The letter must be signed in exactly the same way the account is
registered (if there is more than one owner of the shares, all must sign) and,
if any certificates for the shares to be redeemed are outstanding, presentation
of such certificates properly endorsed is also required. Signatures on a
redemption request and/or certificates must be guaranteed by an "eligible
guarantor institution" as such term is defined in Rule 17Ad-15 under the
Securities and Exchange Act of 1934, which includes certain banks, brokers,
dealers, credit unions, securities exchanges and associations, clearing agencies
and savings associations (signature guarantees by notaries public are not
acceptable). Shareholders may also redeem a Fund's shares through certain
registered broker-dealers, who have made arrangements with the Funds permitting
them to redeem shares by telephone or facsimile transmission and who may charge
shareholders a fee for this service if they have not received any payments under
the Distribution Plan.

Further documentation, such as copies of corporate resolutions and
instruments of authority, are normally requested from corporations,
administrators, executors, personal representatives, trustees or custodians to
evidence the authority of the person or entity making the redemption request.

If the Board of Directors should determine that it would be detrimental to
the remaining shareholders of the Funds to make payment wholly or partly in
cash, the Funds may pay the redemption price in whole or in part by a
distribution in kind of securities from the portfolio of the Funds, in lieu of
cash, in conformity with applicable rules of the Securities and Exchange
Commission. Under such circumstances, shareholders of the Funds receiving
distributions in kind of securities will incur brokerage commissions when they
dispose of the securities.

The Funds may suspend the right of redemption or postpone the date of
payment for more than seven days during any period when (1) trading on the New
York Stock Exchange is restricted or the Exchange is closed, other than
customary weekend and holiday closings; (2) the Securities and Exchange
Commission has by order permitted such suspension or (3) an emergency, as
defined by rules of the Securities and Exchange Commission, exists making
disposal of portfolio investments or determination of the value of the net
assets of the Funds not reasonably practicable.

To minimize expenses, the Funds reserve the right to redeem, upon not less
than 30 days notice, all shares of the Funds in an account (other than an IRA)
which as a result of shareholder redemption has a value below $500. However, a
shareholder will be allowed to make additional investments prior to the date
fixed for redemption to avoid liquidation of the account.

Telephone Redemption By Check

The Funds accept telephone requests for redemption of unissued shares,
subject to a $25,000 limitation. By calling 1-800-WESTWOOD, you may request that
a check be mailed to the address of record on the account, provided that the
address has not changed within thirty (30) days prior to your request. The check
will be made payable to the person in whose name the account is registered and
will normally be mailed within seven (7) days.

The Fund and its transfer agent will not be liable for following telephone
instructions reasonably believed to be genuine. In this regard, the Fund and its
transfer agent require personal identification information before accepting a
telephone redemption. If the Fund or its transfer agent fail to use reasonable
procedures, the Fund might be liable for losses due to fraudulent instructions.
A shareholder may redeem shares by telephone unless he elects in the
subscription order form not to have such ability.

Check Writing

A check redemption ($500 minimum, no maximum) feature is available with
respect to the Cash Management Fund. Checks are free and may be obtained from
the Distributor. It is not possible to use a check to close out your account
since additional dividends accrue daily.

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<PAGE>

By Bank Wire

The Funds accept telephone requests for wire redemption in excess of $1,000
(but subject to a $25,000 limitation) to a predesignated bank either on the
application or in a subsequent written authorization with the signature
guaranteed. The Funds accept signature guaranteed written requests for
redemption by bank wire without limitation. The proceeds are normally wired on
the following business day. Your bank must be either a member of the Federal
Reserve System or have a correspondent bank which is a member. Any change to the
banking information made at a later date must be submitted in writing with a
signature guarantee.

Requests for telephone redemption must be received between 9:00 a..m. and
4:00 p.m. eastern time. If your telephone call is received after this time or on
a day when the New York Stock Exchange is not open, the request will be entered
the following business day. Shares are redeemed at the net asset value next
determined following your request. Fund shares purchased by check or through the
automatic purchase plan will not be available for redemption for up to fifteen
(15) days following the purchase. Shares held in certificate form must be
returned to the Transfer Agent for redemption of shares. Telephone redemption is
not available for IRAs. The proceeds of a telephone redemption may be directed
to an existing account in another of the Funds, provided the account is
registered in the redeeming shareholder's name. See "Exchange of Fund Shares".

Exchange of Funds Shares

The Funds offer two convenient ways to exchange shares in a class of one
Fund for shares in a corresponding class of another fund managed by the Adviser
or an affiliate. Before engaging in an exchange transaction, a shareholder
should read carefully the portions of this Prospectus or the other Prospectus
describing the fund into which the exchange will occur. A shareholder may not
exchange shares of a class of one Fund for shares of a corresponding class of
another fund if either are not legally qualified or registered for sale in the
state of the shareholder's residence. The minimum amount for an initial exchange
is $1,000. No minimum is required in subsequent exchanges. The Trust may
terminate or amend the terms of the exchange privilege at any time upon 60 days'
written notice to shareholders.

A new account opened by exchange must be established with the same name(s),
address and social security number as the existing account. All exchanges will
be made based on the net asset value next determined following receipt of the
request by a Fund in good order, plus any applicable sales load.

An exchange is taxable as a sale of a security on which a gain or loss may
be recognized. Shareholders should receive written confirmation of the exchange
within a few days of the completion of the transaction.

In the case of transactions subject to a sales charge, the sales charge
will be assessed on an exchange of shares, equal to the excess of the sales load
applicable to the shares to be acquired, over the amount of any sales load
previously paid to the Distributor on the shares to be exchanged. No service fee
is imposed. See "Dividends, Distributions and Taxes" for an explanation of
circumstances in which sales load paid to acquire shares of the Funds may not be
taken into account in determining gain or loss on the disposition of those
shares.

Exchange by Mail

To exchange Fund shares by mail, simply send a letter of instruction to the
Distributor. The letter of instruction must include: (i) your account number;
(ii) the names of the Funds from which and into which you wish to exchange your
investment; (iii) the dollar or share amount you wish to exchange; and (iv) the
signatures of all registered owners or authorized parties. All signatures must
be guaranteed by a member of a national securities exchange or by a commercial
bank or trust company. Corporations, trusts, partnerships or other legal
entities will be required to furnish other documentation. Please call the Funds
for more information.

Exchange by Telephone

To exchange Fund shares by telephone or if you have any questions, simply
call the Funds toll free at 1-800-WESTWOOD. You should be prepared to give the
telephone representative the following information; (i) your account number,
social security number and account registration; (ii) the names of the Funds
from which and into which you wish to exchange your investment; and (iii) the
dollar or share amount you wish to exchange. The conversation may be recorded to

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<PAGE>

protect you and the Funds. Telephone exchanges are available only if the
shareholder so indicates by checking the "yes" box on the Purchase Application.

Retirement Plans

The Funds have available a form of Individual Retirement Account ("IRA")
for investment in Fund shares which may be obtained from the Distributor. The
minimum investment required to open an IRA for investment in shares of the Funds
is $1,000 for an individual, except that both the individual and his or her
spouse may establish separate IRAs if their combined investment is $1,250. There
is no minimum for additional investment in an IRA account. Investors who are
self-employed may purchase shares of the Funds through tax-deductible
contributions to retirement plans for self-employed persons, known as Keogh or
HR 10 plans. The Funds do not currently act as Sponsor for such plans. Fund
shares may also be a suitable investment for other types of qualified pension or
profit-sharing plans which are employer-sponsored, including deferred
compensation or salary reduction plans known as "401(k) Plans" which give
participants the right to defer portions of their compensation for investment on
a tax-deferred basis until distributions are made from the plans. The minimum
initial investment for an individual under such plans is $1,000 and there is no
minimum for additional investments. Under the Internal Revenue Code of 1986 (the
"Code"), individuals may make wholly or partly tax deductible IRA contributions
of up to $2,000 annually, depending on whether they are active participants in
an employer-sponsored retirement plan and on their income level. However,
dividends and distributions held in the account are not taxed until withdrawn in
accordance with the provisions of the Code. An individual with a non-working
spouse may establish a separate IRA for the spouse under the same conditions and
contribute a maximum of $2,250 annually to either or both IRAs provided that no
more than $2,000 be contributed to the IRA of either spouse.

Investors should be aware that they may be subject to penalties of
additional tax on contributions or withdrawals from IRAs or other retirement
plans which are not permitted by the applicable provisions of the Code. Persons
desiring information concerning investments through IRA accounts or other
retirement plans should write or telephone the Distributor.

Dividends, Distributions and Taxes

Each Fund intends to qualify annually and to elect to be treated as a
regulated investment company pursuant to the provisions of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). The Funds did so qualify
for the previous taxable year and intend to continue to so qualify. By so
qualifying and electing, each Fund generally will not be subject to Federal
income tax to the extent that it distributes investment company taxable income
and net capital gains in the manner required under the Code. The requirements
for qualification may cause a Fund to restrict the degree to which it engages in
short-term trading, and transactions in options and futures contracts. In
addition, the Code subjects regulated investment companies, such as the Funds,
to a non-deductible 4% excise tax in each calendar year to the extent that such
investment companies do not distribute substantially all of their taxable
investment income and capital gain, generally determined on a calendar year
basis and the one year period ending October 31 of each calendar year,
respectively.

Each Fund intends to distribute to its shareholders substantially all of
its investment company taxable income (which includes, among other items,
dividends and interest and the excess, if any, of net short-term capital gains
(generally including any net option premium income) over net long-term capital
losses). Investment company taxable income will be distributed by the Equity
Fund annually and the Balanced Fund quarterly. The Intermediate Bond Fund and
the Cash Management Fund will declare distributions of such income daily and pay
those dividends monthly. Each Fund intends to distribute, at least annually,
substantially all net capital gains (the excess of net long-term capital gains
over net short-term capital losses). In determining amounts of capital gains to
be distributed, any capital loss carryovers from prior years will be applied
against capital gains to reduce the amount of distributions paid. In addition,
any losses incurred in the taxable year subsequent to October 31, may be
deferred to the next taxable year and used to reduce subsequent year
distributions (see "Dividends, Distributions and Taxes" in the Statement of
Additional Information). You may choose whether to receive dividends and

24
<PAGE>

distributions in cash or to reinvest in additional shares of the class in which
you are invested at the next determined net asset value without a sales load.

In the case of the Cash Management Fund, shares purchased will begin
earning dividends on the day the purchase order is executed and Federal funds
are received by the Fund, and shares redeemed will earn dividends through the
previous day. Net investment income for a Saturday, Sunday or a holiday will be
declared as a dividend on the previous business day. With respect to the other
Funds, shares purchased will begin earning dividends on the day following the
date of settlement and shares redeemed will earn dividends through the date of
redemption.

Dividends from net investment income or distributions of net realized
short-term securities gains to shareholders generally are taxable as ordinary
income whether received in cash or reinvested in additional shares.
Distributions from net realized long-term gains (i.e., net capital gains) to
shareholders are taxable as long-term capital gains whether received in cash or
reinvested in additional shares. Under current law, the net capital gain of an
individual will be taxed at a maximum rate of 28%.

Special tax rules may apply to a Fund's acquisition of futures contracts,
forward contracts, and options on futures contracts. Such rules may, among other
things, affect whether gains and losses from such transactions are considered to
be short-term or long-term, may have the effect of deferring losses and/or
accelerating the recognition of gains or losses, and, for purposes of qualifying
as a regulated investment company, may limit the extent to which a Fund may be
able to engage in such transactions.

It is anticipated that a portion of the ordinary income dividends paid by
the Equity Fund and the Balanced Fund will qualify for the dividends-received
deduction available to corporations, however, pending tax law proposals may
affect the dividends-received deduction. The dividends paid by the other Funds
are not expected to so qualify. Shareholders will be notified at the end of the
year as to the amount of the dividends that qualify for the dividends-received
deduction.

The Funds may be required to withhold for Federal income tax ("backup
withholding") 31% of the distributions and the proceeds of redemptions payable
to shareholders who fail to provide a correct taxpayer identification number or
to make required certifications, or where a Fund or shareholder has been
notified by the Internal Revenue Service that it is subject to backup
withholding. Corporate shareholders and certain other shareholders specified in
the Code are exempt from backup withholding.

Those Funds which may invest in securities of foreign issuers may be
subject to withholding and other similar income taxes imposed by a foreign
country.

Notice as to the tax status of your dividends and distributions is mailed
to you annually. You also will receive periodic summaries of your account.
Dividends and distributions may be subject to state and local taxes. Dividends
paid or credited to accounts maintained by non-resident shareholders may also be
subject to U.S. non- resident withholding taxes as discussed above. You should
consult your tax adviser regarding specific questions as to Federal, state and
local income and withholding taxes.

Performance Information

A Fund may, from time to time, include its yield, if applicable, and total
return in advertisements or reports to shareholders or prospective investors.
The methods used to calculate the yield and total return of the Funds are
mandated by the Securities and Exchange Commission. Shareholders of the Service
Class of shares will generally experience a lower return on their investment
than shareholders of the Retail Class because of the additional 12b-1 fees to
which Service Class shareholders may be subject.

Quotations of "yield" for a Fund that is not a money market fund will be
based on the investment income per share during a particular 30-day (or one
month) period (including dividends and interest), less expenses accrued during
the period ("net investment income"), and will be computed by dividing net
investment income by the maximum public offering price per share on the last day
of the period.

25
<PAGE>

then "annualized" (i.e., assuming that the seven-day yield would be received for
52 weeks, stated in terms of an annual percentage return on the investment).

"Effective yield" for a money market fund is calculated in a manner similar
to that used to calculate yield, but includes the compounding effect of earnings
on reinvested dividends. Quotations of yield and effective yield reflect a
fund's performance only during the particular seven-day period on which the
calculations are based.

A Fund's average annual total return is expressed in terms of the average
annual compounded rate of return of a hypothetical investment in the Fund over
periods of one, five and ten years (up to the life of the Fund or for shorter
time periods depending upon the length of time during which the Fund has
operated), reflect the deduction of a proportional share of Fund expenses (on an
annual basis), and assume that all dividends and distributions are reinvested
when paid.

Performance information for a Fund may be compared to various unmanaged
indices, such as the Standard & Poor's Composite Stock Price Index, the Dow
Jones Industrial Average, indices prepared by Lipper Analytical Services,
Morningstar ratings and other entities or organizations which track the
performance of investment companies.

Performance will vary and past results are not necessarily representative
of future results. You should remember that performance is a function of
portfolio management in selecting the type and quality of portfolio securities
and is affected by operating expenses. Any 12b-1 fees paid by the Service Class
of the Funds will cause their yield and performance to be lower than that of the
Retail Class. Performance information, such as that described above, may not
provide a basis for comparison with other investments or other investment
companies using a different method of calculating performance.

General Information

The Funds are series portfolios of The Westwood Funds, a Massachusetts
business trust (the "Trust") organized pursuant to an Agreement and Declaration
of Trust (the "Trust Agreement"), as amended and restated on June 12, 1986. The
Trust is authorized to issue an unlimited number of shares of beneficial
interest, par value $.001 per share. Each share has one vote and, when issued,
is fully paid and non-assessable. The Board of Trustees may, in the future,
authorize the issuance of other series of shares of beneficial interest
representing shares of other investment portfolios which may consist of separate
classes as in the case of the Funds. Each additional portfolio within the Trust
is separate for investment and accounting purposes and is represented by a
separate series of shares. Each portfolio will be treated as a separate entity
for Federal income tax purposes.

Each Fund is comprised of two classes of shares - the "Retail Class" and
the "Service Class." The classes have identical rights with respect to the
series portfolio of which they are a part; however, there are certain matters
affecting one class but not another, such as the existence of a load and the
amount of permissible payments under a distribution plan, which may be
considered to create a preference. On all such matters, shareholders vote as a
class, and not by series. Service Class shares are sold to investors who
purchase their shares through an entity that has signed a Dealer Agreement with
the Distributor. Retail Class shares are sold to all other investors including
shares sold by dealers for certain retirement plans and to those who contact the
Fund directly or purchase shares through an entity that has signed an agreement
other than a Dealer Agreement (e.g., Charles Schwab & Co., Inc. or Fidelity
Brokerage Services).

Shareholders have the right to vote on the election of Trustees and on any
and all matters which, by law or the provisions of the Trust's Declaration of
Trust, they may be entitled to vote. All shares of the Trust have equal voting
rights and will be voted in the aggregate, and not by class or series, except
where voting by class or series is required by law or where the matter involved
affects only one class.

26
<PAGE>

incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations,
a possibility which management believes is remote. Upon payment of any liability
incurred by the Trust, the shareholder paying such liability will be entitled to
reimbursement from the general assets of the Trust. The Trustees intend to
conduct the operations of the Trust in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Trust.
As described under "Management of the Funds" in the Statement of Additional
Information, the Funds ordinarily will not hold shareholder meetings; however,
the Trustees are required to call a meeting for the purpose of considering the
removal of persons serving as Trustee if requested in writing to do so by the
holders of not less than 10% of the outstanding shares of the Trust. Under the
Trust Agreement, shareholders of record of not less than two-thirds of the
outstanding shares of the Trust may remove a Trustee either by declaration in
writing or by vote cast in person or by proxy at a meeting called for such
purpose. In connection with the calling of such shareholder meetings,
shareholders will be provided with communication assistance.

State Street Bank and Trust Company and its affiliate, Boston Financial
Data Services, maintain a record of share ownership and sends to shareholders
confirmations and statements of account.

Shareholder inquiries may be made by writing to the Westwood Funds at One
Corporate Center, Rye, NewYork 10580-1434 or by calling 1-800-WESTWOOD.

Upon request, Gabelli & Company, Inc. will provide without a charge, a
paper copy of this Prospectus to investors or their representatives who received
this Prospectus in an electronic format.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE FUNDS'
OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF FUND SHARES, AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUNDS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT
LAWFULLY BE MADE.

27
<PAGE>

THE WESTWOOD FUNDS
One Corporate Center
Rye, New York 10580-1434

General and Account Information:
1-(800) WESTWOOD
1-(800) 938-7966
FAX-1 (914) 921-5118

Investment Adviser
Teton Advisers LLC
One Corporate Center
Rye, New York 10580-1434

Investment Sub-Adviser
Westwood Management Corp.
885 Third Avenue
New York, New York 10022

Distributor
Gabelli & Company, Inc.
One Corporate Center
Rye, New York 10580-1434

Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036

Legal Counsel
Baker & McKenzie
805 Third Avenue
New York, New York 10022

TABLE OF CONTENTS

Page
----
Fee Table ................................................................. 2
Financial Highlights ...................................................... 3
Description of the Funds .................................................. 5
Management of the Funds ................................................... 18
Purchase of Shares ........................................................ 19
Redemption of Shares ...................................................... 21
Exchange of Funds Shares .................................................. 23
Retirement Plans .......................................................... 24
Dividends, Distributions and Taxes ........................................ 24
Performance Information ................................................... 25
General Information ....................................................... 26

===== The =====

Westwood

===== Funds =====

[LOGO]

WESTWOOD EQUITY FUND
WESTWOOD INTERMEDIATE BOND FUND
WESTWOOD BALANCED FUND
WESTWOOD CASH MANAGEMENT FUND

Retail Class
Prospectus

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

January 30, 1996

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

<PAGE>

THE WESTWOOD FUNDS

SERVICE CLASS
CROSS-REFERENCE SHEET
Required by Rule 495(a)
under the Securities Act of 1933

<TABLE>
<CAPTION>
N-1A
Item No. Location
- -------- --------
<S> <C>
Part A ............................................................. Prospectus Caption
Item 1. Cover Page ........................................ Cover Page
Item 2. Synopsis .......................................... Fee Table
Item 3. Condensed Financial Information ................... Condensed Financial Information
Item 4. General Description of Registrant ................. Cover Page; Description of the Funds;
General Information
Item 5. Management of the Fund ............................ Management of the Funds
Item 5(a) Management's Discussion of Performance ............ Not Applicable
Item 6. Capital Stock and Other Securities ................ Cover Page; How to Buy Fund Shares;
Dividends, Distributions and Taxes;
General Information
Item 7. Purchase of Securities Being Offered .............. How to Buy Fund Shares
Item 8. Redemption or Repurchase .......................... How to Redeem Fund Shares
Item 9. Legal Proceedings ................................. Not Applicable

Statement of Additional
Part B Information Caption
Item 10. Cover Page ........................................ Cover Page
Item 11. Table of Contents ................................. Table of Contents
Item 12. General Information and History ................... General Information and History
Item 13. Investment Objectives and Policies ................ Investment Objectives and Management
Policies; Appendix
Item 14. Management of the Fund ............................ Management of the Fund
Item 15. Control Persons and Principal Holders of
Securities ........................................ Management of the Fund
Item 16. Investment Advisory and Other Services ............ Investment Advisory and Other Services
Item 17. Brokerage Allocation .............................. Portfolio Transactions
Item 18. Capital Stock and Other Securities ................ Information About the Funds
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered .......................... Purchase of Fund Shares; Redemption of
Fund Shares; Shareholder Services;
Determination of Net Asset Value
Item 20. Tax Status and Taxes .............................. Dividends, Distributions
Item 21. Underwriters ...................................... Investment Advisory and Other Services
-- Distribution of Fund Shares
Item 22. Calculation of Performance Date ................... Performance Information
Item 23. Financial Statements .............................. Financial Statements.

Part C
Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C of this
Registration Statement.
</TABLE>

<PAGE>

The Westwood Funds
==================

SERVICE CLASS PROSPECTUS -- January 30, 1996

The Westwood Funds (the "Trust") is an open-end, diversified, management
investment company, known as a mutual fund, which currently consists of four
separate investment portfolios that offer two separate classes of shares. The
portfolios are referred to as the Westwood Equity Fund, the Westwood
Intermediate Bond Fund, the Westwood Balanced Fund and the Westwood Cash
Management Fund (which is a money market fund portfolio), (collectively, the
"Funds"). The Funds offer two classes of shares. This Prospectus provides
information about "Service Class" shares. Service Class shares are offered
exclusively to investors who have purchased their shares through an entity that
has signed a Dealer Agreement with Gabelli & Company, Inc. (the "Distributor").
Retail Class shares are offered to all other investors and certain dealers
offering shares to certain retirement plans. Each Fund has a separate investment
objective, as set forth below. There is no assurance that any of these
investment objectives will be achieved.

WESTWOOD EQUITY FUND (the "Equity Fund") seeks as its primary goal to
provide investors with capital appreciation; income is a secondary, but
nonetheless important goal. The net asset value per share of the Equity Fund
will fluctuate.

Westwood Cash Management Fund (the "Cash Management Fund") seeks to provide
investors with as high a level of current income as is consistent with
preservation of capital and liquidity. The average weighted portfolio maturity
of the Cash Management Fund will not exceed 90 days and the Fund will attempt to
maintain a constant net asset value of $1.00 per share. The Cash Management Fund
has not commenced operations.

This Prospectus sets forth concisely information about the Funds that an
investor should know before investing. It should be read and retained for future
reference.

Part B (also known as the Statement of Additional Information), dated
January 30, 1996, which may be revised from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. For a free copy, write to
the Westwood Funds at One Corporate Center, Rye, New York 10580-1434 or call
1-(800)WESTWOOD (937-8966). Purchase orders and redemption requests for the
Service Class shares may be directed to the Westwood Funds through
broker/dealers that have signed a Dealer Agreement with Gabelli & Company.

<PAGE>

Fee Table - Service Class

Each Fund is authorized to issue two separate classes of shares. Service
Class shares will be offered exclusively to investors who have purchased their
shares through an entity that has signed a Dealer Agreement with the
Distributor. Retail Class shares will be offered to all other investors
including certain retirement plans offered through broker-dealers. Retail Class
shares and Service Class shares are identical in all respects, except that
Service Class shares bear a sales load and higher expenses incurred in the
distribution and marketing of such shares ("12b-1 Fees"). These charges and fees
reflect the additional services available through broker/dealers, such as
investment advice, acquiring securities on margin and borrowing against the
portfolio. Retail Class shares bear no sales load and lower 12b-1 fees. The
table below sets forth certain information regarding annual operating expenses
incurred by the Service Class, including the amounts of these fees.

<TABLE>
<CAPTION>
Cash
Equity Intermediate Balanced Management
Fund Bond Fund Fund Fund+
---- --------- ---- -----
<S> <C> <C> <C> <C>

Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ......... 4.00% 4.00% 4.00% 0.00%
Annual Fund Operating Expenses: (as a
percentage of average daily net assets)
Management Fees (after waivers)* .......... 0.31% 0.00% 0.16% 0.30%
12b-1 Fees ................................ 0.50% 0.35% 0.50% 0.25%
Other Expenses ............................ 0.94% 0.75% 0.84% 0.25%
---- ---- ---- ----
Total Fund Operating Expenses (after waivers
and expense reimbursements)** .............. 1.75% 1.10% 1.50% 0.80%
---- ---- ---- ----

</TABLE>

* Management Fees (before waivers) would be 1.00%, .60% and .75% for the
Equity Fund, Intermediate Bond Fund and Balanced Fund, respectively.

** Management fees are being waived/reimbursed for the Equity Fund,
Intermediate Bond Fund and Balanced Fund. Prior to any expense
reimbursements, total fund operating expenses for the Equity Fund, the
Intermediate Bond Fund and the Balanced Fund for Service Shares would have
been 2.38%, 4.23% and 2.11% respectively.

+ Since the Cash Management Fund has not commenced operations, annual
expenses are based on estimates.

Example:

An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:

1 Year 3 Years 5 Yea 10 Years
------ ------- ----- --------

Equity Fund ........................ $ 57 $ 93 $131 $238
Intermediate Bond Fund ............. $ 51 $ 74 $ 98 $169
Balanced Fund ...................... $ 55 $ 86 $119 $212
Cash Management Fund ............... $ 8 $ 26 $ 44 $ 99

<PAGE>

respect to the Cash Management Fund, Equity Fund and Intermediate Bond Fund is
based on estimated projections and of average net asset levels. The information
with respect to the Balanced Funds is based on actual expenses incurred for the
fiscal year ended September 30, 1995, with the following adjustments: (i) since
October 6, 1994, the Fund's administrative fees are part of Management Fees, and
(ii) Management Fees have been reduced to reflect reimbursements of expenses to
maintain expenses at certain levels.

Financial Highlights

The following information for each of the periods from commencement of
offering through September 30, 1995 have been audited by Price Waterhouse LLP,
the Funds' independent accountants, whose report on the Financial Statements
which incorporate such information appears in the Statement of Additional
Information. All such information should be read in conjunction with the related
financial statements and notes thereto, which are included in the Statement of
Additional Information, and is available upon request.

For a share outstanding throughout each period ending September 30+

<TABLE>
<CAPTION>
Equity Fund Intermediate Bond Balanced Fund
-------------------- Fund ---------------------------------
--------------------
1995 1994* 1995(a) 1994* 1995 1994 1993***
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Performance:
Net Asset Value, Beginning of Period ......... $5.48 $5.53 $9.48 $10.51 $7.10 $10.88 $10.24
Income from Investment Operations:
Net investment income ...................... 0.04 0.06 0.05 0.41 0.17 0.15 0.19
Net realized and unrealized gain (loss)
on investments ........................... 1.29 (0.11) (0.14) (1.03) 1.35 0.36 0.52
----- ----- ----- ------ ----- ------ ------
Total from Investment Operations ........... 1.33 (0.05) (0.09) (0.62) 1.52 0.51 0.71
----- ----- ----- ------ ----- ------ ------
Less Distributions:
Dividends from net investment income ....... (0.04) -- (0.05) (0.41) (0.17) (0.11) (0.07)
Distributions from net realized
capital gains ............................ (0.20) -- -- -- -- (4.18) --
----- ----- ----- ------ ----- ------ ------
Total Distributions ........................ (0.24) -- (0.05) (0.41) (0.17) (4.29) (0.07)
----- ----- ----- ------ ----- ------ ------
Net Asset Value, End of Period ............... $6.57 $5.48 $9.34 $9.48 $8.45 $7.10 $10.88
===== ===== ===== ===== ===== ===== ======
Total Return (not reflecting sales load) ..... 25.54% (0.90%) (0.95%) (6.81%) 21.67% 4.67% 6.96%
Net Assets End of Period (in thousands) ...... $68 $254 $0 $76 $7,212 $10,810 $114
Ratios to average net assets of:
Net investment income ...................... 0.64% 1.64%** 4.85% 6.05%** 2.26% 2.15% 1.76%**
Expenses net of waivers/reimbursements++ ... 1.85% 1.04%** 1.45% 1.34%** 1.62% 1.17% 2.07%**
Expenses before waivers/reimbursements++ ... 2.63% 2.29%** 4.07% 2.37%** 2.24% 2.11% 3.14%**
Portfolio Turnover Rate ...................... 107% 137% 70% 203% 133% 168% 192%
</TABLE>

+ Per share based on the average number of shares outstanding during the
period.

++ Effective 1995, the ratios do not include a reduction of expenses for
custodian fee credits on cash balances maintained with the custodian.
Including such custodian fee credits, the expense ratios would be 1.50% and
1.72% for Equity Retail and Service Class, respectively, net of waivers and
2.16% and 2.38% for Equity Retail and Service Class before waivers. For
Intermediate Bond Fund: 1.00% and 1.41% net of waivers for the Retail and
Service Class, respectively, and 2.18% and 4.23% before waivers for the
Retail and Service Class, respectively. For the Balanced Fund: expenses net
of waivers would be 1.25% and 1.50% for the Retail and Service Class,
respectively, and 1.85% and 2.11% before waivers for the Retail and Service
Class, respectively.

(a) On November 8, 1994, all shares of the Service Class were redeemed and
there have been no further shares issued in this class since that date.
Accordingly, the NAV per share of $9.34 represents the net asset value on
November 8, 1994.

* Prior to January 31, 1994, no shares of the Service Class were issued.

** Annualized.

*** Prior to April 6, 1993, no shares of the Service Class were issued.

<PAGE>

Description of the Funds

Investment Objectives

Management Policies

Equity Fund - The Equity Fund attempts to achieve its goals by investing
primarily (i.e., in normal circumstances), at least 65% of its total assets in
common stocks, some of which may pay dividends, or securities convertible into
common stocks (see "Convertible Securities" below for a complete description).
The Equity Fund invests in securities issued by seasoned companies (generally
with market capitalizations in excess of $500,000,000 and continuous operating
histories of at least three years) believed to have proven records and
above-average historical earnings growth when compared to published indexes,
such as those published by the Department of Commerce, and in smaller companies
(generally with market capitalizations greater than $100,000,000 but less than
$500,000,000) believed to have outstanding potential for capital appreciation,
in both cases in industries which the Adviser has identified as appropriate in
light of the then current status of the economic and business cycles. These
securities may have above-average price/earnings ratios or less than average
current yields, when compared to published indexes, such as the Standard &
Poor's 500 Composite Stock Price Index. Price/earnings ratio is a comparison of
a security's market price to its earnings per share, usually expressed as a
simple numeral, and current yield expresses the income on an amount invested.
The Equity Fund also may invest, in normal circumstances, up to 35% of its total
assets in U.S.dollar- and foreign currency-denominated debt securities of
domestic and foreign issuers, which are rated at least "BBB" by Standard &
Poor's Corporation ("S&P") or "Baa" by Moody's Investors Service, Inc.
("Moody's") (except with respect to investments in commercial paper which will
consist only of direct obligations that at the time of purchase are rated in the
highest rating category by Moody's or S&P) or, if unrated, are determined to be
of comparable quality by the Adviser, or in index options when it believes they
hold less risk or greater potential for capital appreciation than equity
securities. Such investments are made without regard to the remaining maturities
of such securities. The Equity Fund may invest up to 10% of its total assets in
debt securities (other than commercial paper) that are rated or, if unrated,
determined to be below investment grade. (Investment grade debt securities are
those which are rated at least "BBB" by S&P or "Baa" by Moody's). These
investments generally carry a high degree of risk and are sometimes referred to
as "high yield, high risk" securities by the investment community (see "Lower
Rated Securities" below for more complete information).

The majority of the Equity Fund's investments are in securities listed on
the New York Stock Exchange or other national securities exchanges. The Equity
Fund also may invest in unlisted securities; but these generally will be

<PAGE>

securities that have an established over-the-counter market, although the depth
and liquidity of that market may vary from time to time and from security to
security. Generally, these securities are issued by smaller companies than those
whose securities are listed on national securities exchanges. The market prices
of equity securities of smaller companies may tend to be more volatile than the
market prices of equity securities generally.

To achieve its investment objective, the Intermediate Bond Fund invests
primarily in a diversified portfolio of investment grade, U.S. dollar or foreign
currency denominated bonds of domestic and foreign issuers. The Fund's portfolio
consists of bonds issued by both corporate and government entities. In pursuing
its investment objective, the Intermediate Bond Fund may also invest in other
types of investment grade debt securities, including debentures, notes,
convertible debt securities, municipal securities, mortgage-related securities
and other collateralized securities that are backed by a pool of assets, such as
loans or receivables which generate cash flow to cover the payments due on the
collateralized securities, as well as zero coupon and payment in kind
securities. The Intermediate Bond Fund's portfolio, consisting primarily of
investment grade debt securities, will include bonds rated "BBB" or better by
S&P or "Baa" or better by Moody's, commercial paper rated "A-2" or better by S&P
or "P-2" or better by Moody's, mortgage and asset-backed securities rated "AA"
or better by S&P or "Aa" or better by Moody's and other investment grade-rated
debt securities or those which are unrated but determined to be of comparable
quality by the Adviser. The Intermediate Bond Fund does not intend to invest in
preferred stock or other equity securities (except convertible debt securities)
and does not expect to invest more than 25% of its assets in securities of
foreign issuers.

<PAGE>

Balanced Fund - The Balanced Fund pursues its objective through a balanced
and diversified program of investing in equity securities and debt instruments.

The remaining 70% to 30% of the Balanced Fund's assets are invested in U.S.
dollar or foreign currency-denominated debt securities of domestic and foreign
issuers, including debt securities of corporate and government issuers,
commercial paper and mortgage and asset-backed securities, for the relative
stability of income and principal. With respect to these investments, at least
25% of the Balanced Fund's total assets will be invested in fixed income senior
securities. The debt securities in which the Balanced Fund invests are the same
types of securities used by the Intermediate Bond Fund.

<PAGE>

Description of Securities and Other Investment Practices

Convertible Securities (The Equity Fund and the Balanced Fund) - A
convertible security is a fixed-income security, such as a bond or preferred
stock, which may be converted at a stated price within a specified period of
time into a specified number of shares of common stock of the same or a
different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-
convertible debt securities. While providing a fixed income stream (generally
higher in yield than the income derivable from a common stock but lower than
that afforded by a similar non-convertible debt security), a convertible
security also affords an investor the opportunity, through its conversion
feature, to participate in the capital appreciation of the common stock into
which it is convertible.

<PAGE>

Commercial Paper (All Funds) - Commercial paper includes short-term
unsecured promissory notes, variable rate demand notes and variable rate master
demand notes issued by domestic and foreign bank holding companies, corporations
and financial institutions (see "Variable and Floating Rate Demand and Master
Demand Notes" below for more details) as well as similar taxable and tax-exempt
instruments issued by government agencies and instrumentalities. Each Fund

<PAGE>

establishes its own standards of creditworthiness for issuers of such
instruments.

Other Mutual Funds (All Funds) - Each Fund may invest in shares of other
management investment companies, subject to the limitations of the 1940 Act and
subject to such investments being consistent with the overall objective and
policies of the Fund making such investment, provided that any such purchases
will be limited to short-term investments in shares of unaffiliated investment
companies. The purchase of securities of other mutual funds results is
duplication of expenses such that investors indirectly bear a proportionate
share of the expenses of such mutual funds including operating costs, and
investment advisory and administrative fees.

Corporate Debt Securities (All Funds) - A Fund's investments in corporate
debt may include U.S. dollar- or foreign currency-denominated corporate bonds,
debentures, notes and other similar corporate debt instruments of domestic and
foreign issuers, which meet the previously disclosed minimum ratings and
maturity criteria established for each Fund under the direction of the Board of
Trustees and the Adviser or, if unrated, are in the Adviser's opinion comparable
in quality to rated corporate debt securities in which each Fund may invest. The
Cash Management Fund may only invest in U.S. dollar denominated corporate debt
securities. The rate of return or return of principal on some debt obligations
in which the Funds may invest may be linked or indexed to the level of exchange
rates between the U.S. dollar and a foreign currency or currencies.

Variable and Floating Rate Demand and Master Demand Notes (All Funds) - A
Fund may, from time to time, buy variable or floating rate demand notes issued
by corporations, bank holding companies and financial institutions and similar
taxable and tax-exempt instruments issued by government agencies and
instrumentalities. These securities will typically have a maturity over oneyear
but carry with them the right of the holder to put the securities to a
remarketing agent or other entity at designated time intervals and on specified
notice. The obligation of the issuer of the put to repurchase the securities may
be backed up by a letter of credit or other obligation issued by a financial
institution. The purchase price is ordinarily par plus accrued and unpaid
interest. Generally, the remarketing agent will adjust the interest rate every
seven days (or at other specified intervals) in order to maintain the interest
rate of the prevailing rate for securities with a seven-day or other designated
maturity. The Cash Management Fund only purchases demand instruments which
provide that the Fund may receive the principal amount of the note upon not more
than 30 days' notice. A Fund's investment in demand instruments which provide
that the Fund will not receive the principal note amount within seven days'
notice, in combination with the Fund's other investments which are not readily
marketable, will be limited to an aggregate total of 10% of that Fund's net
assets.

When-Issued or Delayed-Delivery Securities (All Funds, Except the Cash
Management Fund) - New issues of fixed-income securities usually are offered on
a when-issued or delayed-delivery basis, which means that delivery and payment
for such securities ordinarily take place within 45 days after the date of the
commitment to purchase. The payment obligation and the interest rate that will
be received on such securities are fixed at the time the Fund enters into the

<PAGE>

commitment. The Fund will make commitments to purchase such securities only with
the intention of actually acquiring the securities, but the Fund may sell these
securities before the settlement date if it is deemed advisable. The Fund will
not accrue income in respect of a when-issued or delayed-delivery security prior
to its stated delivery date. No additional when-issued commitments will be made
if more than 20% of a Fund's net assets would be so committed.

In addition, with respect to all ADRs and EDRs, there is always the risk of
loss due to currency fluctuations.

<PAGE>

will accrue income on such investments based on an effective interest method,
which is distributable to shareholders and which, because no cash is received at
the time of accrual, may require the liquidation of other portfolio securities
to satisfy the Fund's distribution obligations. As a result, a Fund may have to
sell securities at a time when it may be disadvantageous to do so.

Derivatives

A Fund treats options in respect of specific securities that are not traded
on a national securities exchange, and the underlying security, as not readily
marketable and, therefore, subject to the limitations under "Certain Fundamental
Policies" below.

<PAGE>

A Fund purchases options only to the extent permitted by the policies of
state securities authorities in states where shares of the Fund are qualified
for offer and sale.

Initially, when purchasing or selling futures contracts, a Fund will be
required to deposit with its custodian in the broker's name an amount of cash or
cash equivalents equal to approximately 5% to 10% of the contract amount. This
amount is subject to change by the exchange or board of trade on which the
contract is traded and members of such exchange or board of trade may impose
their own higher requirements. This amount is known as "initial margin" and is

<PAGE>

in the nature of a performance bond or good faith deposit on the contract which
is returned to a Fund upon termination of the futures position, assuming all
contractual obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker will be made daily as the price of
the index underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
"marking-to-market." At any time prior to the expiration of a futures contract,
a Fund may elect to close the position by taking an opposite position at the
then prevailing price, which will operate to terminate the Fund's existing
position in the contract.

While incidental to its securities activities, a Fund may use stock index
futures as a substitute for a comparable market position in the underlying
securities.

<PAGE>

increased participation by speculators in the futures market also may cause
temporary price distortions. Because of the possibility of price distortions in
the futures market and the imperfect correlation between movements in the stock
index and movements in the price of stock index futures, a correct forecast of
general market trends by the Adviser still may not result in a successful
hedging transaction.

Forward Foreign Currency Exchange Contracts (All Funds, except the Cash
Management Fund) - A Fund may enter into forward foreign currency exchange
contracts. A forward foreign currency exchange contract is a contract
individually negotiated and privately traded by currency traders and their
customers. A forward contract involves an obligation to purchase or sell a
specific currency for an agreed price at a future date, which may be any fixed
number of days from the date of the contract. A 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
determines that there is an established historical pattern of correlation
between the two currencies. The purpose of entering into these contracts is to
minimize the risk to a Fund from adverse changes in the relationship between the
U.S. dollar and foreign currencies. In addition, a Fund may purchase forward
contracts for non-hedging purposes when the Adviser anticipates that the foreign
currency will appreciate in value, but securities denominated in that currency
do not present attractive investment opportunities. However, forward contracts
may limit potential gain from a positive change in the relationship between the
U.S. dollar and foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance for a Fund than if it had not entered into
forward foreign currency exchange contracts.

<PAGE>

by the individual borrowers on the residential mortgage loans which underlie the
securities (net of fees paid to the issuer or guarantor of the securities).

Other Asset-Backed Securities (The Intermediate Bond Fund and the Balanced
Fund) - Other asset- backed securities (unrelated to mortgage loans) have been
offered to investors, such as Certificates for Automobile Receivables
("CARSSM"). CARSSM represent undivided fractional interests in a trust ("trust")
whose assets consist of a pool of motor vehicle retail installment sales
contracts and security interests in the vehicles securing the contracts.
Payments of principal and interest on CARSSM are "passed through" monthly to
certificate holders and are guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution unaffiliated
with the trustee or originator of the trust or by the existence of a
subordinated class of securities. Underlying sales contracts are subject to
prepayment, which may reduce the overall return to certificate holders. If the
letter of credit is exhausted, certificate holders may also experience delays in
payment or losses on CARSSM if the full amounts due on underlying sales
contracts are not realized by the trust because of unanticipated legal or
administrative costs of enforcing the contracts, or because of depreciation,
damage or loss of the vehicles securing the contracts, or other factors. For
asset-backed securities, the industry standard uses a principal prepayment

<PAGE>

model, the ABS model, which is similar to the PSA described previously under
"Mortgage- Related Securities". Either the PSA model, the ABS model or other
similar models that are standard in the industry will be used by a Fund in
calculating maturity for purposes of its investment in asset-backed securities.

Certain Fundamental Policies (All Funds, except as noted below - Each Fund
(i) may borrow money from banks, but only for temporary or emergency (not
leveraging) purposes, in an amount up to 5% of the value of its total assets
(including the amount borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made; (ii) may pledge, hypothecate, mortgage or otherwise encumber its assets,
but only in an amount up to 10% of the value of its total assets to secure
borrowings for temporary or emergency purposes, or up to 20% in connection with
the purchase and sale of put and call options; (iii) may invest up to 5% of the
value of its total assets in the securities of any one issuer (This restriction
applies only with respect to 75% of the total assets of each Fund, other than
the Cash Management Fund for which the restriction is applied to 100% of its
total assets); (iv) may invest up to 25% of its total assets in any single
industry, except with respect to the Cash Management Fund's investment in
domestic banks; and (v) may invest up to 10% of its total assets in time
deposits maturing from two business days through seven calendar days. The Equity
Fund may invest up to 10% of its net assets in securities that have not been
registered under the Securities Act of 1933, as amended, and therefore are
subject to restrictions on resale, in repurchase agreements providing for
settlement in more than seven days after notice and in securities that are not
readily marketable (including those options in respect of specific securities
that are not traded on a national securities exchange, and the underlying
security, which are not readily marketable). Subject to this limitation, the
Equity Fund may invest in securities eligible for resale pursuant to Rule 144A
of the Securities Act of 1933 which have been determined to be liquid by the
Fund's Board of Trustees based upon the trading markets for the securities. Each
of the other Funds may invest up to 10% of its net assets in repurchase
agreements providing for settlement in more than seven days after notice and in
securities that are not readily marketable. Included in this limitation are
"restricted" securities and any other assets for which an active and substantial
market does not exist at the time of purchase or subsequent valuation.
Restricted securities for purposes of this limitation do not include investments
by these Funds in securities eligible for resale pursuant to Rule 144A of the
Securities Act of 1933 which have been determined to be liquid by the Fund's
Board of Trustees based upon the trading markets for the securities (see
"Investment Objectives and Management Policies - Rule 144A Securities" in the
Statement of Additional Information for further details). This paragraph
describes fundamental policies that cannot be changed without approval by the
holders of a majority (as defined in the Investment Company Act of 1940) of each
Fund's outstanding voting shares. See "Investment Objectives and Management
Policies Investment Restrictions" in the Statement of Additional Information.

<PAGE>

Management of the Funds

Investment Adviser and Administrator

Under the Sub-Advisory Agreement, the Adviser pays Westwood out of its
advisory fees with respect to the Funds a fee computed daily and payable monthly
in an amount equal on an annualized basis to the greater of (i) $150,000 per
year on an aggregate basis for all the Funds or (ii) 35% of the net revenues to
the Adviser from the Funds. Westwood Management Corp., formed in 1983 and
located at 885 Third Avenue, New York, New York 10022, is a registered
investment adviser managing, as of September 30, 1995, an aggregate of
approximately $718 million in separate accounts, primarily corporate pension
funds. Susan M. Byrne, President of the Sub- Adviser since 1985, is responsible
for the day-to-day management of the Equity Fund's portfolio. Patricia R. Fraze,
Senior Vice President of the Sub-Adviser since 1992, is responsible for the
day-to-day management of the Intermediate Bond Fund's portfolio. Ms. Fraze
joined the Sub-Adviser in 1990. Ms. Byrne and Ms. Fraze are jointly responsible
for the day-to-day management of the Balanced Fund's portfolio. Westwood
Management is a wholly owned subsidiary of Southwest Securities Group, Inc., a
Dallas based securities firm.

Distributor

<PAGE>

including assistance in connection with inquiries relating to shareholder
accounts; the production and dissemination of prospectuses (including statements
of additional information) of the Funds and the preparation, production and
dissemination of sales, marketing and shareholder servicing materials, ordinary
or capital expenses, such as equipment, rent, fixtures, salaries, bonuses,
reporting and recordkeeping and third party consultancy or similar direct and
indirect expenses relating to any activity for which payment is authorized by
the Board of Trustees. To the extent any of these payments is based on
allocations by the Distributor, the Funds may be considered to be participating
in joint distribution activities with other funds distributed by the
Distributor. Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing in the Funds'
Shares. In the unlikely event that a court were to find that these laws prevent
such banks from providing the services described above, the Funds would seek
alternative providers and expects that shareholders would not experience any
disadvantage.

The Funds have adopted a Rule 12b-1 Distribution Plan and Agreement (the
"Plan") pursuant to which the Service Class of each Fund may reimburse the
Distributor on a monthly basis for costs and expenses of the Distribution in
connection with the distribution and marketing of Service Class shares. These
costs and expenses, which are subject to a maximum limit of .25% per annum of
the average daily net assets of the Service Class of the Cash Management Fund,
.35% per annum of the average daily net assets of the Intermediate Bond Fund and
.50% per annum of the Service Class of the Equity Fund and the Balanced Fund,
include (i) advertising by radio, television, newspapers, magazines, brochures,
sales literature, direct mail or any other form of advertising, (ii) expenses of
sales employees or agents of the Distributor, including salary, commissions,
travel and related expenses, (iii) payments to broker-dealers and financial
institutions for services in connection with the distribution of shares,
including promotional incentives and fees calculated with reference to the
average daily net asset value of shares held by shareholders who have a
brokerage or other service relationship with the broker-dealer or other
institution receiving such fees, (iv) costs of printing prospectuses, statements
of additional information and other materials to be given or sent to prospective
investors, (v) such other similar services as the Trustees determine to be
reasonably calculated to result in the sale of shares of the Funds, (vi) costs
of shareholder servicing which may be incurred by broker-dealers, banks or other
financial institutions, and (vii) other direct and indirect distribution-related
expenses, including the provision of services with respect to maintaining the
assets of the Funds. Each Fund's Service Class will pay all costs and expenses
in connection with the preparation, printing and distribution of its Prospectus
to current shareholders and the operation of its Plan, including related legal
and accounting fees. No Service Class will be liable for distribution
expenditures made by the Distributor in any given year in excess of the maximum
amount payable under the Plan for that Fund year.

Purchase of Shares

Purchase of Fund shares may be made through brokerage accounts maintained
through Gabelli & Company or through any other firm with whom the Fund enters
into an arrangement for the distribution of its shares on substantially
identical terms as those agreed upon with Gabelli & Company. Purchases may also
be made through any registered broker-dealer with whom Gabelli & Company enters
into a selling agreement ("Soliciting Broker- Dealers"). Payment for the shares
must be made directly to the firm through which the order was placed or to the
Fund's transfer agent. Gabelli & Company may enter into selling or selected
broker-dealer agreements with Soliciting Broker-Dealers pursuant to which
Gabelli & Company may reallow a portion of the sales charge to Soliciting
Broker-Dealers in accordance with the schedule set forth below. The reallowance
to Soliciting Broker- Dealers may be changed at any time by Gabelli & Company.

Service Class Shares of the Funds (except the Cash Management Fund) are
offered with a maximum sales charge of 4.00%. Retail Class Shares and both
classes of Shares of the Cash Management Fund are no-load. The minimum initial
investment is $1,000. There is no minimum initial investment for accounts
establishing an Automatic Investment Plan. Custodial accounts for minor children
are also available. There is no minimum for subsequent investments. Shares of
the Funds are sold at the public offering price based on the net asset value per
share next determined after receipt of an order by the Funds' Distributor or
transfer agent in proper form with accompanying check or bank wire payment

<PAGE>

arrangements satisfactory to the Funds. Although most shareholders elect not to
receive stock certificates, certificates for whole shares can be obtained on
specific written request to the Transfer Agent.

Shares of the Funds may be purchased through registered broker-dealers.
Certain broker-dealers may impose the respective sales charge or otherwise may
charge the investor a fee for their services. Compensation to sales persons may
vary depending upon which class of shares they sell. Such fees may vary among
broker-dealers, and such broker-dealers may impose higher initial or subsequent
investment requirements than those established by the Funds. Services provided
by broker-dealers may include allowing the investor to establish a margin
account and to borrow on the value of such Fund's shares in that account.

Prospectuses, sales material and subscription order forms ("applications")
may be obtained from your broker- dealer or the Distributor. The Funds and the
Distributor reserve the right in their sole discretion (1) to suspend the
offering of the Funds' shares and (2) to reject purchase orders when, in the
judgment of the Funds' management, such rejection is in the best interest of the
Funds. The calculation of net asset value per share is performed at 12:00 noon
for the Cash Management Fund and at 4:15 p.m. for the other Funds on each day
that the New York Stock Exchange is open for business. Net asset value per share
is computed by dividing the value of a Fund's net assets (i.e., the value of its
assets less its liabilities) by the total number of shares outstanding. All
expenses of the Funds are accrued daily and taken into account for the purpose
of determining net asset value.

Mail

To make an initial purchase by mail, contact your broker or send a
completed application for Service Class shares with a check for the amount of
the investment payable to: The Westwood Funds, P.O. Box 8308, Boston, MA
02266-8308.

Bank Wire

To initially purchase shares of the Funds using the wire system for
transmittal of money among banks, contact your broker or telephone the Funds at
1-800-WESTWOOD to obtain a new account number. The investor should instruct a
Federal Reserve System member bank to wire funds to: State Street Bank and Trust

<PAGE>

Company, ABA #011-0000-28 REF DDA #99046187, Attn: Shareholder Services, Re: The
Westwood Funds, A/C #, Account of (Registered Owner), 225 Franklin Street,
Boston, MA 02110.

There may be a charge by your bank for transmitting the money by bank wire
but State Street Bank and Trust Company does not charge investors in the Funds
for the receipt of wire transfers. If you are planning to wire funds, it is
suggested that you instruct your bank early in the day so the wire transfer can
be accomplished the same day.

Personal Delivery

Contact your broker or deliver a check made payable to "The Westwood Funds"
along with a completed subscription order form to: The Westwood Funds, The BFDS
Building, 7th Floor, Two Heritage Drive, North Quincy, MA 02171.

Telephone Investment Plan

You may purchase additional shares of the Funds by telephone through your
broker or the Automated Clearinghouse (ACH) system as long as your bank is a
member of the ACH system and you have a completed, approved Investment Plan
application on file with our Transfer Agent. The funding for your purchase will
be automatically deducted from the ACH eligible account you designate on the
application. Your investment will normally be credited to your Westwood Fund
account on the first business day following your telephone request. Your request
must be received no later than 4:00 p.m. eastern time. There is a minimum of
$100 for each telephone investment. Any subsequent changes in banking
information must be submitted in writing and accompanied by a sample voided
check. To initiate an ACH purchase, please call 1-800-WESTWOOD. Fund shares
purchased through the Telephone or Automatic Investment Plan will not be
available for redemption for up to fifteen (15) days following the purchase
date.

Automatic Investment Plan

Systematic Withdrawal Plan

Other Investors

Sales Charges

Service Class Shares of the Funds will be offered to accounts at a price
equal to their net asset value plus a sales charge, as described below, on a
continuous basis through entities that have entered into a Dealer Agreement with
the Distributor. Shares issued through the automatic reinvestment of income
dividends or capital gains are not subject to any sales charges. Each Fund would
receive the entire net asset value of its shares sold to investors through
reinvestment. The Distributor's commission is the sales charge shown below less
any applicable discount "reallowed" to selected brokers and agents. Normally,
the Distributor will reallow discounts to selected brokers and agents in the
amounts indicated in the table below. From time to time, however, the
Distributor may elect to reallow the entire sales charge to selected brokers or
agents for all sales with respect to which orders are placed with the
Distributor during a particular period. A selected broker who receives
reallowance equal to or in excess of such a sales charge may be deemed an
"Underwriter" under the Securities Act of 1933.

<PAGE>

Total Sales Load
----------------
Dealers'
reallowance
As a % of As a % of as % of
offering amount offering
Amount of Transaction price invested price
--------------------- ----- -------- -----
Less than $100,000 ............... 4.0% 4.2% 3.5%
$100,000-$249,999 ................ 3.0% 3.1% 2.5%
$250,000-$500,000 ................ 2.0% 2.0% 1.75%
$500,000-$9 99,999 ............... 1.0% 1.0% 0.75%
$1,000,000 and over .............. No Load No Load No Load

Reduced Sales Charges

A reduction of sales charges rates in the tables above may be obtained as
follows:

Right of Accumulation A "single purchaser" (as defined below) is entitled to a
reduced sales charge and will be credited with amounts currently and previously
paid to purchase shares (sold subject to a sales charge) of the Funds. The Right
of Accumulation is illustrated by the following example: if a previous purchase
currently valued in the amount of $95,000 had been made subject to a sales
charge and the shares are still held, a current purchase of $6,000 will qualify
for a 3.0% sales charge. The reduced sales charge is applicable only to current
purchases. The term "single purchaser" refers to (1) an individual, (2) an
individual and spouse purchasing shares of the Funds for their own account or
for trust or custodial accounts for their minor children, or (3) a trustee or
other fiduciary purchasing for any one trust, estate, or fiduciary account
(including a pension, profit sharing or other employee benefit trust created
pursuant to a plan qualified under Sections 401 or 403 of the Internal Revenue
Code (the "Code") but not for a group formed to acquire shares). To be entitled
to a reduced sales charge for shares already owned, the investor must notify the
Distributor or the Transfer Agent at the time of the purchase that he wishes to
take advantage of such entitlement, and give the numbers of his accounts, and
those accounts held in the name of his spouse or for minor children, the age of
any such child and the specific relationship of each such person to the
investor.

Letter of Intent

By initially investing at least $1,000 and submitting a Letter of Intent to
the Distributor, a "single purchaser" may make purchases of shares of one of the
Funds during a 13-month period at the reduced sales charge rates applicable to
the aggregate amount of the intended purchases stated in the Letter. The Letter
may apply to purchases made up to 90 days before the date of the Letter.

Other Circumstances

No sales charge is imposed on shares of the Funds: (1) sold to persons
described under "Purchase of Shares - Other Investors" with respect to whom no
minimum investment is required; (2) issued in plans of reorganization, such as
mergers, asset acquisitions and exchange offers, to which the Trust is a party;
(3) sold to charities and endowments and other tax-exempt organizations
enumerated in Section 501(c)(3) of the Code; or (4) sold through asset
allocation programs of an affiliate of the Adviser.

Redemption of Shares

Redemption requests may be made through a brokerage firm with which the
shareholder maintains a brokerage account. A shareholder desiring to redeem Fund
shares represented by certificates must also present the certificates to a
brokerage firm endorsed for transfer (or accompanied by an endorsed stock
power), signed exactly as the shares are registered. Redemption requests
involving shares represented by certificates will not be deemed received until
the certificates are received by the Fund's transfer agent in proper form.

Redemption requests made through Gabelli & Company with respect to
uncertificated shares must be in writing addressed to the Fund's transfer agent
at the address and in accordance with the signature guarantee procedures
specified below under "Redemption by Mail" in order to be deemed in proper form
or, if a brokerage account is maintained by a shareholder with Gabelli &
Company, in writing, by telephone or in person. Redemption requests made through
brokerage firms other than Gabelli & Company need to be made in accordance with
that brokerage firm's redemption procedures.

<PAGE>

Upon receipt by the Distributor or the Transfer Agent of a redemption
request in proper form, shares of the Funds will be redeemed at their next
determined net asset value. Redemption requests received after the time as of
which each Fund's net asset value is determined on a particular day will be
redeemed at the next determined net asset value of such Fund on the next day
that net asset value is determined. Checks for redemption proceeds will normally
be mailed to the shareholder's address of record within seven days, but will not
be mailed until all checks in payment for the purchase of the shares to be
redeemed have been honored, which may take up to 15 days. The proceeds of a
redemption may be more or less than the amount invested and, therefore, a
redemption may result in gain or loss for income tax purposes. Redemption
requests may be made by letter to the Transfer Agent, specifying the name of the
Fund, the dollar amount or number of shares to be redeemed, and the account
number. The letter must be signed in exactly the same way the account is
registered (if there is more than one owner of the shares, all must sign) and,
if any certificates for the shares to be redeemed are outstanding, presentation
of such certificates properly endorsed is also required. Signatures on a
redemption request and/or certificates must be guaranteed by an "eligible
guarantor institution" as such term is defined in Rule 17Ad-15 under the
Securities and Exchange Act of 1934, which includes certain banks, brokers,
dealers, credit unions, securities exchanges and associations, clearing agencies
and savings associations (signature guarantees by notaries public are not
acceptable). Shareholders may also redeem a Fund's shares through certain
registered broker-dealers, who have made arrangements with the Funds permitting
them to redeem shares by telephone or facsimile transmission and who may charge
shareholders a fee for this service if they have not received any payments under
the Distribution Plan.

Telephone Redemption By Check

<PAGE>

By Bank Wire

The Funds accept telephone requests for wire redemption in excess of $1,000
(but subject to a $25,000 limitation) to a bank predesignated either on the
application or in a subsequent written authorization with the signature
guaranteed. The Funds accept signature guaranteed written requests for
redemption by bank wire without limitation. The proceeds are normally wired on
the following business day. Your bank must be either a member of the Federal
Reserve System or have a correspondent bank which is a member. Any change to the
banking information made at a later date must be submitted in writing with a
signature guarantee.

Check Writing

A check redemption ($500 minimum, no maximum) feature is available with
respect to the Cash Management Fund. Checks are free and may be obtained through
the Distributor. It is not possible, however, to use a check to close out your
account since additional dividends accrue daily.

Reinstatement Privilege

A shareholder in any Fund who has redeemed shares may reinvest, without a
sales charge, up to the full amount of such redemption at the net asset value
determined at the time of the reinvestment within 30 days of the original
redemption. This privilege must be affected within 30 days of the redemption and
may be exercised only once. The shareholder must reinvest in the same Fund,
class and account from which the shares were redeemed. A redemption is a taxable
transaction and gain or loss may be recognized for Federal income tax purposes
even if the reinstatement privilege is exercised. Any loss realized upon the
redemption will not be recognized as to the number of shares acquired by
reinstatement, except through an adjustment in the tax basis of the shares so
acquired. See "Dividends, Distribution and Taxes" for an explanation of
circumstance in which sales load paid to acquire shares of the Funds may be
taken into account in determining gain or loss on the disposition of those
shares.

Retirement Plans

The Funds have available a form of Individual Retirement Account ("IRA")
for investment in Fund shares which may be obtained from the Distributor. The
minimum investment required to open an IRA for investment in shares of the Funds
is $1,000 for an individual, except that both the individual and his or her
spouse may establish separate IRAs if their combined investment is $1,250. There
is no minimum for additional investment in an IRA account. Investors who are
self-employed may purchase shares of the Funds through tax-deductible
contributions to retirement plans for self-employed persons, known as Keogh or
H.R.-S.10 plans. The Funds do not currently act as Sponsor for such plans. Fund
shares may also be a suitable investment for other types of qualified pension or
profit-sharing plans which are employer-sponsored, including deferred
compensation or salary reduction plans known as "401(k) Plans" which give
participants the right to defer portions of their compensation for investment on
a tax-deferred basis until distributions are made from the plans. The minimum
initial investment for an individual under such plans is $1,000 and there is no
minimum for additional investments. Under the Internal Revenue Code of 1986 (the
"Code"), individuals may make wholly or partly tax deductible IRA contributions
of up to $2,000 annually, depending on whether they are active participants in
an employer-sponsored retirement plan and on their income level. However,
dividends and distributions held in the account are not taxed until withdrawn in
accordance with the provisions of the Code. An individual with a non-working

<PAGE>

spouse may establish a separate IRA for the spouse under the same conditions and
contribute a maximum of $2,250 annually to either or both IRAs provided that no
more than $2,000 be contributed to the IRA of either spouse.

Exchange of Funds Shares

The Funds offer two convenient ways to exchange shares in a class of one
Fund for shares in a corresponding class of another fund managed by the Adviser
or its affiliates. Before engaging in an exchange transaction, a shareholder
should read carefully the portions of this Prospectus or the other
Prospectus(es) describing the Fund into which the exchange will occur. A
shareholder may not exchange shares of a class of one Fund for shares of a
corresponding class of another fund if either are not legally qualified or
registered for sale in the state of the shareholder's residence. The minimum
amount for an initial exchange is $1,000. No minimum is required in subsequent
exchanges. The Trust may terminate or amend the terms of the exchange privilege
at any time upon 60 days' written notice to shareholders.

An exchange is taxable as a sale of a security on which a gain or loss may
be recognized. Shareholder should receive written confirmation of the exchange
within a few days of the completion of the transaction.

Exchange by Mail

To exchange Fund shares by mail, simply send a letter of instruction to
your broker or the Distributor. The letter of instruction must include: (i) your
account number; (ii) the names of the Funds from and into which you wish to
exchange your investment; (iii) the dollar or share amount you wish to exchange;
and (iv) the signatures of all registered owners or authorized parties. All
signatures must be guaranteed by a member of a national securities exchange or
by a commercial bank or trust company. Corporations, trusts, partnerships or
other legal entities will be required to furnish other documentation. Please
call your broker or the Funds for more information.

Exchange by Telephone

To exchange Fund shares by telephone or if you have any questions, simply
call your broker or the Funds toll free at 1-800-WESTWOOD. You should be
prepared to give the telephone representative the following information; (i)
your account number, social security number and account registration; (ii) the
names of the Funds from and into which you wish to exchange your investment, and
(iii) the dollar or share amount you wish to exchange. The conversation may be
recorded to protect you and the Funds. Telephone exchanges are available only if
the shareholder so indicates by checking the "yes" box on the Purchase
Application.

Dividends, Distributions and Taxes

<PAGE>

for qualification may cause a Fund to restrict the degree to which it engages in
short-term trading, and transactions in options and futures contracts. In
addition, the Code subjects regulated investment companies, such as the Funds,
to a non-deductible 4% excise tax each calendar year to the extent that such
investment companies do not distribute substantially all of their taxable
investment income and capital gain, generally determined on a calendar year
basis and the one year period ending October 31 of each calendar year,
respectively.

Dividends from net investment income or distributions of net realized
short-term securities gains to shareholders generally are taxable as ordinary
income whether received in cash or reinvested in additional shares.
Distributions from net realized long-term gains (i.e. net capital gains) to
shareholders are taxable as long-term capital gains whether received in cash or
reinvested in additional shares. Under current law, the net capital gain of an
individual will be taxed at a maximum rate 28%.

It is anticipated that a portion of the dividends paid by the Equity Fund
and the Balanced Fund will qualify for the dividends-received deduction
available to corporations, however, pending tax law proposals may affect the
dividends-received deduction. The dividends paid by the other Funds are not
expected to so qualify. Shareholders will be notified at the end of the year as
to the amount of the dividends that qualify for the dividends -- received
deduction.

Under certain circumstances, the sales charge incurred in acquiring shares
of a Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of a Fund are
exchanged within 90 days after the date they were purchased and new shares of a
Fund are acquired without a sales charge or at a reduced sales charge. In that
case, the gain or loss recognized on the exchange will be determined by
excluding from the tax basis of the shares exchanged all or a portion of the
sales charge incurred in acquiring those shares. This exclusion applies to the
extent that the otherwise applicable sales load with respect to the newly
acquired shares is reduced as a result of having incurred a sales load
initially. The portion of the sales load affected by this rule will be treated
as a sales load paid for the new shares.

The Funds may be required to withhold for Federal income tax ("backup
withholding") 31% of the distributions and the proceeds of redemptions payable

<PAGE>

to shareholders who fail to provide a correct taxpayer identification number or
to make required certifications, or where a Fund or shareholder has been
notified by the Internal Revenue Service that it is subject to backup
withholding. Corporate shareholders and certain other shareholders specified in
the Code are exempt from backup withholding.

Those Funds which may invest in securities of foreign issuers may be
subject to withholding and other similar income taxes imposed by a foreign
country.

Performance Information

Quotations of "yield" for a money market fund, such as the Cash Management
Fund, will be based on the income received by a hypothetical investment (less a
pro-rata share of Fund expenses) over a particular seven-day period, which is
then "annualized" (i.e., assuming that the seven-day yield would be received for
52 weeks, stated in terms of an annual percentage return on the investment).

A Fund's average annual total return is expressed in terms of the average
annual compounded rate of return on a hypothetical investment in the Fund over
periods of one, five and ten years (up to the life of the Fund or for shorter
time periods depending upon the length of time during which the Fund has
operated), reflect the deduction of a proportional share of Fund expenses (on an
annual basis), and assume that all dividends and distributions are reinvested
when paid.

Performance will vary and past results are not necessarily representative
of future results. You should remember that performance is a function of
portfolio management in selecting the type and quality of portfolio securities
and is affected by operating expenses. Any additional 12b-1 fees paid by the
Service Classes of the Funds will cause their yield and performance to be lower
than that of the Retail Classes. Performance information, such as that described
above, may not provide a basis for comparison with other investments or other
investment companies using a different method of calculating performance.

<PAGE>

General Information

Each Fund is comprised of two classes of shares - the "Retail Class" and
the "Service Class." The classes have identical rights with respect to the
series portfolio of which they are a part; however, there are certain matters
affecting one class but not another, such as the existence of a load and the
amount of permissible payments under a distribution plan, which may be
considered to create a preference. On all such matters, shareholders vote as a
class, and not by series. Service Class shares are sold to investors who
purchase their shares through an entity that has signed a Dealer Agreement with
the Distributor. Retail Class shares are sold to all other investors, including
shares sold by dealers for certain retirement plans and to those who contact the
Fund directly or purchase shares through an entity that has signed an agreement
other than a Dealer Agreement (e.g., Charles Schwab & Co., Inc. or Fidelity
Brokerage Services).

Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or a Trustee on
behalf of the Trust. The Trust Agreement provides for indemnification from the
Trust's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the risk of shareholders
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations,
a possibility which management believes is remote. Upon payment of any liability
incurred by the Trust, the shareholder paying such liability will be entitled to
reimbursement from the general assets of the Trust. The Trustees intend to
conduct the operations of the Trust in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Trust.
As described under "Management of the Funds" in the Statement of Additional
Information, the Funds ordinarily will not hold shareholder meetings; however,
the Trustees are required to call a meeting for the purpose of considering the
removal of persons serving as Trustee if requested in writing to do so by the
holders of not less than 10% of the outstanding shares of the Trust. Under the
Trust Agreement, shareholders of record of not less than two-thirds of the
outstanding shares of the Trust may remove a Trustee either by declaration in
writing or by vote cast in person or by proxy at a meeting called for such
purpose. In connection with the calling of such shareholder meetings,
shareholders will be provided with communication assistance.

State Street Bank and Trust Company and its affiliate, Boston Financial
Data Services, maintains a record of share ownership and sends to shareholders
confirmations and statements of account.

Shareholder inquiries may be made by writing to the Westwood Funds at One
Corporate Center, Rye, New York 10580-1434 or by calling 1-800-WESTWOOD.

Upon request, Gabelli & Company, Inc. will provide without a charge, a
paper copy of this Prospectus to investors or their representatives who received
this Prospectus in an electronic format.

<PAGE>

THE WESTWOOD FUNDS
One Corporate Center
Rye, New York 10580-1434

General and Account Information:
1-(800) WESTWOOD
1-(800) 938-7966
Fax-1 (914) 921-5118

Investment Adviser
Teton Advisers LLC
One Corporate Center
Rye, New York 10580-1434

Investment Sub-Adviser
Westwood Management Corp.
885 Third Avenue
New York, New York 10022

Distributor
Gabelli & Company, Inc.
One Corporate Center
Rye, New York 10580-1434

Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036

Legal Counsel
Baker & McKenzie
805 Third Avenue
New York, New York 10022

TABLE OF CONTENTS

Page
----
Fee Table ................................................................. 2
Financial Highlights ...................................................... 3
Description of the Funds .................................................. 4
Management of the Funds ................................................... 17
Purchase of Shares ........................................................ 18
Redemption of Shares ...................................................... 21
Retirement Plans .......................................................... 23
Exchange of Funds Shares .................................................. 24
Dividends, Distributions and Taxes ........................................ 24
Performance Information ................................................... 26
General Information ....................................................... 27

===== The =====

Westwood

===== Funds =====

[LOGO]

WESTWOOD EQUITY FUND
WESTWOOD INTERMEDIATE BOND FUND
WESTWOOD BALANCED FUND
WESTWOOD CASH MANAGEMENT FUND

Service Class
Prospectus

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

January 30, 1996

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

<PAGE>

THE WESTWOOD FUNDS

PART B
(STATEMENT OF ADDITIONAL INFORMATION)

January 30, 1996

The Westwood Funds (the "Trust") is an open-end, diversified, management
investment company, known as a mutual fund, which currently consists of four
separate investment portfolios referred to as the Westwood Equity Fund (the
"Equity Fund"), the Westwood Cash Management Fund (which is a money market fund
portfolio) (the "Cash Management Fund"), the Westwood Intermediate Bond Fund
(the "Intermediate Bond Fund") and the Westwood Balanced Fund (the "Balanced
Fund") (collectively, the "Funds"). Each Fund issues two separate classes of
shares, referred to as the "Service Class" and the "Retail Class" (formerly
"Institutional Class").

This Statement of Additional Information provides information about both
classes of shares. It is not a prospectus, but supplements and should be read in
conjunction with the Funds' current Prospectus, dated January 30, 1996, as it
may be revised from time to time. To obtain a copy of the Funds' Prospectus,
please write to the Funds at One Corporate Center, Rye, New York, 10580 or call
(800) WESTWOOD (1-800-937-8966).

Teton Advisers LLC (the "Adviser") serves as the Funds' investment adviser
and administrator. Westwood Management Corp. (the "Sub-Adviser") serves as
sub-adviser to the Funds.

Gabelli & Company, Inc. serves as the Funds' distributor (the
"Distributor").

TABLE OF CONTENTS

Page
----
General Information and History .................................. B-2
Investment Objectives and Management Policies .................... B-2
Management of the Funds .......................................... B-9
Investment Advisory and Other Services ........................... B-13
Purchase and Redemption of Shares ................................ B-17
Determination of Net Asset Value ................................. B-17
Shareholder Services ............................................. B-18
Dividends, Distributions and Taxes ............................... B-19
Performance Information .......................................... B-22
Information About the Funds ...................................... B-23
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Accountants ............................ B-24
Appendix ......................................................... B-25
Financial Statements ............................................. B-26

B-1

<PAGE>

GENERAL INFORMATION AND HISTORY

The Adviser, which was organized in 1994, is a registered investment
adviser and has no history of operations, is a subsidiary of Gabelli Funds, Inc.
which was organized in 1980 and is currently a registered investment adviser to
fourteen management investment companies. The business address of Gabelli Funds,
Inc. is One Corporate Center, Rye, New York 10580-1434. GAMCO Investors, Inc.
("GAMCO") a majority owned subsidiary of Gabelli Funds, Inc. acts as investment
adviser for individuals, pension and profit sharing trusts, institutions and
endowments. As of December 31, 1995 GAMCO had aggregate assets in excess of $5
billion under management.

On August 20, 1991, the Board of Trustees approved the change in the name
of the Trust from "The Westwood Fund" to "The Westwood Funds" and the name of
the Trust's initial series of shares from "The Westwood Fund" to "Westwood
Equity Fund". In addition, at the same time the Board authorized the designation
of three new series of shares of the Trust, "Westwood Cash Management Fund",
"Westwood Intermediate Bond Fund" and "Westwood Balanced Fund".

On November 18, 1991, the Board of Trustees authorized the establishment
and implementation of a multi-class structure and thereby authorized the
designation of two separate classes of shares within each Fund, referred to as
"Institutional Class" shares and "Service Class" shares. The "Institutional"
Class has been renamed to be the "Retail" Class.

INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES

The following information supplements and should be read in conjunction
with the section in the Funds' Prospectus entitled "Description of the Funds."

The Funds will not (i) invest in real estate limited partnerships, (ii)
engage in the short-selling of securities, (iii) engage in arbitrage, or (iv) as
a fundamental policy, issue senior securities (collateral arrangements with
regard to initial and variation margin on futures and options transactions shall
not be considered the issuance of a senior security), except as permitted by
Investment Restriction No. 7 set forth under "Investment Restrictions" below.

Certificates of Deposit (All Funds). Domestic commercial banks organized
under Federal law are supervised and examined by the Comptroller of the Currency
and are required to be members of the Federal Reserve System and to have their
deposits insured by the Federal Deposit Insurance Corporation (the "FDIC").
Domestic banks organized under state law are supervised and examined by state
banking authorities but are members of the Federal Reserve System only if they
elect to join. In addition, state banks whose certificates of deposit (CDs) may
be purchased by the Funds are insured by the FDIC (although such insurance may
not be of material benefit to a Fund, depending upon the principal amount of the
CDs of each bank held by the Fund) and are subject to Federal examination and to
a substantial body of Federal law and regulation. As a result of Federal or
state laws and regulations, domestic banks, among other things, generally are
required to maintain specified levels of reserves, limited in the amounts which
they can loan to a single borrower and subject to other regulations designed to
promote financial soundness.

The Funds may purchase CDs issued by banks, savings and loan associations
and similar institutions with less than one billion dollars in assets, which
have deposits insured by the Bank Insurance Fund or the Savings Association
Insurance Fund administered by the FDIC, provided a Fund purchases any such CD
in a principal amount of no more than $100,000, which amount would be fully
insured by the FDIC. Interest payments on such a CD are not insured by the FDIC.
A Fund would not own more than one such CD per such issuer.

Closed-End Investment Company Securities (The Equity Fund and the Balanced
Fund). The Equity Fund may purchase securities of closed-end investment
companies in the open market where no commission except the ordinary broker's

B-2
<PAGE>

commission is paid, which purchases are limited to a maximum of (i) 3% of the
total voting stock of any one closed-end investment company, (ii) 5% of the
Equity Fund's net assets with respect to any one closed-end investment company
and (iii) 10% of the Equity Fund's net assets in the aggregate, or may receive
such securities as part of a merger or consolidation.

Options on Securities (The Equity Fund and the Balanced Fund). A Fund may
engage in options transactions, such as purchasing call and put options on
securities and writing covered call and put options on securities. The principal
reason for writing covered call options is to realize, through the receipt of
premiums, a greater return than would be realized on a Fund's portfolio
securities alone. In return for a premium, the writer of a covered call option
forfeits the right to any appreciation in the value of the underlying security
above the strike price for the life of the option (or until a closing purchase
transaction can be effected). Nevertheless, the call writer retains the risk of
a decline in the price of the underlying security. Similarly, the principal
reason for writing covered put options is to realize income in the form of
premiums. The writer of a covered put option accepts the risk of a decline in
the price of the underlying security. The size of the premiums that a Fund may
receive may be adversely affected as new or existing institutions, including
other investment companies, engage in or increase their option-writing
activities.

Options written ordinarily will have expiration dates between one and nine
months from the date written. The exercise price of the options may be below,
equal to or above the market values of the underlying securities at the times
the options are written. In the case of call options, these exercise prices are
referred to as "in-the-money," "at-the-money" and "out-of-the money,"
respectively. A Fund may write (a) in-the-money call options when the Adviser
expects that the price of the underlying security will remain stable or decline
moderately during the option period, (b) at-the-money call options when the
Adviser expects that the price of the underlying security will remain stable or
advance moderately during the option period and (c) out-of-the-money call
options when the Adviser expects that the premiums received from writing the
call option plus the appreciation in market price of the underlying security up
to the exercise price will be greater than the appreciation in the price of the
underlying security alone. In these circumstances, if the market price of the
underlying security declines and the security is sold at this lower price, the
amount of any realized loss will be offset wholly or in part by the premium
received. Out-of-the-money, at-the-money and in-the-money put options (the
reverse of call options as to the relation of exercise price to market price)
may be utilized in the same market environments that such call options are used
in equivalent transactions.

So long as a Fund's obligation as the writer of an option continues, the
Fund may be assigned an exercise notice by the broker-dealer through which the
option was sold, requiring the Fund to deliver, in the case of a call, the
underlying security against payment of the exercise price. This obligation
terminates when the option expires or the Fund effects a closing purchase
transaction. A Fund can no longer effect a closing purchase transaction with
respect to an option once it has been assigned an exercise notice. To secure its
obligation to deliver the underlying security when it writes a call option, or
to pay for the underlying security when it writes a put option, a Fund will be
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the Options Clearing Corporation (the "Clearing
Corporation") and of the national securities exchange on which the option is
written.

An options position may be closed out only where there exists a secondary
market for an option of the same series on a recognized national securities
exchange or in the over-the-counter market. Because of this fact and current
trading conditions, the Funds expect to purchase only call or put options issued
by the Clearing Corporation. The Funds expect to write options on national
securities exchanges and in the over-the-counter market.

While it may choose to do otherwise, a Fund generally purchases or writes
only those options for which the Adviser believes there is an active secondary
market so as to facilitate closing transactions. There is no assurance that
sufficient trading interest to create a liquid secondary market on a securities
exchange will exist for any particular option or at any particular time, and for
some options no such secondary market may exist. A liquid secondary market in an
option may cease to exist for a variety of reasons. In the past, for example,
higher than anticipated trading activity or order flow, or other unforeseen
events, at times have rendered certain of the facilities of the Clearing
Corporation and the national securities exchanges inadequate and resulted in the
institution of special procedures, such as trading rotations, restrictions on
certain types of orders or trading halts or suspensions in one or more options.
There can be no assurance that similar events, or events that may otherwise

B-3
<PAGE>

interfere with the timely execution of customers' orders, will not recur. In
such event, it might not be possible to effect closing transactions in
particular options. If as a covered call option writer a Fund is unable to
effect a closing purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it delivers the
underlying security upon exercise.

Stock Index Options (The Equity Fund and the Balanced Fund). A Fund may
purchase and write put and call options on stock indexes listed on national
securities exchanges in order to realize its investment objectives or for the
purpose of hedging its portfolio. A stock index fluctuates with changes in the
market values of the stocks included in the index. Some stock index options are
based on a broad market index such as the New York Stock Exchange Composite
Index, or a narrower market index such as the Standard & Poor's 100. Indexes are
also based on an industry or market segment such as the American Stock Exchange
Oil and Gas Index or the Computer and Business Equipment Index.

Options on stock indexes are similar to options on stock except that (a)
the expiration cycles of stock index options are monthly, while those of stock
options are currently quarterly, and (b) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (i) the amount, if any, by
which the fixed exercise price of the option exceeds (in the case of a put) or
is less than (in the case of a call) the closing value of the underlying index
on the date of exercise, multiplied by (ii) a fixed "index multiplier." Receipt
of this cash amount will depend upon the difference between the closing level of
the stock index upon which the option is based and the exercise price of the
option. The amount of cash received will be equal to such difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple. The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. The writer may
offset its position in stock index options prior to expiration by entering into
a closing transaction on an exchange or it may let the option expire
unexercised.

Interest Rate Futures Contracts (The Intermediate Bond Fund and the
Balanced Fund). These Funds may purchase and sell interest rate futures
contracts ("futures contracts") as a hedge against changes in interest rates. A
futures contract is an agreement between two parties to buy and sell a security
for a set price on a future date. Futures contracts are traded on designated
"contracts markets" which, through their clearing corporations, guarantee
performance of the contracts. Currently, there are futures contracts based on
securities such as long-term U.S. Treasury bonds, U.S. Treasury notes, GNMA
Certificates and three-month U.S. Treasury bills.

Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). Entering into a futures contract for the
sale of securities has an effect similar to the actual sale of securities,
although the sale of the futures contract might be accomplished more easily and
quickly. For example, if a Fund holds long-term U.S. Government securities and
the Adviser anticipates a rise in long-term interest rates, it could, in lieu of
disposing of its portfolio securities, enter into futures contracts for the sale
of similar long-term securities. If rates increased and the value of the Fund's
portfolio securities declined, the value of the Fund's futures contracts would
increase, thereby protecting the Fund by preventing net asset value from
declining as much as it otherwise would have. Similarly, entering into futures
contracts for the purchase of securities has an effect similar to actual
purchase of the underlying securities, but permits the continued holding of
securities other than the underlying securities. For example, if the Adviser
expects long-term interest rates to decline, the Fund might enter into futures
contracts for the purchase of long-term securities, so that it could gain rapid
market exposure that may offset anticipated increases in the cost of securities
it intends to purchase, while continuing to hold higher yielding short-term
securities or waiting for the long-term market to stabilize.

Stock Index Futures Contracts (The Equity Fund and the Balanced Fund).
These Funds may enter into stock index futures contracts in order to protect the
value of their common stock investments. A stock index futures contract is an
agreement in which one party agrees to deliver to the other an amount of cash
equal to a specific dollar amount times the difference between the value of a
specific stock index at the close of the last trading day of the contract and
the price at which the agreement is made. As the aggregate market value of the
stocks in the index changes, the value of the index also will change. In the

B-4
<PAGE>

event that the index level rises above the level at which the stock index
futures contract was sold, the seller of the stock index futures contract will
realize a loss determined by the difference between the two index levels at the
time of expiration of the stock index futures contract, and the purchaser will
realize a gain in that amount. In the event the index level falls below the
level at which the stock index futures contracts was sold, the seller of the
stock index futures contract will realize a loss determined by the difference
between the two index levels at the time of expiration of the stock index
futures contract, and the purchaser will realize a gain in that amount. In the
event the index level falls below the level at which the stock index futures
contract was sold, the seller will recognize a gain determined by the difference
between the two index levels at the expiration of the stock index futures
contract, and the purchaser will realize a loss. Stock index futures contracts
expire on a fixed date, currently one to seven months from the date of the
contract, and are settled upon expiration of the contract.

The Funds intend to utilize stock index futures contracts only for the
purpose of attempting to protect the value of their common stock portfolios in
the event of a decline in stock prices and, therefore, usually will be sellers
of stock index futures contracts. This risk management strategy is an
alternative to selling securities in a portfolio and investing in money market
instruments. Also, stock index futures contracts may be purchased to protect a
Fund against an increase in prices of stocks which the Fund intends to purchase.
If a Fund is unable to invest its cash (or cash equivalents) in stock in an
orderly fashion, the Fund could purchase a stock index futures contract which
may be used to offset any increase in the price of the stock. However, it is
possible that the market may decline instead, resulting in a loss on the stock
index futures contract. If a Fund then concludes not to invest in stock at that
time, or if the price of the securities to be purchased remains constant or
increases, the Fund will realize a loss on the stock index futures contract that
is not offset by a reduction in the price of securities purchased. The Funds
also may buy or sell stock index futures contracts to close out existing futures
positions.

Options on Futures (All Funds, except the Cash Management Fund). The Funds
may purchase and write call and put options on futures contracts which are
traded on a United States or foreign exchange or board of trade. An option on a
futures contract gives the purchaser the right, in return for the premium paid,
to assume a position in a future contract at a specified exercise price at any
time during the option period. Upon exercise of the option, the writer of the
option is obligated to convey the appropriate futures position to the holder of
the option. If an option is exercised on the last trading day before the
expiration date of the option, a cash settlement will be made in an amount equal
to the difference between the closing price of the futures contract and the
exercise price of the option.

The Funds may use options on futures contracts solely for bona fide hedging
or other appropriate risk management purposes. If a Fund purchases a call (put)
option on a futures contract, it benefits from any increase (decrease) in the
value of the futures contract, but is subject to the risk of decrease (increase)
in value of the futures contract. The benefits received are reduced by the
amount of the premium and transaction costs paid by a Fund for the option. If
market conditions do not favor the exercise of the option, a Fund's loss is
limited to the amount of such premium and transaction costs paid by the Fund for
the option.

If a Fund writes a call (put) option on a futures contract, the Fund
receives a premium but assumes the risk of a rise (decline) in value in the
underlying futures contract. If the option is not exercised, a Fund gains the
amount of the premium, which may partially offset unfavorable changes due to
interest rate or currency exchange rate fluctuations in the value of securities
held or to be acquired for the Fund's portfolio. If the option is exercised, a
Fund will incur a loss, which will be reduced by the amount of the premium it
receives. However, depending on the degree of correlation between changes in the
value of its portfolio securities (or the currency in which they are
denominated) and changes in the value of futures positions, a Fund's losses from
writing options on futures may be partially offset by favorable changes in the
value of portfolio securities or in the cost of securities to be acquired.

The holder or writer of an option on futures contracts may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. A Fund's ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid market.

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Forward Foreign Currency Exchange Contracts (All Funds, except the Cash
Management Fund). The Funds may enter into forward foreign currency exchange
contracts. A forward foreign currency exchange contract involves 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 the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.

At the maturity of a forward contract, a Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing purchase transaction involving the purchase or sale of an
offsetting contract. Closing purchase transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract.

The Funds may enter into forward foreign currency exchange contracts in
several circumstances. First, when a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when a Fund
anticipates the receipt in a foreign currency of dividend or interest payments
on such a security which it holds, the Fund may desire to "lock in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such dividend or
interest payment, as the case may be. By entering into a forward contract for
the purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying transactions, a Fund will attempt to protect
itself against an adverse change in the relationship between the U.S. dollar and
the subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.

Additionally, when management of the Fund believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and date it matures. The precise projection of
short-term currency market movements is not possible, and short-term hedging
provides a means of fixing the dollar value of only a portion of the Fund's
foreign assets.

The Funds will not enter into forward contracts or maintain a net exposure
to such contracts where the consummation of the contracts would obligate a Fund
to deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency. The Funds'
custodian will place cash or liquid high grade debt securities into a segregated
account of a Fund in an amount equal to the value of the Fund's total assets
committed to the consummation of forward foreign currency exchange contracts
requiring the Fund to purchase foreign currencies or forward contracts entered
into for non-hedging purposes. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of a Fund's commitments with respect to such contracts.

The Funds generally will not enter into a forward contract with a term of
greater than one year. Using forward contracts to protect the value of a Fund's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which a Fund can achieve at some future point in
time. While the Funds will enter into forward contracts to reduce currency
exchange rate risks, transactions in such contracts involve certain other risks.
Thus, while a Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for a Fund than if it
had not engaged in any such transactions. Moreover, there may be imperfect
correlation between a Fund's portfolio holdings of securities denominated in a
particular currency and forward contracts entered into by the Fund. Such
imperfect correlation may prevent a Fund from achieving a complete hedge or may
expose the Fund to risk of foreign exchange loss.

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Lending Portfolio Securities (All Funds). To a limited extent, each Fund
may lend its portfolio securities to brokers, dealers and other financial
institutions, provided it receives cash collateral which at all times is
maintained in an amount equal to at least 100% of the current market value of
the securities loaned. By lending its portfolio securities, a Fund can increase
its income through the investment of the cash collateral. For the purposes of
this policy, the Funds consider collateral consisting of U.S. Government
securities or irrevocable letters of credit issued by banks whose securities
meet the standards for investment by the Funds to be the equivalent of cash.
Such loans may not exceed 33-1/3% of a Fund's total assets. From time to time, a
Fund may return to the borrower and/or a third party which is unaffiliated with
the Fund, and which is acting as a "placing broker," a part of the interest
earned from the investment of collateral received for securities loaned.

The Securities and Exchange Commission currently requires that the
following conditions must be met whenever a Fund's portfolio securities are
loaned: (1) the Fund must receive at least 100% cash collateral from the
borrower; (2) the borrower must increase such collateral whenever the market
value of the securities rises above the level of such collateral; (3) the Fund
must be able to terminate the loan at any time; (4) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities, and any increase in market value; (5)
the Fund may pay only reasonable custodian fees in connection with the loan; and
(6) while voting rights on the loaned securities may pass to the borrower, the
Funds' Trustees must terminate the loan and regain the right to vote the
securities if a material event adversely affecting the investment occurs. These
conditions may be subject to future modification.

Rule 144A Securities (All Funds). The Funds have adopted fundamental
policies with respect to investments in illiquid securities (see Investment
Restrictions Nos. 10 and 11 below). Historically, illiquid securities have
included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), securities that are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities that have not been registered under the Securities Act are
referred to as private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the marketability
of portfolio securities and a mutual fund might be unable to dispose of
restricted or other illiquid securities promptly or at reasonable prices and
might thereby experience difficulty satisfying redemptions within seven days. A
mutual fund might also have to register such restricted securities in order to
dispose of them resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.

In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.

Each Fund may invest up to 5% of its total assets in restricted securities
issued under Section 4(2) of the Securities Act, which exempts from registration
"transactions by an issuer not involving any public offering". Section 4(2)
instruments are restricted in the sense that they can only be resold through the
issuing dealer and only to institutional inventors; they cannot be resold to the
general public without registration. Restricted securities issued under Section
4(2) of the Securities Act will be treated as illiquid and subject to each
Fund's investment restriction on illiquid securities.

The Commission has adopted Rule 144A, which allows a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act applicable to resales of certain securities
to qualified institutional buyers. The Adviser anticipates that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this new regulation and the development of automated
systems for the trading, clearance and settlement of unregistered securities of

B-7
<PAGE>

domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc. (the "NASD"). Consequently, it
is the intent of the Funds to invest, pursuant to procedures established by the
Board of Trustees and subject to applicable investment restrictions, in
securities eligible for resale under Rule 144A which are determined to be liquid
based upon the trading markets for the securities.

The Adviser will monitor the liquidity of restricted securities in a Fund's
portfolio under the supervision of the Trustees. In reaching liquidity
decisions, the Adviser will consider, inter alia, the following factors: (1) the
frequency of trades and quotes for the security over the course of six months or
as determined in the discretion of the Adviser; (2) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers over the course of six months or as determined in the discretion of
the Adviser; (3) dealer undertakings to make a market in the security; (4) the
nature of the security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer); and (5) other factors, if any, which the Adviser
deems relevant. The Adviser will also monitor the purchase of Rule 144A
securities to assure that the total of all Rule 144A securities held by a Fund
does not exceed 5% of the Fund's average daily net assets.

Investment Restrictions. The Funds have adopted the following restrictions
as fundamental policies. These restrictions cannot be changed without approval
by the holders of a majority (as defined in the Investment Company Act of 1940
(the "Act")) of each Fund's outstanding voting shares. Each Fund, except as
otherwise indicated, may not:

1. Purchase the securities of any issuer if such purchase would cause more
than 5% of the value of its total assets to be invested in securities of such
issuer. This restriction applies only with respect to 75% of each Fund's total
assets, except with respect to the Cash Management Fund for which the
restriction applies to 100% of its total assets.

2. Purchase the securities of any issuer if such purchase would cause the
Fund to hold more than 10% of the outstanding voting securities of such issuer.
This restriction applies only with respect to 75% of each Fund's total assets.

3. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) if such
purchase would cause the value of a Fund's investments in all such companies to
exceed 5% of the value of its total assets.

4. Purchase or retain the securities of any issuer if the officers or
Trustees of the Funds or the officers or Directors of the Adviser who
individually own beneficially more than 1/2 of 1% of the securities of such
issuer together own beneficially more than 5% of the securities of such issuer.

5. Purchase, hold or deal in commodities or commodity contracts, but the
Funds may engage in transactions involving futures contracts and related
options, including the futures and related options transactions as described in
the Prospectus and Statement of Additional Information.

6. Purchase, hold or deal in real estate, or oil and gas interests, but the
Funds may purchase and sell securities that are secured by real estate and may
purchase and sell securities issued by companies that invest or deal in real
estate. The Funds have no present intention to invest in companies that invest
or deal in real estate.

7. Borrow money or pledge, mortgage or hypothecate its assets, except as
described in the Funds' Prospectus and the Statement of Additional Information
and in connection with entering into futures contracts, but the deposit of
assets in escrow in connection with the writing of covered call options and the
purchase of securities on a when-issued or delayed-delivery basis and collateral
arrangements with respect to initial or variation margins for futures contracts
will not be deemed to be pledges of a Fund's assets.

8. Lend any funds or other assets except through the purchase of a portion
of an issue of publicly distributed bonds, debentures or other debt securities,
or the purchase of bankers' acceptances and commercial paper of corporations.
However, each Fund may lend its portfolio securities in an amount not to exceed
33-1/3% of the value of its total assets. Any loans of portfolio securities will
be made according to guidelines established by the Securities and Exchange
Commission and the Funds' Trustees.

9. Act as an underwriter of securities of other issuers.

10. The Equity Fund may not enter into repurchase agreements providing for
settlement in more than seven days after notice, or purchase securities which

B-8
<PAGE>

are not readily marketable, including certain securities which are subject to
legal or contractual restrictions on resale, if, in the aggregate, more than 10%
of the value of the Fund's net assets would be so invested. This restriction
applies to those options in respect of specific securities that are not traded
on a national securities exchange, and the underlying security, which are not
readily marketable.

11. Each Fund other than the Equity Fund, may not enter into repurchase
agreements providing for settlement in more than seven days after notice, or
purchase securities which are not readily marketable, if, in the aggregate, more
than 10% of the value of a Fund's net assets would be so invested. Included in
this category are "restricted" securities and any other assets for which an
active and substantial market does not exist at the time of purchase or
subsequent valuation. Restricted securities for purposes of this limitation do
not include securities eligible for resale pursuant to Rule 144A of the
Securities Act of 1933 which have been determined to be liquid by the Fund's
Board of Trustees based upon the trading markets for the securities.

12. Enter into time deposits maturing in more than seven days and time
deposits maturing from two business days through seven calendar days will not
exceed 10% of a Fund's total assets.

13. Invest in the securities of a company for the purpose of exercising
management or control, but each Fund will vote the securities it owns in its
portfolio as a shareholder in accordance with its views.

14. Purchase securities on margin, but the Funds may obtain such short-term
credit as may be necessary for the clearance of purchases and sales of
securities and the Funds may make margin payments in connection with
transactions in options and futures.

15. Purchase or sell put and call options, or combinations thereof, except
as set forth in the Prospectus and Statement of Additional Information.

16. Invest more than 25% of its assets in investments in any particular
industry or industries, provided that, when a Fund has adopted a temporary
defensive posture, there shall be no limitation on the purchase of obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and repurchase agreements in respect of the foregoing. This 25% limitation does
not apply with respect to the Cash Management Fund's investment in domestic
banks.

17. The Equity Fund shall not purchase warrants in excess of 2% of net
assets. (For purposes of this restriction, such warrants shall be valued at the
lower of cost or market, except that warrants acquired by the Equity Fund in
units or attached to securities shall not be included within this 2%
restriction.) The Balanced Fund shall not invest more than 5% of its net assets
in warrants, no more than 2% of which may be invested in warrants which are not
listed on the New York or American Stock Exchanges.

The limitations set forth above in restriction no. 1 do not apply with
respect to securities issued by the U.S. Government, its agencies or
instrumentalities.

In order to permit the sale of shares of the Funds in certain states, the
Funds may make commitments more restrictive than the restrictions described
above. Consequently, while investment restriction no. 2 above states that it
applies only with respect to 75% of total assets, the Funds' have voluntarily
undertaken to apply the restriction with respect to 100% of each Fund's total
assets. Should a Fund determine that any such commitment is no longer in the
best interests of a Fund and its shareholders it will revoke the commitment by
terminating sales of its shares in the state(s) involved.

If a percentage restriction is adhered to at the time of investment, a
later increase in percentage resulting from a change in values or assets will
not constitute a violation of such restriction.

MANAGEMENT OF THE FUNDS

Trustees and officers of the Funds, together with information as to their
principal business occupations during at least the last five years, are shown
below. Each Trustee who is deemed to be an "interested person" of the Funds, as
defined in the Act, is indicated by an asterisk.

B-9
<PAGE>

Trustees and Officers of the Funds

ANTHONY J. COLAVITA, (60) Trustee. President and Attorney at Law in the
firm of Anthony J. Colavita, P.C. Director of Gabelli Global Series Funds, Inc.,
Gabelli Investor Funds, Inc., The Gabelli Convertible Securities Fund, Inc.,
Gabelli Equity Series Funds, Inc., Gabelli Gold Fund, Inc., The Gabelli Value
Fund Inc., Gabelli Capital Series Fund, Inc., Gabelli International Growth Fund,
Inc., and a Trustee of The Gabelli Growth Fund, The Gabelli Money Market Funds,
and The Gabelli Asset Fund.

JAMES P. CONN, (57) Trustee. Managing Director/Chief Investment Officer,
Financial Security Assurance, since 1992. President and Chief Executive Officer
of Bay Meadows Operating Company from 1988 through 1992. Director of The Gabelli
Equity Trust Inc. and Gabelli Global Multimedia Trust Inc., Trustee of The
Gabelli Asset Fund and The Gabelli Growth Fund.

WERNER ROEDER, M.D., (55) Trustee. Director of Surgery, Lawrence Hospital
and practicing private physician. Director of Gabelli Investor Funds, Inc.,
Gabelli Gold Fund, Inc., Gabelli Capital Series Fund, Inc., Gabelli
International Growth Fund, Inc. and Gabelli Global Series Funds, Inc.,

SUSAN M. BYRNE*, (49 ) Trustee. President of Westwood Management Corp.

The Funds' Trustees were elected at a meeting of shareholders held on
September 30, 1994. Ordinarily, there will be no further meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees holding office have been elected by
shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Under the Act, shareholders
of record of not less than two-thirds of the Fund's outstanding shares may
remove a Trustee through a declaration in writing or by vote casting person or
by proxy at a meeting called for that purpose. In accordance with the Act under
the Fund's Agreement and Declaration of Trust, the Trustees are required to call
a meeting of shareholders for the purpose of voting upon the question of removal
of any such Trustee when requested in writing to do so by the shareholders of
record of not less than 10% of the Fund's outstanding shares.

The Fund does not pay any remuneration to its officers and Trustees other
than fees and expenses to Trustees who are not officers, directors, employees or
holders of 5% or more of the outstanding voting securities of the Adviser,
Sub-Adviser or the Distributor, which totalled for all such Trustees $13,800 for
the fiscal year ended September 30, 1995. For fiscal 1996, each Trustee other
than Susan Byrne is paid $2,500 and $250 for each meeting attended.

Officers of the Funds Not Listed Above

BRUCE N. ALPERT, (44) Vice President.

President of the Adviser since 1994. Vice President, Treasurer and Chief
Financial and Administrative Officer of the Investment advisory division of
Gabelli Funds, Inc., Treasurer of the Gabelli Equity Trust Inc. and Gabelli
Global Multimedia Trust Inc., Vice President and Treasurer of the Gabelli
Value Fund Inc., The Gabelli Asset Fund, The Gabelli Growth Fund, since
June 1988; Vice President and Treasurer of the Gabelli Money Market Funds;
Gabelli Investor Funds, Inc., Gabelli International Growth Fund, Inc.,
Gabelli Capital Series Funds, Inc., Gabelli Gold Fund, Inc. and Gabelli
Global Series Funds, Inc. His address is One Corporate Center, Rye, New
York 10580.

JOHN J. PILEGGI, (36) Treasurer.
Senior Managing Director of the Sub-Administrator since 1984. His address
is 230 Park Avenue, New York, New York 10169.

JAMES E. McKEE, (32) Secretary.
Secretary of the Adviser since 1995. Vice President and General Counsel of
Gabelli Funds, Inc.; Secretary of all Funds advised by Gabelli Funds, Inc.
since August 1995. Vice President and General Counsel of GAMCO Investors
Inc. since 1993. Formerly Branch Chief of the U.S. Securities and Exchange
Commission in New York from 1992 through 1993. Staff attorney with the
Securities and Exchange Commission in New York from 1989 through 1992. His
address is One Corporate Center, Rye, New York 10580.

B-10
<PAGE>

JOAN V. FIORE, (39) Assistant Secretary.
Managing Director and Counsel of the Sub-Administrator since 1991. Attorney
with the Securities and Exchange Commission from 1986 to 1991. Her address
is 230 Park Avenue, New York, New York 10169.

GORDON M. FORRESTER, (34) Assistant Treasurer.
Managing Director of the Sub-Administrator since 1986. His address is 230
Park Avenue, New York, New York 10169.

SHERYL HIRSCHFELD, (35) Assistant Secretary.
Director, Corporate Secretary Services of the Sub-Administrator since
November 1994. The Dreyfus Corporation 1982-1994. Her address is 230 Park
Avenue, New York, New York 10169.

Trustees and officers of the Funds, as a group, owned of record 5,360
shares or .01% of the Balanced Fund, 18,201 shares or .07% of the Equity Fund
and 38,660 shares or .02% of the Intermediate Bond Fund on December 22, 1995.

The following persons were known by the Funds to own of record 5% or more
of the outstanding voting securities of each Fund on December 22, 1995:

Name and Address Percentage
of Holder of Record of Fund
- ------------------- -------
EQUITY FUND
Service Class

Southwest Securities Inc., 29.23%
FBO James L. McCready
PO Box 509002
Dallas, TX 75250-9002

Southwest Securities Inc., 5.66%
FBO Michael H. Fields
PO Box 509002
Dallas, TX 75250-9002

Southwest Securities Inc., 59.46%
FBO Joseph J. Fox
PO Box 509002
Dallas, TX 75250-9002

Retail Class
The Bank of Tokyo Trust Co., TTEE 60.66%
FBO The Komatsu Dresser Co. Sav. Plan
Pension & Investment
Attn: Melissa Kruppa
100 Broadway 5th Fl.
New York, NY 10005-1904

State Street Bank & Trust Co. 7.47%
Cust. for the IRA Rollover of
Leeda J. O'Grady Fletcher
387 Croton Lake Road
Mount Kisco, NY 10549-4225

B-11
<PAGE>

Name and Address Percentage
of Holder of Record of Fund
- ------------------- -------

TCTCO 10.03%
7001 Preston Road LB 30
Dallas, TX 75205-1190

INTERMEDIATE BOND FUND
Retail Class

TCTCO 23.68%
7001 Preston Road LB 30
Dallas, TX 75205-1190

Trust Company of Texas Corporate 17.93%
7001 Preston Road
Suite 300
Dallas, TX 75205-1185

Southwest Securities Inc. 30.68%
FBO Guarantee & Trust Co., TR
PO Box 509002
Dallas, TX 75250-9002

BALANCED FUND
Retail Class

Robert P. Julius TTEE 6.09%
Nice Pak Products Inc.
401K Savings Plan-- Employee
2 Nice Pak Park
Orangeburg, NY 10962-1317

Robert L. Trimble Managing Gen Ptnr 8.41%
R L Trimble Ltd
A Texas Limited Partnership
4400 Thanksgiving Tower
Dallas, TX 75201

Service Class
Southwest Securities Inc. Cust. 9.34%
James E. Williams IRA
Attn: Mutual Funds Dividends Dept.
1201 Elm Street, Suite 4300
Dallas, TX 75270-2134

Southwest Securities 5.71%
FBO Margaret Blaker IRA
1201 Elm Street, Suite 4300
Dallas, TX 75270-2134

B-12
<PAGE>

INVESTMENT ADVISORY AND OTHER SERVICES

The following information supplements and should be read in conjunction
with the section in the Funds' Prospectus entitled "Management of the Funds."

Investment Advisory Agreements. The Adviser retains Westwood Management
Corp. ("Westwood" or the "Sub-Adviser") to furnish investment advice and manage
the Funds' assets. The Sub-Adviser received no fees for the period between April
8, 1993 and November 3, 1993.

Each Advisory and Sub-Advisory Agreement is subject to annual approval by
(i) the Funds' Board of Trustees or (ii) vote of a majority (as defined in the
Act) of the outstanding voting securities of each Fund, provided that in either
event the continuance also is approved by a majority of the Trustees who are not
"interested persons" (as defined in the Act) of the Funds or the Adviser, by
vote cast in person at a meeting called for the purpose of voting on such
approval. Each Advisory Agreement is terminable without penalty, on 60 days'
notice, by the Funds' Board of Trustees or, by vote of the holders of a majority
of each Fund's shares, or by the Adviser, upon not less than 60 days' notice
with respect to the Investment Advisory Agreement for each Fund. Each Advisory
Agreement will terminate automatically in the event of its assignment (as
defined in the Act).

The Sub-Adviser manages each Fund's portfolio of investments in accordance
with the stated policies of each Fund, subject to the approval of the Funds'
Board of Trustees. The Sub-Adviser is responsible for investment decisions, and
provides each Fund with Investment Officers who are authorized by the Board of
Trustees to execute purchases and sales of securities. The Funds' Investment
Officers are Susan M. Byrne and Patricia N. Fraze. All purchases and sales are
reported for the Trustees' review at the meeting subsequent to such
transactions.

The fees paid to the Adviser are allocated between the classes of shares
based upon the amount of assets in each such class. As compensation for its
services under the Advisory Agreement, the Adviser is paid a monthly advisory
fee.

As compensation for its advisory and administrative services under the
Advisory Agreement for the Equity Fund, the Cash Management Fund, the
Intermediate Bond Fund and the Balanced Fund, Teton is paid a monthly fee based
upon the average daily net asset value of each Fund, at the following annual
rates: 1.0%, .50%, .60% and .75%, respectively. Under the Sub-Advisory
Agreement, the Adviser pays Westwood out of its advisory fees with respect to
the Funds a fee computed daily and payable monthly in an amount equal on an
annualized basis to the greater of (i) $150,000 per year on an aggregate basis
for all the Funds or (ii) 35% of the net revenues to the Adviser from the Funds.

For the fiscal year ended September 30, 1993, the fees charged to the
Equity Fund by Westwood were $77,317. For the year ended September 30, 1993,
Westwood voluntarily waived advisory fees of $28,611, $11,026 and $21,990 from
the Equity Fund, Intermediate Bond Fund and Balanced Fund, respectively. For the
year ended September 30, 1994, Westwood charged advisory fees of $53,481,
$29,245 and $73,635 and waived fees of $44,969, $22,653 and $65,878 for the
Equity Fund, Intermediate Bond Fund and Balanced Fund, respectively. For the
year ended September 30, 1995, Teton Advisers, LLC charged Advisory fees of
$118,524, $28,016 and $97,048 and waived fees of $80,907, $27,288 and $75,402
for the Equity Fund, Intermediate Bond Fund and Balanced Fund respectively.

The Adviser is responsible for overseeing Westwood's activities as
Sub-Adviser. Westwood assumes general supervision over placing orders on behalf
of the Funds for the purchase or sale of portfolio securities. Allocation of
brokerage transactions, including their frequency, is made in the best judgment
of Westwood and in a manner deemed fair and reasonable to shareholders. The
primary consideration is prompt execution of orders at the most favorable net
price. Subject to this consideration, the brokers selected will include those
that supplement Westwood's research facilities with statistical data, investment
information, economic facts and opinions. Information so received is in addition
to and not in lieu of services required to be performed by Westwood and the fee
for Westwood is not reduced as a consequence of the receipt of such supplemental
information. Such information may be useful to Westwood in serving both the
Funds and other accounts it manages and, conversely, supplemental information
obtained by the placement of business of other clients may be useful to Westwood
in carrying out its obligations to the funds, although not all of these services
are necessarily useful and of value in managing the Funds. Brokers also are
selected because of their ability to handle special executions such as are

B-13
<PAGE>

involved in large block trades or broad distributions, provided the primary
consideration is met. While Westwood generally seeks reasonably competitive
spreads or commissions, the Funds will not necessarily be paying the lowest
spread or commissions available.

As permitted by section 28(e) of the Securities Exchange Act of 1934 (the
"1934 Act"), Westwood may cause the Funds to pay a broker-dealer which provides
"brokerage and research services" (as defined in the 1934 Act) to Westwood an
amount of undisclosed commission for effecting a securities transaction for the
Funds in excess of the commission which another broker-dealer would have charged
for effecting that transaction. Westwood may also effect transactions through a
broker affiliated with the Adviser and Southwest Securities Group, Inc. subject
to compliance with the 1940 Act.

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Trustees may determine,
Westwood may consider sales of shares of the Funds as a factor in the selection
of broker-dealers to execute portfolio transactions for the Funds.

Portfolio turnover may vary from year to year, as well as within a year.
For the fiscal years ended September 30, 1995, September 30, 1994 and September
30, 1993 the turnover rates were 107%, 137% and 102% in the case of the Equity
Fund, 165%, 203% and 222% in the case of the Intermediate Bond Fund and 133%,
168% and 192% in the case of the Balanced Fund; however, in periods in which
extraordinary market conditions prevail, the Adviser will not be deterred from
changing investment strategy as rapidly as needed, in which case higher turnover
rates can be anticipated. High turnover rates are likely to result in
comparatively greater brokerage expenses. The overall reasonableness of
brokerage commissions paid is evaluated by the Adviser based upon its knowledge
of available information as to the general level of commissions paid by other
institutional investors for comparable services. For the fiscal years ended
September 30, 1993, 1994 and 1995, the Equity Fund paid brokerage commissions of
$40,197, $19,515 and $28,530, respectively. For the fiscal years ended September
30, 1993, 1994 and 1995, the Intermediate Bond Fund paid brokerage commissions
of $0, $0 and $110, respectively, and the Balanced Fund paid brokerage
commissions in the amount of $10,401, $34,283 and $23,156, respectively. None of
these amounts were paid to the current or former Distributor.

The Adviser is responsible for overseeing the administration of each Fund's
business and affairs, including the maintenance of certain of the Fund's books
and records and the performance of other administrative aspects of the funds'
operations to the extent not performed by the Funds' custodians, transfer agents
and dividend disbursing agents. The adviser is permitted to subcontract at its
own expense the administrative responsibilities to persons it believes are
qualified to perform such services and has retained Furman Selz LLC to provide
administrative services with respect to the Funds. Pursuant to the
Sub-Administration Contracts, Furman Selz provides management and administrative
services necessary for the operation of the Funds, including, among other
things, (i) preparation of shareholder reports and communications, (ii)
regulatory compliance, such as reports to and filings with the Securities and
Exchange Commission ("SEC") and state securities commissions and (iii) general
supervision of the operation of the Funds, including coordination of the
services performed by the Funds' Adviser and Sub-Adviser, transfer agent,
custodians, independent accountants, legal counsel and others. In addition, the
Administrator furnishes office space and facilities required for conducting the
business of the Funds and pays the compensation of the Funds' officers,
employees and Trustees affiliated with the Administrator. For the year ended
September 30, 1993, Furman Selz voluntarily waived administrative services fees
of $8,244 and $12,072 from the Intermediate Bond Fund and the Balanced Fund,
respectively. For the year ended September 30, 1994, Furman Selz charged
administrative service fees of $17,827, $18,544 and $28,419 and waived
administrative service fees of $0, $3,721, and $1,642 for the Equity Fund, the
Intermediate Bond Fund and the Balanced Fund, respectively. For the fiscal year
ended September 30, 1995, Furman Selz waived all administrative service fees.

Distribution of Fund Shares. The Funds also retain Gabelli to serve as
principal underwriter and distributor (the "Distributor") for the shares of the
Funds pursuant to Distribution Contracts (the "Distribution Contracts"). The
Distribution Contracts provide that the Distributor will use its best efforts to
maintain a broad distribution of the Funds' shares among bona fide investors and

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may enter into selling group agreements with responsible dealers and dealer
managers as well as sell the Funds' shares to individual investors. The
Distributor is not obligated to sell any specific amount of shares.

The Funds have adopted a Rule 12b-1 Distribution Plan and Agreement (the
"Plan") pursuant to which the Service Class shares of each Fund may reimburse
the Distributor on a monthly basis in amounts described in the Prospectus for
costs and expenses of marketing such shares. The Board of Trustees has concluded
that there is a reasonable likelihood that the Plan will benefit these classes
and their shareholders.

The Plan provides that it may not be amended to increase materially the
costs which Service Classes may bear pursuant to the Plan without shareholder
approval and that other material amendments of the Plan must be approved by the
Board of Trustees, and by the Trustees who are neither "interested persons" (as
defined in the Act) of the Funds nor have any direct or indirect financial
interest in the operation of the Plan or in any related agreement, by vote cast
in person at a meeting called for the purpose of considering such amendments.
The selection and nomination of the Funds' Trustees have been committed to the
discretion of the Trustees who are not "interested persons" of the Funds. The
Plan was approved by shareholders on January 15, 1991 and is subject to annual
approval by the Board of Trustees and by the Trustees who are neither
"interested persons" nor have any direct or indirect financial interest in the
operation of the Plan, by vote cast in person at a meeting called for the
purpose of voting on the Plan. The Plan is terminable with respect to the
Service Classes at any time by a vote of a majority of the Trustees who are not
"interested persons" of the Funds and who have no direct or indirect financial
interest in the operation of the Plan or by vote of the holders of a majority of
the shares of each such class. Rule 12b-1 payments in the amount of $144 were
accrued as of September 30, 1993 with respect to the Service class of shares of
the Balanced Fund. No payments were made with respect to the other Funds under
the Plan for the year ended September 30, 1993. Rule 12b-1 payments in the
amounts of $574, $525 and $56,229 were accrued as of September 30, 1994 with
respect to the Service Class shares of the Equity Fund, the Intermediate Bond
Fund and the Balanced Fund, respectively. Rule 12b-1 payments in the amounts of
$870, $18 and $41,708 were accrued as expenses for the year ended September 30,
1995 with respect to the Service Class shares of the Equity Fund, the
Intermediate Bond Fund and the Balanced Fund, respectively.

On September 30, 1994, the Funds' shareholders approved a Plan of
Distribution for the Retail Class shares pursuant to Rule 12b-1 (the "Retail
12b-1 Plan").

The Retail 12b-1 Plan authorizes payments by the Funds in connection with
the distribution of its Retail Class shares at an annual rate, as determined
from time to time by the Board of Trustees, of up to .25% of the Funds' average
daily net assets. Payments will be accrued daily and paid monthly or at such
other intervals as the Board may determine and may be paid in advance of actual
billing, based on estimates of actual expenditures incurred during the period.
Payments may be made in subsequent years for expenses incurred in prior years if
such payment is separately authorized by the Board. The Board, however, has no
legal obligation to authorize such payments in the future and thus may not
authorize them.

Payments may be made by the Funds under the Retail 12b-1 Plan for the
purpose of financing any activity primarily intended to result in the sale of
the Retail Class shares of the Funds as determined by the Board of Trustees.
Such activities typically include advertising, compensation for sales and sales
marketing activities of the distributor and other banks, broker-dealers and
service providers, shareholder account servicing, production and dissemination
of prospectus and sales and marketing materials, and capital or other expenses
of associated equipment, rent, salaries, bonuses, interest and other overhead.
To the extent any activity is one which the Funds may finance without a plan of
distribution, the Funds may also make payments to finance such activity outside
of the Proposed 12b-1 Plan and not be subject to its limitations.

The Retail 12b-1 Plan of the Funds has been implemented by written
agreements between the Funds and/or Gabelli & Company, Inc. (the "Distributor")
and each person (including the Distributor) to which payments may be made.
Administration of the Retail 12b-1 Plan is regulated by Rule 12b-1 under the
1940 Act, which includes requirements that the Board of Trustees receive and
review at least quarterly reports concerning the nature and qualification of
expenses for which payments are made and that the Board of Trustees approve all
agreements implementing the Retail 12b-1 Plan and other requirements of rule

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<PAGE>

12b-1. Approval by a majority of the Board of Trustees who are not interested
persons of the Trust is required for all payment determinations. The Retail
12b-1 Plan or any separate agreement thereunder may be terminated by either a
majority of the Board or a majority of disinterested Trustees.

The Board of Trustees has approved implementation of the Retail 12b-1 Plan
through the Proposed Advisory Agreements which provide for separate payments
pursuant to a plan of distribution, and by having the Funds enter into a
Distribution Agreement with the Distributor authorizing reimbursement of
expenses (including overhead) incurred by the Distributor and its affiliates up
to the .25% rate authorized by the Institutional 12b-1 Plan. Distribution
activities include, without limitation, advertising the Funds; compensating
underwriters, dealers, brokers, banks and other selling entities and sales and
marketing personnel of any of them for sales of shares of the Funds, whether in
a lump sum or on a continuous, periodic, contingent, deferred or other basis;
compensating underwriters, dealers, brokers, banks and other servicing entities
and servicing personnel of any of them (including Westwood and its personnel)
for providing services to shareholders of the Funds relating to their investment
in the Funds, including assistance in connection with inquiries relating to
shareholder accounts; the production and dissemination of prospectuses
(including statements of additional information) of the Funds and the
preparation, production and dissemination of sales, marketing and shareholder
servicing materials; ordinary or capital expenses, such as equipment, rent,
fixtures, salaries, bonuses, reporting and recordkeeping and third party
consultancy or similar direct and indirect expenses relating to any activity for
which payment is authorized by the Board of Trustees; and the financing of any
activity for which payment is authorized by the Board of Trustees. To the extent
any of these payments is based on allocations by the Distributor, the Funds may
be considered to be participating in joint distribution activities with other
funds distributed by the Distributor. Various federal and state laws prohibit
national banks and some state-chartered commercial banks from underwriting or
dealing in the Funds' Shares. In the unlikely event that a court were to find
that these laws prevent such banks from providing the services described above,
the Funds would seek alternative providers and expect that shareholders would
not experience any disadvantage.

Expenses and Expense Information. The Adviser has agreed that if in any
fiscal year the aggregate expenses of a Fund (including fees pursuant to an
Advisory Agreement, but excluding taxes, brokerage, interest on borrowings and,
with the prior written consent of the necessary state securities commissions,
extraordinary expenses) exceed the expense limitation of any state having
jurisdiction over the Fund, the Fund may deduct from the fees to be paid to the
Adviser, or the Adviser will bear, such excess expense, in the proportion of its
advisory fee to the extent required by state law. Such deduction or payment, if
any, will be estimated daily and reconciled and effected or paid, as the case
may be, on a monthly basis. Although there is no certainty that the state
limitations will be in effect in the future, the most restrictive of these
limitations on an annual basis with respect to the Funds are currently 2.5% of
the first $30 million of average daily net assets, 2% of the next $70 million of
average daily net assets and 1.5% of average daily net assets in excess of $100
million. No expense reimbursements were required for the year ended September
30, 1994. Teton Advisers LLC reimbursed the Funds during fiscal 1995. Expenses
in the amount of $33,736 for the Equity Fund, $57,838 for the Intermediate Bond
Fund and $43,740 for the Balanced Fund were voluntarily reimbursed during the
period ended September 30, 1995.

PURCHASE AND REDEMPTION OF SHARES

Cancellation of purchase orders for Fund shares (as, for example, when checks
submitted to purchase shares are returned unpaid) cause a loss to be incurred
when the net asset value of the fund shares on the date of cancellation is less
than on the original date of purchase. The investor is responsible for such
loss, and each Fund may reimburse itself or the Distributor for such loss by
automatically redeeming shares from any account registered in that shareholder's

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<PAGE>

name, or by seeking other redress. If a Fund is unable to recover any loss to
itself, it is the position of the SEC that the Distributor will be immediately
obligated to make such Fund whole.

DETERMINATION OF NET ASSET VALUE

The following information supplements and should be read in conjunction
with the section in the Funds' Prospectus entitled "Purchase of Shares."

Valuation of Portfolio Securities -- Amortized Cost.

As indicated under "Fund Share Valuation" in the Prospectus, the Cash
Management Fund uses the amortized cost method to determine the value of its
portfolio securities pursuant to Rule 2a-7 under the Act. The amortized cost
method involves valuing a security at its cost and amortizing any discount or
premium over the period until maturity regardless of the impact of fluctuating
interest rates on the market value of the security. While this method provides
certainty in valuation, it may result in periods during which the value, as
determined by amortized cost, is higher or lower than the price which the Fund
would receive if the security were sold. During these periods, the yield to a
shareholder may differ somewhat from that which could be obtained from a similar
fund which utilizes a method of valuation based upon market prices. Thus, during
periods of declining interest rates, if the use of the amortized cost method
resulted in lower value of the Cash Management Fund's portfolio on a particular
day, a prospective investor in the Fund would be able to obtain a somewhat
higher yield than would result from an investment in a fund utilizing solely
market values and existing Fund shareholders would receive correspondingly less
income. The converse would apply during periods of rising interest rates.

Rule 2a-7 provides that in order to value its portfolio using the amortized
cost method, the Cash Management Fund must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase securities having remaining
maturities of thirteen months or less and invest only in certain eligible
securities determined by the Funds' Board of Trustees to be of high quality with
minimal credit risks. Pursuant to Rule 2a-7, the Board of Trustees is required
to establish procedures designed to stabilize, to the extent reasonably
possible, the price per share of the Cash Management Fund, as computed for the
purpose of sales and redemptions, at $1.00. Such procedures include review of
the Cash Management Fund's portfolio holdings by the Board of Trustees, at such
intervals as it may deem appropriate, to determine whether the net asset value
of the Fund calculated by using available market quotations deviates from $1.00
per share based on amortized cost. The extent of any deviation will be examined
by the Board of Trustees. If such deviation exceeds 1/2 of 1%, the Board of
Trustees will promptly consider what action, if any, will be initiated. In the
event the Board of Trustees determines that a deviation exists which may result
in material dilution or other unfair results to investors or existing
shareholders, the Board of Trustees will take such corrective action as it
regards as necessary and appropriate, which may include selling portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity, withholding dividends or establishing a net asset
value per share by using available market quotations.

The other Funds value their portfolio securities in accordance with the
procedures described in the Prospectus.

New York Stock Exchange Closings. The holidays (as observed) on which the
New York Stock Exchange is closed currently are: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.

SHAREHOLDER SERVICES

Corporate Pension/Profit-Sharing and Personal Retirement Plans. The Funds
make available to corporations a variety of prototype pension and profit-sharing
plans including a 401(k) Salary Reduction Plan. In addition, the Funds make
available Keogh Plans, IRAs, including IRAs set up under a Simplified Employee
Pension Plan ("SEP-IRAs") and IRA "Rollover Accounts," and 403 (b)(7) Plans.
Plan support services are also available. For details contact the Distributor by
calling toll free 1-800-WESTWOOD (1-800-937-8966). The Fund has the right to
terminate any of these plans at any time giving proper notice to existing
accounts.

Investors who wish to purchase Fund shares in conjunction with a Keogh
Plan, a 403(b)(7) Plan or an IRA, including a SEP-IRA, may request from the
Distributor forms for adoption of such plans. The Funds can also be used as

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vehicles for existing pension and profit-sharing plans.

A fee may be charged by the entity acting as custodian for Keogh Plans,
403(b)(7) Plans or IRAs, payment of which could require the liquidation of
shares. All fees charged are described in the appropriate form.

Shares may be purchased in connection with these plans only by direct
remittance to the entity which acts as custodian. Purchases for these plans may
not be made in advance of receipt of funds.

The minimum initial investment for corporate plans, Salary Reduction Plans,
403(b)(7) Plans, and SEP-IRAs, with more than one participant, is $1,000, with
no minimum on subsequent purchases. The minimum initial investment for
Distributor- sponsored Keogh Plans, IRAs, SEP-IRAs and 403(b)(7) Plans with only
one participant is normally $750, with no minimum on subsequent purchases.
Individuals who open an IRA also may open a non-working spousal IRA with a
minimum investment of $250.

The investor should read the Prototype Retirement Plan and the relevant
form of custodial agreement for further details as to eligibility, service fees
and tax implications, and should consult a tax adviser.

DIVIDENDS, DISTRIBUTIONS AND TAXES

The following information supplements and should be read in conjunction
with the section in the Funds' Prospectus entitled "Dividends, Distributions and
Taxes."

The Funds intend to continue to qualify and elect annually to be treated as
regulated investment companies under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). To qualify as a regulated investment company,
a Fund must distribute to shareholders at least 90% of its investment company
taxable income (which includes, among other items, dividends, taxable interest
and the excess of net short-term capital gains over net long-term capital
losses), and meet certain diversification of assets, source of income, and other
requirements of the Code. By meeting these requirements, a Fund generally will
not be subject to Federal income tax on its investment company taxable income
and net capital gains (the excess of net long-term capital gains over net
short-term capital losses) designated by the Fund as capital gain dividends and
distributed to shareholders. If the Funds do not meet all of these Code
requirements, they will be taxed as ordinary corporations and their
distributions will be taxed to shareholders as ordinary income. In determining
the amount of capital gains to be distributed, any capital loss carryover from
prior years will be applied against capital gains to reduce the amount of
distributions paid. In addition, any losses incurred in the taxable year
subsequent to October 31, may be deferred to the next taxable year and used to
reduce distributions in the subsequent year.

Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement may be subject to a nondeductible 4% excise tax.
To prevent imposition of the excise tax, each Fund must distribute for the
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (excluding any capital gains or losses) for the calendar year, (2) at
least 98% of the excess of its capital gains over capital losses (adjusted for
certain ordinary losses) for the one-year period ending October 31 of such year,
and (3) all ordinary income and capital gain net income (adjusted for certain
ordinary losses) for previous years that were not distributed during such years.
A distribution will be treated as paid on December 31 of a calendar year if it
is declared by a Fund during October, November or December of that year to
shareholders of record on a date in such a month and paid by the Fund during
January of the following year. Such distributions will be taxable to
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received.

The Funds may invest in stocks of foreign companies that are classified
under the Code as passive foreign investment companies ("PFICs"). In general, a
foreign company is classified as a PFIC under the Code if at least one-half of
its assets constitutes investment-type assets or 75% or more of its gross income
is investment-type income. Under the PFIC rules, an "excess distribution"
received with respect to PFIC stock is treated as having been realized ratably
over the period during which the Fund held the PFIC stock. A Fund itself will be
subject to tax on the portion, if any, of the excess distribution that is
allocated to the Fund's holding period in prior taxable years (and an interest
factor will be added to the tax, as if the tax had actually been payable in such
prior taxable years) even though the Fund distributes the corresponding income
to stockholders. Excess distributions include any gain from the sale of PFIC

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<PAGE>

stock as well as certain distributions from a PFIC. All excess distributions are
taxable as ordinary income.

A Fund may be able to elect alternative tax treatment with respect to PFIC
stock it holds. One election that is currently available, provided the
appropriate information is received from the PFIC, allows a Fund generally
includes in its gross income its share of the earnings of a PFIC on a current
basis, regardless of whether any distributions are received from the PFIC. If
this election is made, the special rules, discussed above, relating to the
taxation of excess distributions, would not apply. In addition, other elections
may become available that would affect the tax treatment of PFIC stock held by a
Fund. Each Fund's intention to qualify annually as a regulated investment
company may limit its elections with respect to PFIC stock.

Because the application of the PFIC rules may affect, among other things,
the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC stock, as well as subject a Fund
itself to tax on certain income from PFIC stock, the amount that must be
distributed to stockholders, and which will be taxed to stockholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC stock.

Distributions of investment company taxable income generally are taxable to
shareholders as ordinary income. Distributions from certain of the Funds may be
eligible for the dividends-received deduction available to corporations. To the
extent dividends received by a Fund are attributable to foreign corporations, a
corporation that owns shares in a Fund will not be entitled to the dividends
received deduction with respect to its pro rata portion of such dividends, since
the dividends received deduction is generally available only with respect to
dividends paid by domestic corporations. Proposed legislation, if enacted, would
reduce the dividend received deduction from 70 to 50 percent.

Distributions of net capital gains, if any, designated by a Fund as capital
gain dividends are taxable to shareholders as long-term capital gain, regardless
of the length of time the Fund's shares have been held by a shareholder. All
distributions are taxable to the shareholder whether reinvested in additional
shares or received in cash. Shareholders will be notified annually as to the
Federal tax status of distributions.

Investors should be careful to consider the tax implications of buying
shares just prior to a distribution by the Funds. Distributions by a Fund reduce
the net asset value of the Fund's shares. Should a distribution reduce the net
asset value below a stockholder's cost basis, such distribution, nevertheless,
would be taxable to the shareholder as ordinary income or capital gain as
described above, even though, from an investment standpoint, it may constitute a
partial return of capital. The price of shares purchased at that time includes
the amount of the forthcoming distribution.

Upon the taxable disposition (including a sale or redemption) of shares of
a Fund, a shareholder may realize a gain or loss depending upon his basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands. Such gain or loss will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. However, a loss realized by a shareholder on the
disposition of Fund shares with respect to which capital gain dividends have
been paid will, to the extent of such capital gain dividends, be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less. Further, a loss realized on a disposition will be disallowed to
the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Shareholders receiving distributions in the form of additional shares will have
a cost basis for Federal income tax purposes in each share received equal to the
net asset value of a share of the Funds on the reinvestment date.

Under certain circumstances, the sales charge incurred in acquiring shares
of a Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of a Fund are
exchanged within 90 days after the date they were purchased and new Service
Class shares of a Fund are acquired without a sales charge or at a reduced sales
charge. In that case, the gain or loss recognized on the exchange will be
determined by excluding from the tax basis of the shares exchanged all or a
portion of the sales charge incurred in acquiring those shares. This exclusion
applies to the extent that the otherwise applicable sales charge with respect to
the newly acquired shares is reduced as a result of having incurred the sales
charge initially. Instead, the portion of the sales charge affected by this rule
will be treated as a sales charge paid for the new shares.

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<PAGE>

Certain of the options, futures contracts, and forward foreign currency
exchange contracts in which certain of the Funds may invest are so-called
"section 1256 contracts". With certain exceptions, realized gains or losses on
section 1256 contracts generally are considered 60% long-term and 40% short-term
capital gains or losses ("60/40"). Also, section 1256 contracts held by a Fund
at the end of each taxable year (and, generally, for purposes of the 4% excise
tax, on October 31 of each year) are "marked-to-market" with the result that
unrealized gains or losses are treated as though they were realized and the
resulting gain or loss is treated as 60/40 gain or loss. Investors should
consult their own tax advisers in this regard.

Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by a Fund. In addition, losses realized
by a Fund on a position that is part of a straddle may be deferred under the
straddle rules, rather than being taken into account in calculating the taxable
income for the taxable year in which such losses are realized. Because only a
few regulations implementing the straddle rules have been promulgated, the tax
consequences to a Fund of hedging transactions are not entirely clear. The
hedging transactions may increase the amount of short-term capital gain realized
by a Fund which is taxed as ordinary income when distributed to stockholders.

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

Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders, and will be taxed to shareholders as ordinary income or long-term
capital gain, may be increased or decreased substantially as compared to a Fund
that did not engage in such hedging transactions. Investors should consult their
own tax advisers in this regard.

Certain requirements that must be met under the Code in order for a Fund to
qualify as a regulated investment company may limit the extent to which a Fund
will be able to engage in transactions in options, futures, and forward
contracts.

Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues interest or other receivables
or accrues expenses or other liabilities denominated in a foreign currency and
the time the Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain forward contracts, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase, decrease, or eliminate the amount
of a Fund's investment company taxable income to be distributed to its
shareholders as ordinary income. Investors should consult their own tax advisers
in this regard.

Income received by a Fund from sources within foreign countries may be
subject to withholding and other similar income taxes imposed by the foreign
country. Investors should consult their own tax advisers in this regard.

Generally, a credit for foreign taxes is available but is subject to the
limitation that it may not exceed the shareholder's U.S. tax attributable to his
total foreign source taxable income. For this purpose, if a Fund makes the
election to qualify as a regulated investment company, the source of the Fund's
income flows through to its shareholders. With respect to a Fund, gains from the
sale of securities will be treated as derived from U.S. sources and certain
currency fluctuation gains, including fluctuation gains from foreign
currency-denominated debt securities, receivables and payables, will be treated
as ordinary income derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source passive income (as defined for
purposes of the foreign tax credit) including foreign source passive income of a
Fund. The foreign tax credit may offset only 90% of the alternative minimum tax

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imposed on corporations and individuals, and foreign taxes generally may not be
deducted in computing alternative minimum taxable income.

The Funds are required to report to the Internal Revenue Service ("IRS")
all distributions to shareholders except in the case of certain exempt
shareholders. All such distributions generally are subject to withholding of
Federal income tax at a rate of 31% ("backup withholding") in the case of
non-exempt shareholders if (1) the shareholder fails to furnish the Funds with
and to certify the shareholder's correct taxpayer identification number or
social security number, (2) the IRS notifies the Funds or a shareholder that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions whether reinvested in additional shares or taken in cash, will be
reduced by the amounts required to be withheld. Investors may wish to consult
their tax advisors about the applicability of the backup withholding provisions.

The foregoing discussion relates only to Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Distributions by the Funds also
may be subject to state and local taxes and their treatment under state and
local income tax laws may differ from the Federal income tax treatment.
Shareholders should consult their tax advisors with respect to particular
questions of Federal, state and local taxation. Shareholders who are not U.S.
persons should consult their tax advisors regarding U.S. and foreign tax
consequences of ownership of shares of the Funds, including the likelihood that
distributions to them would be subject to withholding of U.S. tax at a rate of
30% (or at a lower rate under a tax treaty).

PERFORMANCE INFORMATION

The following information supplements and should be read in conjunction
with the section in the Funds' Prospectus entitled "Performance Information".

The Funds may, from time to time, include their yield, effective yield and
average annual total return in advertisements or reports to shareholders or
prospective investors.

Current yield for the Cash Management Fund will be based on the change in
the value of a hypothetical investment (exclusive of capital changes) over a
particular seven-day period, less a pro-rata share of the Fund's expenses
accrued over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The base
period return is then annualized by multiplying by 365/7, with the resulting
yield figure carried to at least the nearest hundredth of one percent.
"Effective yield" for the Cash Management Fund assumes that all dividends
received during an annual period have been reinvested. Calculation of "effective
yield" begins with the same "base period return" used in the calculation of
yield, which is then annualized to reflect weekly compounding pursuant to the
following formula:

Effective Yield = [(Base Period Return + 1) 365/7]-1.

Quotations of yield for the other Funds will be based on the investment
income per share earned during a particular 30-day period, less expenses accrued
during a period ("net investment income") and will be computed by dividing net
investment income by the maximum offering price per share on the last day of the
period, according to the following formula:

YIELD = 2[((a-b)/(cd)+1)^6-1]

where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of any reimbursements), c = the average daily number of
shares outstanding during the period that were entitled to receive dividends,
and d = the maximum offering price per share on the last day of the period.

B-21
<PAGE>

Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in a Fund
over periods of 1, 5 and 10 years (up to the life of the Fund), calculated
pursuant to the following formula:

P(1+T)^n=ERV

(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures will reflect the deduction of the maximum sales charge and a
proportional share of Fund expenses (net of certain reimbursed expenses) on an
annual basis, and will assume that all dividends and distributions are
reinvested when paid.

For the fiscal year ending September 30, 1993, the rate of total return for
the Equity Fund Retail Class was 20.16%. For the fiscal year ended September 30,
1993, the rates of total return of the Retail Class of the Intermediate Bond
Fund and the Balanced Fund were 10.24% and 17.60%, respectively, and for the
Balanced Fund Service Class, 6.96%. For the fiscal year ended September 30,
1992, the rates of total return of the Intermediate Bond Fund and the Balanced
Fund Retail Class were 11.87% and 7.32%, respectively. For the year ended
September 30, 1994, for the Service class of shares the total rate of return of
the Equity Fund, the Intermediate Bond Fund and the Balanced Fund were (.90%),
(6.81%) and 4.67%, respectively, and for the Retail class of shares, total rate
of return was 9.14%, (5.46%) and 5.30%, respectively. For the year ended
September 30, 1995, for the Service Class of shares the total rate of return of
the Equity Fund, the Intermediate Bond Fund and the Balanced Fund were 25.85%,
11.13% and 21.98%, respectively. For the year ended September 30, 1995, for the
Retail Class of shares the total rate of return of the Equity Fund, the
Intermediate Bond Fund and the Balanced Fund were 25.54%, (.95)% and 21.67%,
respectively.

Quotations of yield and total return will reflect only the performance of a
hypothetical investment in the Funds during the particular time period shown.
Yield and total return for the Funds will vary based on changes in the market
conditions and the level of the Funds' expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.

In connection with communicating its yields or total return to current or
prospective shareholders, the Funds also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
other unmanaged indexes which may assume reinvestment of dividends but generally
do no reflect deductions for administrative and management costs.

Performance information for the Funds may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Composite Stock Index,
the Dow Jones Industrial Average, or other unmanaged indices so that investors
may compare the Funds' results with those of a group of unmanaged securities
widely regarded by investors as representative of the securities markets in
general; (ii) other groups of mutual funds tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds by
overall performance, investment objectives, and assets, or tracked by other
services, companies, publications, or persons who rank mutual funds on overall
performance or other criteria; and (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.

INFORMATION ABOUT THE FUNDS

The following information supplements and should be read in conjunction
with the section in the Funds' Prospectus entitled "General Information."

The authorized capitalization of the Trust consists of an unlimited number
of shares of beneficial interest having a par value of $0.001 per share. The
Trust's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares of beneficial interest. Pursuant to that
authority, the Board of Trustees has authorized the issuance of four series
representing four portfolios of the Trust (i.e., the Funds).

B-22
<PAGE>

Except as noted below, each share of a Fund represents an equal
proportionate interest in that Fund with each other share of the same Fund and
is entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared in the discretion of the Trust's
Board of Trustees. In the event of the liquidation or dissolution of the Trust,
shares of a Fund are entitled to receive the assets belonging to that Fund which
are available for distribution, and a proportionate distribution, based upon the
relative net assets of the Funds, of any general assets not belonging to a Fund
which are available for distribution.

Each Fund is comprised of two classes of shares of beneficial interest --
"Retail Class" shares (formerly "Institutional Class") and "Service Class"
shares. Retail Class shares and Service Class shares are identical in all
respects, except that Service Class shares are subject to a sales load and bear
higher expenses incurred in the distribution and marketing of such shares. These
expenses are paid pursuant to the Rule 12b-1 Distribution Plan and Agreement
described under "Investment Advisory and Other Services" in this Statement of
Additional Information.

All shares of the Trust have equal voting rights and will be voted in the
aggregate, and not by class or series, except where voting by class or series is
required by law or where the matter involved affects only one class or series.
For example, shareholders of each Fund will vote separately by series on matters
involving investment advisory contracts and shareholders of each Class will vote
separately by class for matters involving the Rule 12b-1 distribution plan. As
used in the Prospectus and in this Statement of Additional Information, the term
"majority", when referring to the approvals to be obtained from shareholders in
connection with general matters affecting all of the Funds (e.g., election of
trustees and ratification of independent accountants), means the vote of a
majority of each Fund's outstanding shares represented at a meeting. The term
"majority", as defined by the Act when referring to the approvals to be obtained
from shareholders in connection with matters affecting a single Fund or class
(e.g., approval of investment advisory contracts or changing the fundamental
policies of a Fund, or approving the Rule 12b-1 Distribution Plan and Agreement
with respect to a class), means the vote of the lesser of (i) 67% of the shares
of the Fund (or class) represented at a meeting if the holders of more than 50%
of the outstanding shares of the Fund (or class) are present in person or by
proxy, or (ii) more than 50% of the outstanding shares of the Fund (or class).
Shareholders are entitled to one vote for each full share held, and fractional
votes for fractional shares held.

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

The Funds send annual and semi-annual financial statements to all of their
shareholders.

CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT,
COUNSEL AND INDEPENDENT ACCOUNTANTS

The Bank of New York, 110 Washington Street, New York, New York 10286, acts
as the Funds' custodian. State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA 02110, acts as transfer agent for the Trust. Neither State
Street Bank and Trust Company, nor The Bank of New York takes any part in
determining the investment policies of the Funds or which portfolio securities
are to be purchased or sold by the Funds. Upon request, Gabelli & Company, Inc.
will provide without charge, a paper copy of this Prospectus to investors or
their representatives who received this Prospectus in an electronic format.

Baker & McKenzie, 805 Third Avenue, New York, New York 10022, passes upon
certain legal matters in connection with the shares offered by the Funds and
also acts as Counsel to the Funds.

Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, independent accountants, have been selected as independent accountants of
the Funds.

B-23
<PAGE>

APPENDIX

Descriptions of certain Standard & Poor's Corporation ("S&P") and Moody's
Investors Service, Inc. ("Moody's") corporate bond ratings:

S&P

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

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

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

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

Plus (+) or minus (-): The ratings from AA to BBB may be modified by the
addition of a plus or minus designation to show relative standing within the
major ratings categories.

Moody's

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

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

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

Baa
Bonds which are rated Baa are considered as medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal

B-24
<PAGE>

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.

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

Description of S&P and Moody's commercial paper ratings:

The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.

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

FINANCIAL STATEMENTS

Attached hereto are the following: audited financial statements for the
Funds dated September 30, 1995 and the Report of Price Waterhouse LLP thereon.

B-25
<PAGE>

Westwood Equity Fund
Portfolio of Investments -- September 30, 1995
================================================================================
Market
Value
Shares Cost (Note 2a)
------ ---------- ----------
COMMON STOCKS -- 88.0%
APPAREL -- 1.6%
7,000 Nautica Enterprises, Inc.* ............ $ 120,438 $ 239,750
---------- ----------
AUTO RELATED -- 5.1%
3,500 Chrysler Corporation .................. 162,590 185,500
3,900 Daimler Benz Aktiengesellschaft+ ...... 187,136 193,538
7,200 Eaton Corp. ........................... 364,248 381,600
---------- ----------
713,974 760,638
---------- ----------
BANKING -- 1.4%
2,100 First Interstate Bancorp. ............. 160,020 211,575
---------- ----------
BROADCASTING -- 2.2%
6,500 Viacom Inc. Cl. B* .................... 236,748 323,375
---------- ----------
CAPITAL GOODS -- 8.8%
7,300 Avnet, Inc. ........................... 278,969 376,863
3,800 Fluke Corp. ........................... 103,198 144,400
6,400 Fluor Corporation ..................... 283,762 358,400
6,494 Lockheed Martin Corp. ................. 375,458 435,910
---------- ----------
1,041,387 1,315,573
---------- ----------
COMPUTER EQUIPMENT -- 1.3%
2,300 Dell Computer Corp.* .................. 117,589 195,500
---------- ----------
CONSUMER GOODS -- 2.5%
7,300 Premark International, Inc. ........... 311,903 371,387
---------- ----------
ENERGY -- 7.0%
6,300 Amoco Corporation ..................... 381,957 403,987
6,400 Murphy Oil Corporation ................ 243,812 256,000
6,100 Texaco Inc. ........................... 391,798 394,212
---------- ----------
1,017,567 1,054,199
---------- ----------
HEALTH CARE -- 5.5%
8,000 Emcare Holdings Corp.* ................ 88,000 177,000
5,500 Johnson & Johnson ..................... 308,415 407,687
13,500 Tenet Healthcare Corp.* ............... 204,428 234,562
---------- ----------
600,843 819,249
---------- ----------
HOTEL/RESTAURANT MANAGEMENT -- 2.8%
11,300 Marriott International Inc. ........... 389,546 422,337
---------- ----------
INSURANCE -- 1.5%
2,100 CIGNA Corp. ........................... 209,978 218,662
---------- ----------
MACHINERY -- 3.4%
4,300 Deere & Company ....................... 333,575 349,912
5,400 Greenfield Industries, Inc. ........... 106,038 166,050
---------- ----------
439,613 515,962
---------- ----------
MANUFACTURING -- 2.7%
6,700 Eastman Kodak Company ................. 368,853 396,975
---------- ----------
PHARMACEUTICALS -- 2.4%
6,000 Biogen, Inc.* ......................... 280,048 360,000
---------- ----------
RAW MATERIALS -- 3.9%
6,700 Aluminum Company of America ........... 260,572 354,262
3,300 E.I. du Pont de Nemours & Company ..... 225,096 226,875
---------- ----------
485,668 581,137
---------- ----------
REAL ESTATE INVESTMENT TRUSTS -- 7.7%
9,600 Crescent Real Estate Equities, Inc. ... 293,832 295,200
6,900 Duke Realty Investments ............... 199,121 214,763
8,100 Highwoods Properties .................. 198,508 213,638
4,000 Meditrust ............................. 138,396 138,500
5,600 Patriot American Hospitality, Inc.* ... 134,400 143,500
7,600 Security Capital Pacific Trust ........ 135,951 144,400
---------- ----------
1,100,208 1,150,001
---------- ----------
RETAIL - SPECIALTY LINE -- 6.7%
5,000 American Home Products Corp. .......... 381,868 424,375
13,700 Federated Department Stores ........... 302,398 388,738
4,700 Tiffany & Co. ......................... 154,590 196,813
---------- ----------
838,856 1,009,926
---------- ----------
SHELTER -- 2.7%
8,800 PPG Industries, Inc. .................. 331,646 409,200
---------- ----------
TECHNOLOGY -- 7.9%
5,500 Boeing Co. 243,973 375,375
9,750 Computer Associates International,
Inc. ................................ 311,084 411,938
2,200 International Business Machines
Corporation ......................... 199,653 207,625
4,200 Sterling Software, Inc.* .............. 133,130 191,100
---------- ----------
887,840 1,186,038
---------- ----------
TELECOMMUNICATIONS -- 2.9%
6,700 AT&T Corp. ............................ 338,329 440,525
---------- ----------
TRANSPORTATION -- 2.6%
4,600 CSX Corporation ....................... 346,538 386,975
---------- ----------
UTILITIES -- 5.4%
10,300 GTE Corporation ....................... 330,004 404,275
9,100 Houston Industries Incorporated ....... 350,858 401,537
---------- ----------
680,862 805,812
---------- ----------
TOTAL COMMON STOCKS ................... 11,018,454 13,174,796
---------- ----------
U.S. TREASURY OBLIGATIONS -- 11.9%
1,775,000 Bills, 5.41%, 10/05/1995 .............. 1,773,940 1,773,940
---------- ----------
TOTAL U.S. TREASURY OBLIGATIONS ....... 1,773,940 1,773,940
---------- ----------
TOTAL INVESTMENTS -- 99.9% ............ $12,792,394** $14,948,736
===========

Other assets less liabilities -- 0.1% . 22,344
----------
NET ASSETS -- 100.0% .................. $14,971,080
-----------
- ----------
* Non-Income producing security.
** The cost of securities for Federal income tax purposes is $12,796,318.
+ ADR -- American Depository Receipts.

See accompanying notes to financial statements.

B-26

<PAGE>

Westwood Intermediate Bond Fund
Portfolio of Investments -- September 30, 1995
================================================================================
Market
Value
Principal Cost (Note 2a)
- --------- ---------- ----------
ASSET BACKED SECURITIES -- 8.3%
$ 92,078 EQCC Home Equity 93-3a, 5.15%,
9/15/2008 ............................ $ 91,978 $ 86,784
100,000 Ford Credit Auto Loan Master Trust,
6.50%, 8/15/2002 .................... 99,609 100,500
155,409 GMAC Grantor Trust, 7.15%, 3/15/2000 .. 155,361 157,546
50,000 Premier Auto Trust 1994-4, 6.45%,
5/02/1998 ........................... 48,883 50,210
---------- ----------
Total Asset Backed Securities ......... 395,831 395,040
---------- ----------
CORPORATE OBLIGATIONS -- 30.0%
CAPITAL GOODS -- 0.5%
25,000 Lockheed Martin Corp.,
5.875%, 3/15/1998 ................... 25,094 24,795
---------- ----------
ENTERTAINMENT -- 2.2%
100,000 Time Warner Inc., 7.45%,
2/01/1998 ........................... 98,687 101,750
---------- ----------
FINANCIAL SERVICES -- 8.0%
120,000 Ford Motor Credit Corp., 9.75%,
5/06/1996 ........................... 122,522 122,640
---------- ----------
250,000 General Motors Acceptance Corp.,
7.125%, 6/01/1999 ................... 248,913 254,688
---------- ----------
371,435 377,328
---------- ----------
FOREST PRODUCTS & PAPER -- 2.5%
100,000 Boise Cascade Corp., 9.45%,
11/01/2009 .......................... 107,298 117,375
---------- ----------
HOTEL/RESTAURANT MANAGEMENT -- 2.1%
100,000 Marriott International Inc.,
7.125%, 4/15/2005 ................... 99,086 100,875
---------- ----------
INDUSTRIAL GOODS -- 8.2%
200,000 American Home Products Corp.,
7.90%, 2/15/2005 .................... 199,610 216,500
50,000 Eaton Corporation, 8.90%,
8/15/2006 ........................... 57,098 58,125
100,000 News American Holdings
Inc., 12.00%, 12/15/2001 ............ 112,759 111,875
---------- ----------
369,467 386,500
---------- ----------
RETAIL STORES -- 2.3%
100,000 Federated Department Stores,
Inc., 10.00%, 2/15/2001 ............. 108,811 108,800
---------- ----------
TECHNOLOGY -- 4.2%
200,000 International Business Machines
Corporation, 6.375%, 6/15/2000 ...... 202,462 200,000
---------- ----------
Total Corporate Obligations ........... 1,382,340 1,417,423
---------- ----------

U.S. GOVERNMENT AGENCY OBLIGATIONS -- 4.9%
125,000 Federal National Mortgage
Association, 7.20%, 7/25/2025 ....... 126,650 126,950
105,000 Tennessee Valley Authority --
Global Bond, 6.375%, 6/15/2005 ...... 104,322 104,606
---------- ----------

Total U.S. Government
Agency Obligations .................. 230,972 231,556
---------- ----------

U.S. TREASURY OBLIGATIONS -- 52.5%
35,000 Bonds, 8.75%, 5/15/2017 ............... 36,814 43,386
55,000 Bonds, 8.125%, 8/15/2019 .............. 54,225 64,524
220,000 Bonds, 7.625%, 2/15/2025 .............. 247,015 248,916
100,000 Notes, 8.50%, 11/15/1995 .............. 100,255 100,325
125,000 Notes, 7.875%, 2/15/1996 .............. 125,616 125,994
155,000 Notes, 7.375%, 5/15/1996 .............. 156,478 156,562
315,000 Notes, 6.125%, 5/31/1997 .............. 316,446 316,272
190,000 Notes, 7.25%, 2/15/1998 ............... 192,000 195,618
335,000 Notes, 5.875%, 8/15/1998 .............. 334,061 334,752
125,000 Notes, 7.75%, 11/30/1999 .............. 127,597 132,855
50,000 Notes, 7.75%, 2/15/2001 ............... 49,891 53,858
125,000 Notes, 7.875%, 8/15/2001 .............. 125,525 135,909
140,000 Notes, 6.25%, 2/15/2003 ............... 133,222 140,801
85,000 Notes, 7.25%, 5/15/2004 ............... 84,101 90,712
150,000 Notes, 7.50%, 2/15/2005 ............... 149,672 163,368
75,000 Notes, 6.50%, 5/15/2005 ............... 77,592 76,666
100,000 Notes, 6.50%, 8/15/2005 ............... 102,524 102,414
---------- ----------
Total U.S. Treasury Obligations ....... 2,413,034 2,482,932
---------- ----------
Total Investments -- 95.7% ............ $4,422,177* $4,526,951
---------- ----------
Other assets less liabilities -- 4.3% . 202,336
----------
Net Assets -- 100.0% .................. $4,729,287
==========

*The cost of securities for Federal income tax purposes is $4,428,404.

See accompanying notes to financial statements.

B-27

<PAGE>

Westwood Balanced Fund
Portfolio of Investments -- September 30, 1995
================================================================================
Market
Principal/ Value
Shares Cost (Note 2a)
- ---------- ---------- ----------
ASSET BACKED SECURITIES -- 3.5%
$ 30,693 EQCC Home Equity 93-3a,5.15%,
9/15/2008 ........................... $ 30,659 $ 28,928
130,000 Ford Credit Auto Loan Master
Trust, 6.50%, 8/15/2002 ............. 129,492 130,650
233,113 GMAC Grantor Trust, 7.15%,
3/15/2000 ........................... 233,041 236,319
100,000 Premier Auto Trust 1994-4,
6.45%, 5/02/1998 .................... 97,768 100,420
---------- ----------
Total Asset Backed Securities ......... 490,960 496,317
---------- ----------
COMMON STOCKS -- 60.2%
APPAREL -- 0.8%
3,450 Nautica Enterprises, Inc.* ............ 60,050 118,163
---------- ----------
AUTO RELATED -- 3.4%
2,300 Chysler Corporation ................... 105,660 121,900
2,200 Daimler Benz Aktiengesellschaft+ ...... 101,432 109,175
4,600 Eaton Corp. ........................... 232,003 243,800
---------- ----------
439,095 474,875
---------- ----------
BANKING -- 1.0%
1,400 First Interstate Bancorp .............. 104,974 141,050
---------- ----------
BROADCASTING -- 1.7%
4,700 Viacom Inc. Cl B* ..................... 177,762 233,825
---------- ----------
CAPITAL GOODS -- 6.2%
4,700 Avnet, Inc. ........................... 169,489 242,638
2,800 Fluke Corp. ........................... 74,671 106,400
4,500 Fluor Corporation ..................... 199,787 252,000
4,127 Lockheed Martin Corp. ................. 162,540 277,025
---------- ----------
606,487 878,063
---------- ----------
COMPUTER EQUIPMENT -- 0.9%
1,500 Dell Computer Corp.* .................. 78,619 127,500
---------- ----------
CONSUMER GOODS -- 1.8%
5,100 Premark International, Inc. ........... 214,865 259,463
---------- ----------
ENERGY -- 5.1%
4,200 Amoco Corporation ..................... 252,860 269,325
4,900 Murphy Oil Corporation ................ 200,597 196,000
4,000 Texaco Inc. ........................... 255,384 258,500
---------- ----------
708,841 723,825
---------- ----------
HEALTH CARE -- 3.1%
3,600 Johnson & Johnson ..................... 197,345 266,850
9,700 Tenet Healthcare Corp.* ............... 144,965 168,537
---------- ----------
342,310 435,387
---------- ----------
HOTEL/RESTAURANT MANAGEMENT -- 2.0%
7,500 Marriott International Inc. ........... 256,340 280,312
---------- ----------
INSURANCE -- 1.0%
1,400 CIGNA Corp. ........................... 139,899 145,775
---------- ----------

Shares
- ----------
MACHINERY -- 2.4%
2,700 Deere & Company ....................... 209,964 219,713
3,800 Greenfield Industries, Inc. ........... 77,075 116,850
---------- ----------
287,039 336,563
---------- ----------
MANUFACTURING -- 1.8%
4,300 Eastman Kodak Company ................. 232,101 254,775
---------- ----------
PHARMACEUTICALS -- 1.7%
4,000 Biogen, Inc.* ......................... 186,331 240,000
---------- ----------
RAW MATERIALS -- 2.8%
4,400 Aluminum Company of America ........... 163,495 232,650
2,300 E.I. du Pont de Nemours & Company ..... 156,888 158,125
---------- ----------
320,383 390,775
---------- ----------
REAL ESTATE INVESTMENT TRUSTS -- 4.6%
6,300 Crescent Real Estate Equities, Inc. ... 195,732 193,725
4,700 Duke Realty Investments ............... 137,485 146,287
5,300 Highwoods Properties .................. 130,148 139,788
2,600 Meditrust ............................. 89,934 90,025
4,500 Security Capital Pacific Trust ........ 81,580 85,500
---------- ----------
634,879 655,325
---------- ----------
RETAIL/SPECIALTY LINE -- 4.6%
3,300 American Home Products ................ 252,740 280,087
8,800 Federated Department Stores ........... 193,352 249,700
3,000 Tiffany & Co. ......................... 97,137 125,625
---------- ----------
543,229 655,412
---------- ----------
SHELTER -- 1.9%
5,700 PPG Industries, Inc. .................. 216,612 265,050
---------- ----------
TECHNOLOGY -- 5.7%
3,900 Boeing Co. ............................ 172,430 266,175
6,450 Computer Associates International,
Inc. ................................ 194,106 272,512
1,400 International Business Machines
Corporation ......................... 127,966 132,125
2,800 Sterling Software, Inc.* .............. 79,679 127,400
---------- ----------
574,181 798,212
---------- ----------
TELECOMMUNICATIONS -- 2.1%
4,400 AT&T Corp. ............................ 220,901 289,300
---------- ----------
TRANSPORTATION -- 1.8%
3,000 CSX Corporation ....................... 227,156 252,375
---------- ----------
UTILITIES -- 3.8%
7,100 GTE Corporation ....................... 228,231 278,675
6,000 Houston Industries Incorporated ....... 227,856 264,750
---------- ----------
456,087 543,425
---------- ----------
Total Common Stocks ................... 7,028,141 8,499,450
---------- ----------

See accompanying notes to financial statements.

B-28

<PAGE>

Westwood Balanced Fund
Portfolio of Investments -- September 30, 1995 (Continued)
================================================================================
Market
Value
Principal Cost (Note 2a)
- ---------- ---------- ----------
CORPORATE OBLIGATIONS -- 11.9%
CAPITAL GOODS -- 0.9%
125,000 Lockheed Martin Corp.,
5.875%, 3/15/1998 ................... $ 123,039 $ 123,975
---------- ----------
ENTERTAINMENT -- 1.3%
175,000 Time Warner Inc., 7.45%, 2/01/1998 .... 172,701 178,063
---------- ----------
FINANCIAL SERVICES -- 1.6%
225,000 General Motors Acceptance Corp.,
7.125%, 6/01/1999 ................... 224,021 229,219
---------- ----------
FOREST PRODUCTS & PAPERS -- 0.8%
100,000 Boise Cascade Corp., 9.45%,
11/01/2009 .......................... 107,298 117,375
---------- ----------
HOTEL/RESTAURANT MANAGEMENT -- 0.5%
75,000 Marriott International Inc.,
7.125%, 6/01/2007 ................... 74,315 75,656
---------- ----------
INDUSTRIAL GOODS -- 3.0%
175,000 American Home Products,
7.90%, 2/15/2005 .................... 174,659 189,437
50,000 Eaton Corporation, 8.90%,
8/15/2006 ........................... 57,098 58,125
64,000 General Motors Corporation,
9.75%, 5/15/1999 .................... 65,478 65,440
100,000 Texaco Capital Corp., 9.00%,
11/15/1997 .......................... 105,124 105,625
---------- ----------
402,359 418,627
---------- ----------
RETAIL STORES -- 0.8%
100,000 Federated Department Stores,
Inc., 10.00%, 2/15/2001 ............. 108,811 108,800
---------- ----------
TECHNOLOGY -- 1.6%
225,000 International Business Machines
Corporation, 6.375%, 6/15/2000 ...... 225,235 225,000
---------- ----------
TEXTILES -- 1.4%
200,000 VF Corp., 6.625%, 3/15/2003 ........... 184,878 196,250
---------- ----------
Total Corporate Obligations ........... 1,622,657 1,672,965
---------- ----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 1.6%
130,000 Federal National Mortgage
Association, 7.20%, 7/25/2025 ....... 131,716 132,028
100,000 Tennessee Valley Authority --
Global Bond, 6.375%, 6/15/2005 ...... 99,354 99,625
---------- ----------
Total U.S. Government
Agency Obligations .................. 231,070 231,653
---------- ----------
U.S. TREASURY OBLIGATIONS -- 18.7%
125,000 Bonds, 8.75%, 5/15/2017 ............... 131,479 154,950
220,000 Bonds, 7.625%, 2/15/2025 .............. 246,857 248,928
85,000 Notes, 8.50%, 11/15/1995 .............. 85,216 85,276
125,000 Notes, 7.875%, 2/15/1996 .............. 125,616 125,994
95,000 Notes, 7.375%, 5/15/1996 .............. 95,963 95,957
125,000 Notes, 6.875%, 2/28/1997 .............. 125,242 126,779
405,000 Notes, 6.125%, 5/31/1997 .............. 406,911 406,636
175,000 Notes, 7.25%, 2/15/1998 ............... 178,665 180,175
345,000 Notes, 5.875%, 8/15/1998 .............. 343,907 344,745
200,000 Notes, 7.125%, 2/29/2000 .............. 209,343 208,306
200,000 Notes, 6.125%, 7/31/2000 .............. 198,063 200,724
25,000 Notes, 6.25%, 2/15/2003 ............... 23,784 25,143
125,000 Notes, 7.25%, 5/15/2004 ............... 122,979 133,400
185,000 Notes, 7.50%, 2/15/2005 ............... 191,782 201,487
100,000 Notes, 6.50%, 8/15/2005 ............... 102,526 102,414
---------- ----------
Total U.S. Treasury Obligations ....... 2,588,333 2,640,914
---------- ----------
Total Investments -- 95.9%*** ......... 11,961,161** 13,541,299
---------- ----------
Other assets less liabilities -- 4.1% . 583,131
----------
Net Assets -- 100.0% .................. $14,124,430
===========

* Non-Income producing security.
** The cost of securities for Federal income tax purposes is $11,997,842.
+ ADR -- American Depository Receipts.

See accompanying notes to financial statements.

B-29

<PAGE>

THE WESTWOOD FUNDS
Statement of Assets and Liabilities
September 30, 1995
================================================================================
<TABLE>
<CAPTION>

Equity Intermediate Balanced
Fund Bond Fund Fund
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Investments in securities at value (cost $12,792,394, $4,422,177 and
$11,961,161, respectively) ................................................... $14,948,736 $ 4,526,951 $13,541,299
Cash ........................................................................... 93,789 108,071 468,716
Receivable for investments sold ................................................ 125,061 -- 69,788
Dividends and interest receivable .............................................. 19,208 65,567 80,830
Unamortized organization expenses (Note 2f) .................................... -- 7,657 8,158
Receivable for fund shares sold ................................................ -- -- 16,646
Prepaid Expenses ............................................................... 286 192 286
Receivable from Advisor (Note 3) ............................................... -- 33,495 --
----------- ----------- -----------
Total Assets ............................................................... 15,187,080 4,741,933 14,185,723
----------- ----------- -----------
LIABILITIES
Payable for fund shares redeemed ............................................... -- -- 1,500
Payable for securities purchased ............................................... 134,400 -- --
Advisory fee payable (Note 3) .................................................. 36,169 -- 19,878
Distribution expense payable (Note 3) .......................................... 3,210 1,020 7,500
Other accrued expenses ......................................................... 42,221 11,626 32,415
----------- ----------- -----------
Total Liabilities .......................................................... 216,000 12,646 61,293
----------- ----------- -----------
NET ASSETS ..................................................................... $14,971,080 $ 4,729,287 $14,124,430
=========== =========== ===========
Net Assets Consist of:
Capital Stock .................................................................. $ 2,270 $ 474 $ 1,670
Additional paid-in capital ..................................................... 11,517,560 5,311,717 12,456,124
Accumulated undistributed (overdistributed) net investment income .............. 90,652 466 645
Accumulated undistributed realized gain (loss) on investments .................. 1,204,256 (688,144) 85,852
Unrealized appreciation on investments ......................................... 2,156,342 104,774 1,580,139
----------- ----------- -----------
Net Assets ..................................................................... $14,971,080 $ 4,729,287 $14,124,430
=========== =========== ===========
SHARES OF BENEFICIAL INTEREST
Retail Class:
Shares of beneficial interest outstanding ...................................... 2,259,700 473,667 816,040
=========== =========== ===========
Net Asset Value and redemption price per share ................................. $ 6.59 $ 9.98 $ 8.47
=========== =========== ===========
Service Class:
Shares of beneficial interest outstanding ...................................... 10,434 853,827
=========== ===========
Net Asset Value and redemption price per share ................................. $ 6.57 $ 8.45
=========== ===========
Maximum offering price per share ($6.57/.96, $0,
and $8.45/.96, respectively) ................................................. $ 6.84 $ 8.80
=========== ===========
</TABLE>

See accompanying notes to financial statements

B-30

<PAGE>

THE WESTWOOD FUNDS
Statement of Operations
For the year ended September 30, 1995
================================================================================

<TABLE>
<CAPTION>
Equity Intermediate Balanced
Fund Bond Fund Fund
----------- ----------- -----------
<S> <C> <C> <C>
Investment Income:
Iterest .......................................... $ 63,359 $ 308,753 $ 331,737
Dividends ........................................ 218,475 -- 168,153
----------- ----------- -----------
281,834 308,753 499,890
----------- ----------- -----------

Expenses:
Advisory (Note 3) ................................ 118,524 28,016 97,048
Audit & Tax ...................................... 33,061 10,652 30,486
Shareholder services ............................. 9,026 4,782 9,148
Legal ............................................ 29,652 10,647 23,910
Custody .......................................... 13,522 7,464 15,024
Reports to shareholders .......................... 2,380 1,032 4,563
Registration ..................................... 20,688 24,699 20,140
Insurance ........................................ 1,338 1,302 1,994
Trustee .......................................... 4,744 4,246 4,810
Distribution -- Retail class (Note 3) ............ 28,920 11,474 11,200
Distribution -- Service class (Note 3) ........... 870 18 41,708
Amortization of organizational expenses .......... -- 8,205 8,205
Miscellaneous .................................... 9,364 2,947 4,867
----------- ----------- -----------
Total expenses before waivers .................. 272,089 115,484 273,103
Less expenses waived/reimbursed by Adviser ..... (80,907) (60,783) (75,402)
----------- ----------- -----------
Net expenses ................................... 191,182 54,701 197,701
----------- ----------- -----------
Net investment income .............................. 90,652 254,052 302,189
----------- ----------- -----------

Realized gain (loss) on investments ................ 1,225,125 (136,574) 765,282
Change in unrealized appreciation of investments ... 1,610,313 347,515 1,452,907
----------- ----------- -----------
Net realized and unrealized gain on investments .... 2,835,438 210,941 2,218,189
----------- ----------- -----------
Net increase in net assets resulting from operations $ 2,926,090 $ 464,993 $ 2,520,378
=========== =========== ===========
</TABLE>

See accompanying notes to financial statements

B-31

<PAGE>

THE WESTWOOD FUNDS
Westwood Equity Fund
Statement of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>

For the For the
Year Ended Year Ended
September 30, September 30,
1995 1994
------------ ------------
<S> <C> <C>
Operations:
Net investment income ................................................... $ 90,652 $ 116,142
Net realized gain on investments ........................................ 1,225,125 519,064
Change in unrealized appreciation (depreciation) of investments ......... 1,610,313 (107,269)
------------ ------------
Net increase in net assets resulting from operations .......................... 2,926,090 527,937
------------ ------------
Dividends to shareholders from net investment income:
Retail Class ............................................................ (110,241) (32,465)
Service Class ........................................................... (1,473) --
------------ ------------
(111,714) (32,465)
------------ ------------
Distributions to shareholders from realized gain on investments:
Retail Class ............................................................ (364,338) (2,412,598)
Service Class ........................................................... (6,782) --
------------ ------------
(371,120) (2,412,598)
------------ ------------
Decrease in net assets resulting from distributions to shareholders ..... (482,834) (2,445,063)
------------ ------------
Capital Share Transactions:
Proceeds from sales of shares:
Retail Class ............................................................ 4,912,943 4,320,365
Service Class ........................................................... 56,081 269,787
------------ ------------
4,969,024 4,590,152
------------ ------------
Net asset value of shares issued to shareholders upon reinvestment
of dividends and distributions:
Retail Class ............................................................ 464,553 2,438,705
Service Class ........................................................... 8,255 --
------------ ------------
472,808 2,438,705
------------ ------------
Net asset value of shares redeemed:
Retail Class ............................................................ (1,534,515) (1,375,837)
Service Class ........................................................... (270,255) (17,401)
------------ ------------
(1,804,770) (1,393,238)
------------ ------------
Net increase in net assets from capital share transactions .............. 3,637,062 5,635,619
------------ ------------
Total increase in net assets .................................................. 6,080,318 3,718,493
Net Assets:
Beginning of period ..................................................... 8,890,762 5,172,269
------------ ------------
End of period (including undistributed net investment
income of $90,652 and $111,714 respectively) ......................... $ 14,971,080 $ 8,890,762
============ ============
</TABLE>

See accompanying notes to financial statements

B-32

<PAGE>

THE WESTWOOD FUNDS
Westwood Intermediate Bond Fund
Statement of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
September 30, September 30,
1995 1994
----------- -----------
<S> <C> <C>
Operations:
Net investment income ................................................... $ 254,052 $ 356,644
Net realized (loss) on investments ...................................... (136,574) (532,374)
Change in unrealized appreciation (depreciation) of investments ......... 347,515 (332,892)
----------- -----------
Net increase (decrease) in net assets resulting from operations ............... 464,993 (508,622)
----------- -----------
Dividends to shareholders from net investment income:
Retail Class ............................................................ (253,798) (349,029)
Service Class ........................................................... (254) (7,615)
----------- -----------
(254,052) (356,644)
----------- -----------
Distributions to shareholders from realized gain on investments:
Retail Class ............................................................ -- (163,537)
Service Class ........................................................... -- --
----------- -----------
-- (163,537)
----------- -----------
Decrease in net assets resulting from distributions to shareholders ..... (254,052) (520,181)
----------- -----------
Capital Share Transactions:
Proceeds from sales of shares:
Retail Class ............................................................ 1,686,246 7,971,868
Service Class ........................................................... 77 729,043
----------- -----------
1,686,323 8,700,911
----------- -----------
Net asset value of shares issued to shareholders upon reinvestment
of dividends and distributions:
Retail Class ............................................................ 213,072 487,747
Service Class ........................................................... 254 7,403
----------- -----------
213,326 495,150
----------- -----------
Net asset value of shares redeemed:
Retail Class ............................................................ (4,720,785) (2,982,953)
Service Class ........................................................... (75,949) (618,108)
----------- -----------
(4,796,734) (3,601,061)
----------- -----------
Net increase (decrease) in net assets from capital share transactions ... (2,897,085) 5,595,000
----------- -----------
Total increase (decrease) in net assets ....................................... (2,686,144) 4,566,197
Net Assets:
Beginning of period ..................................................... 7,415,431 2,849,234
----------- -----------
End of period (including undistributed net investment
income of $0 and $0, respectively) ................................... $ 4,729,287 $ 7,415,431
=========== ===========
</TABLE>

See accompanying notes to financial statements

B-33

<PAGE>

THE WESTWOOD FUNDS
Westwood Balanced Fund
Statement of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
September 30, September 30,
1995 1994
------------ ------------
<S> <C> <C>
Operations:
Net investment income ................................................. $ 302,189 $ 275,297
Net realized gain (loss) on investments ............................... 765,282 (643,681)
Change in unrealized appreciation (depreciation) of investments ....... 1,452,907 13,458
------------ ------------
Net increase (decrease) in net assets resulting from operations ............. 2,520,378 (354,926)
------------ ------------
Dividends to shareholders from net investment income:
Retail Class .......................................................... (127,208) (48,360)
Service Class ......................................................... (174,988) (235,016)
------------ ------------
(302,196) (283,376)
------------ ------------
Distributions to shareholders from realized gain on investments:
Retail Class .......................................................... -- (524,957)
Service Class ......................................................... -- (41,570)
------------ ------------
-- (566,527)
------------ ------------
Decrease in net assets resulting from distributions to shareholders ... (302,196) (849,903)
------------ ------------
Capital Share Transactions:
Proceeds from sales of shares:
Retail Class .......................................................... 3,974,656 4,658,518
Service Class ......................................................... 382,695 20,169,013
------------ ------------
4,357,351 24,827,531
------------ ------------
Net asset value of shares issued to shareholders in reinvestment
of dividends and distributions:
Retail Class .......................................................... 117,015 543,496
Service Class ......................................................... 157,008 217,908
------------ ------------
274,023 761,404
------------ ------------
Net asset value of shares redeemed:
Retail Class .......................................................... (1,156,706) (3,245,272)
Service Class ......................................................... (5,459,031) (8,945,043)
------------ ------------
(6,615,737) (12,190,315)
------------ ------------
Net increase (decrease) in net assets from capital share transactions ...... (1,984,363) 13,398,620
------------ ------------
Total increase in net assets ................................................ 233,819 12,193,791
Net Assets:
Beginning of period ................................................... 13,890,611 1,696,820
------------ ------------
End of period (including undistributed net investment
income of $645 and $0, respectively) ............................... $ 14,124,430 $ 13,890,611
============ ============
</TABLE>

See accompanying notes to financial statements

B-34

<PAGE>

THE WESTWOOD FUNDS
Notes to Financial Statements
================================================================================

Note 1 -- Description. The Westwood Funds (the "Trust") is registered under
the Investment Company Act of 1940, as amended, as an open-end diversified
management investment company and currently consists of four separate investment
portfolios: Westwood Equity Fund, Westwood Intermediate Bond Fund, Westwood
Balanced Fund (collectively, the "Funds") and Westwood Cash Management Fund,
each with two (2) classes of shares known as the Service Class and the Retail
Class (formerly the "Institutional Class"). Westwood Cash Management Fund has
not commenced operations as of September 30, 1995. Each class of shares
outstanding bears the same voting, dividend, liquidation and other rights and
conditions, except that the expenses incurred in the distribution and marketing
of such shares are different for each class with the exception of the Cash
Management Fund. Effective November 8, 1994, all shares in the Service Class of
Intermediate Bond Fund were redeemed. No such shares were outstanding at
September 30, 1995, although such shares are available for sale.

Note 2 -- Significant Accounting Policies. The following is a summary of
the significant accounting policies followed by the Funds.

(a) Portfolio Valuation. Investments in securities (including options and
financial futures) are valued at the last sale price on the securities
exchange on which such securities are primarily traded or, if there are no
trades, at the current bid price as of 4:15 p.m. eastern time.
Over-the-counter securities, or securities for which there were no
transactions, are valued at the bid price. Bonds and other fixed income
securities are valued by using market quotations, and may be valued on the
basis of prices provided by a pricing service. Securities for which market
quotations are not readily available are valued at fair value as determined
in good faith by or at the direction of the Board of Trustees. Short-term
securities which mature in 60 days or less are valued at amortized cost, if
their terms to maturity at purchase were 60 days or less, or by amortizing
their value on the 61st day prior to maturity, if their original term to
maturity at purchase exceeded 60 days.

(b) Securities transactions and investment income. Securities transactions
are recorded on a trade date basis. Realized gains and losses from
securities transactions are recorded on the identified cost basis. Dividend
income is recognized on the ex-dividend date and interest income,
including, where applicable, amortization of premium and accretion of
discount on investments, is accrued daily.

(c) Distributions to shareholders. Dividends from net investment income are
declared and paid annually for the Equity Fund and quarterly for the
Balanced Fund. The Intermediate Bond Fund declares dividends of such income
daily and pays those dividends monthly. Distributions of net realized gains
are normally declared and paid at least annually by each Fund.
Distributions are recorded on the ex-dividend date. The amount of dividends
and distributions from net investment income and net realized capital gains
are determined in accordance with federal income tax regulations which may
differ with generally accepted accounting principles. These "book/tax"
differences are either temporary or permanent in nature. To the extent
these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their tax-basis treatment; temporary
differences do not require a reclassification.

(d) Federal income taxes. It is the policy of each of the Funds to qualify
as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended. By so qualifying, the Funds will not be
subject to Federal income taxes to the extent that they distribute all of
their taxable income for the fiscal year.

(e) Organizational expenses. Costs incurred in connection with the
organization and initial registration of the Funds have been deferred and
are being amortized on a straight line basis over sixty months beginning
with each Fund's commencement of operations. In the event any of the
initial shares of any of the Funds, which were purchased by Furman Selz,
are redeemed, the appropriate Fund will be reimbursed for any unamortized
organizational expenses in the same proportion as the number of shares
redeemed bears to the number of initial shares held at the time of
redemption.

B-35

<PAGE>

THE WESTWOOD FUNDS
Notes to Financial Statements (Continued)
================================================================================

(f) Determination of net asset value and calculation of expenses. Expenses
directly attributable to a Fund are charged to that Fund. Other expenses
are allocated proportionately among each Fund within the Trust in relation
to the net assets of each Fund or on another reasonable basis. In
calculating net asset value per share of each class, investment income,
realized and unrealized gains and losses and expenses other than class
specific expenses, are allocated daily to each class of shares based upon
the proportion of net assets of each class at the beginning of each day.
Distribution expenses are solely borne by the Class incurring the expense.

Note 3 -- Investment Advisory, Administrative and Other Transactions with
Affiliates. Pursuant to an agreement with Westwood Management Corp.
("Westwood"), the adviser to the Funds from their inception through October 6,
1994, Westwood and Gabelli Funds, Inc. ("Gabelli") have formed a new limited
liability company, Teton Advisers LLC (the "Adviser") which has entered into a
new advisory agreement with the Trust and a sub-advisory agreement with Westwood
and the Trust whereby Westwood (the "Sub-Adviser") serves as sub-adviser to the
Funds. The Investment Advisory Agreement was approved by the Fund's shareholders
on September 30, 1994 and was effective October 6, 1994. The Adviser oversees
the administration of each Fund's business affairs and in this connection is
responsible for maintaining certain of the Funds' books and records and
providing other administrative services.

As compensation for its services and related expenses, the Trust pays the
Adviser a fee computed daily and payable monthly in an amount equal on an
annualized basis to 1.0% for the Equity Fund, .60% for the Intermediate Bond
Fund and .75% for the Balanced Fund of each Fund's daily average net asset
value. For the year ended September 30, 1995, the adviser was entitled to fees
of $117,075, $27,288, $95,280, for the Equity, Intermediate Bond and Balanced
Funds, respectively. For the year ended September 30, 1995, the adviser waived
fees of $80,907, $27,288, $75,402, respectively. Additionally, the Adviser has
voluntarily agreed to reimburse the Funds in the event the Funds' expenses
exceed certain prescribed limits. The Adviser will reimburse the Funds in the
amount of $0, $33,495 and $0, for the Equity, Intermediate Bond and Balanced
Funds, respectively. For the period October 1 through October 6, 1994 Westwood
Management Corp. was entitled to advisory fees of $1,448, $728 and $1,768 for
the Westwood Equity, Intermediate Bond and Balanced Fund respectively.

Gabelli & Company, an indirect subsidiary of Gabelli Funds, Inc. serves as
distributor of the Funds. On September 30, 1994 the Funds' shareholders approved
a Plan of Distribution (the "Plan") for the Retail Class of shares pursuant to
Rule 12b-1. The Plan authorizes payment by the Funds in connection with the
distribution of its Retail Class shares at an annual rate of up to .25% of the
average daily net assets. For the year ended September 30, 1995, the Fund
incurred distribution expenses in the amounts of $28,920, $11,474, $11,200 for
the Retail Class of the Equity, Intermediate Bond and Balanced Funds,
respectively. Under the Distribution Plan and Agreement (the "Plan") for the
Service Class, each Fund may reimburse Gabelli & Company on a monthly basis for
cost and expenses in connection with the distribution and marketing of Service
Class shares. This distribution expense is subject to a maximum limit of 0.35%
per annum of the average daily net assets of the Service Class of the
Intermediate Bond Fund and 0.50% per annum of the Service Class of the Equity
and Balanced Funds. The Funds, with respect to the Service Class, incurred
distribution costs and expenses of $870 in the Equity Fund, $18 in the
Intermediate Bond Fund and $41,708 in the Balanced Fund, for the year ended
September 30, 1995. Subject to Board of Trustees approval, distribution expenses
incurred by Gabelli & Company, Inc., totalling $17,502 for the Equity Fund,
$19,108 for the Intermediate Bond Fund and $178,675 for the Balanced Fund, which
are in excess of the Retail Class .25% limitation may be recovered from the
Funds in future periods.

B-36

<PAGE>

THE WESTWOOD FUNDS
Notes to Financial Statements (Continued)
================================================================================

Note 4 -- Securities Transactions.

(a) Purchase and sale transactions. The aggregate amount of purchases and
sales of investment securities, other than short-term securities, for the year
ended September 30, 1995 were as follows:

Common Stocks & Bonds U.S. Government Obligations
----------------------------- ----------------------------
Purchases Sales Purchases Sales
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Equity Fund ................................ $12,844,966 $10,110,527 $ 473,292 $ 1,477,462
Intermediate Bond Fund ..................... 1,672,791 3,373,021 5,060,455 6,465,353
Balanced Fund .............................. 10,316,311 14,077,198 5,981,954 5,642,511
</TABLE>

(b) Federal income tax basis. Gross unrealized appreciation and
depreciation on investment securities at September 30, 1995 based on cost for
Federal income tax purposes, is as follows:

Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation Depreciation Appreciation
------------ ------------ ------------
<S> <C> <C> <C>
Equity Fund ................................ $2,152,418 $ 0 $2,152,418
Intermediate Bond Fund ..................... 108,607 (10,060) 98,547
Balanced Fund .............................. 1,553,505 (10,048) 1,543,457
</TABLE>

Note 5 -- Capital Share Transactions. The Trust is authorized to issue an
unlimited number of shares of beneficial interest with a par value of $0.001
each. Transactions in shares of the Funds are as follows:
<TABLE>
<CAPTION>

Year Ended September 30, 1995 Year Ended September 30, 1994
-------------------------------------- --------------------------------------
Equity Intermediate Balanced Equity Intermediate Balanced
Fund Bond Fund Fund Fund Bond Fund Fund
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Retail Class
Shares sold ................................... 858,260 175,874 521,381 777,702 753,551 594,288
Shares issued in reinvestment of net investment
income and capital gain distributions ....... 89,682 22,119 15,004 457,543 48,494 75,519
Shares redeemed ............................... (257,845) (498,753) (152,905) (187,357) (293,176) (382,633)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in shares ............. 690,097 (300,760) 383,480 1,047,888 508,869 287,174
========== ========== ========== ========== ========== ==========
Service Class
Shares sold ................................... 10,462 8 52,541 49,454 69,637 2,742,593
Shares issued in reinvestment of net investment
income and capital gain distributions ....... 1,596 27 20,705 0 747 30,908
Shares redeemed ............................... (47,926) (8,102) (742,089) (3,153) (62,317) (1,261,255)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in shares ............. (35,868) (8,067) (668,843) 46,301 8,067 1,512,246
========== ========== ========== ========== ========== ==========
</TABLE>

Note 6 -- Federal Income Tax Carryforwards. Capital losses incurred after
October 31, 1994 within the year ended September 30, 1995 are deemed to arise on
the first business day of the following fiscal year. The Westwood Intermediate
Bond Fund incurred and will elect to defer post October capital losses of
approximately $60,000.

At September 30, 1995, Westwood Intermediate Bond Fund had capital loss
carryovers of approximately $621,000, which will be available through September
2003 to offset future capital gains as provided by the Federal Income Tax
regulations. To the extent that these carryover losses are used to offset future
capital gains, the gains so offset would not be distributed to shareholders.

B-37

<PAGE>

THE WESTWOOD FUNDS
Selected Per Share Data and Ratios
For a share outstanding throughout each period(a)
================================================================================
<TABLE>
<CAPTION>
Equity Fund
---------------------------------------------------------------------------------------
Year Ended Year Ended
September 30, 1995 September 30, 1994 Year Ended September 30,
------------------ ------------------ ------------------------------------------
1993 1992 1991 1990
Retail Service Retail Service ------ ------- ------ -------
Class Class Class Class* Retail Class
------- ------ ------ ------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ...... $ 5.50 $ 5.48 $ 9.91 $ 5.53 $14.19 $ 14.23 $ 12.62 $ 15.11
------- ------ ------ ------ ------ ------- ------- -------
Income from Investment Operations:
Net investment income ................... 0.04 0.04 0.10 0.06 0.05 0.27 0.46 0.53
Net realized and unrealized gain (loss)
on investments ........................ 1.31 1.29 0.64 (0.11) 2.12 0.34 1.92 (2.04)
------- ------ ------ ------ ------ ------- ------- -------
Total from Investment Operations ........ 1.35 1.33 0.74 (0.05) 2.17 0.61 2.38 (1.51)
------- ------ ------ ------ ------ ------- ------- -------
Less Distributions:
Dividends from net investment income .... (0.06) (0.04) (0.07) -- (0.55) (0.51) (0.61) (0.56)
Distributions from net realized
capital gains ......................... (0.20) (0.20) (5.08) -- (5.90) (0.14) (0.16) (0.42)
------- ------ ------ ------ ------ ------- ------- -------
Total Distributions ..................... (0.26) (0.24) (5.15) -- (6.45) (0.65) (0.77) (0.98)
------- ------ ------ ------ ------ ------- ------- -------
Net Asset Value, End of Period ............ $ 6.59 $ 6.57 $ 5.50 $ 5.48 $ 9.91 $ 14.19 $ 14.23 $ 12.62
======= ====== ====== ====== ====== ======= ======= =======
Total Return (not reflecting sales load) .. 25.85% 25.54% 9.14% (0.90)% 20.16% 4.16% 19.61% 10.59%
Net Assets End of Period (in thousands) ... $14,903 $ 68 $8,637 $ 254 $5,172 $13,161 $52,884 $51,754

Ratios to average net assets of:
Net Investment Income ................... 0.77% 0.64% 1.63% 1.64%** 0.40% 1.85% 3.06% 3.74%
Expenses net of waivers/reimbursements+ . 1.61% 1.85% 0.71% 1.04%** 1.95% 1.40% 1.29% 1.26%
Expenses before waivers/reimbursements+ . 2.29% 2.63% 1.94% 2.29%** 2.32% 1.54% 1.29% 1.26%
Portfolio Turnover Rate ................. 107% 107% 137% 137% 102% 75% 143% 127%

</TABLE>

<TABLE>
<CAPTION>
Intermediate Bond Fund
-----------------------------------------------------------------------------
Year Ended September 30, Year Ended September 30, Year Ended September 30,
------------------------ ------------------------ ------------------------
1995 1994 1993 1992
------------------ ------------------- ------ ------
Retail Service Retail Service
Class Class(b) Class Class* Retail Class
----- -------- ------ ------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .......... $9.48 $9.48 $10.73 $10.51 $10.65 $10.00
----- ----- ------ ------ ------ ------
Income from Investment Operations:
Net investment income ....................... 0.52 0.05 0.48 0.41 0.39 0.51
Net realized and unrealized gain
(loss) on investments ..................... 0.50 (0.14) (1.04) (1.03) 0.62 0.65
----- ----- ------ ------ ------ ------
Total from Investment Operations ............ 1.02 (0.09) (0.56) (0.62) 1.01 1.16
----- ----- ------ ------ ------ ------
Less Distributions:
Dividends from net investment income ........ (0.52) (0.05) (0.48) (0.41) (0.39) (0.51)
Distributions from net realized
capital gains ............................ -- -- (0.21) -- (0.54) --
----- ----- ------ ------ ------ ------
Total Distributions ......................... (0.52) (0.05) (0.69) (0.41) (0.93) (0.51)
----- ----- ------ ------ ------ ------
Net Asset Value, End of Period ................ $9.98 $9.34 $ 9.48 $ 9.48 $10.73 $10.65
===== ===== ====== ====== ====== ======
Total Return (not reflecting sales load) ...... 11.13% (0.95)% (5.46)% (6.81)% 10.24% 11.87%
Net Assets End of Period (in thousands) ....... $4,729 $0 $7,339 $76 $2,849 $3,153

Ratios to Average Net Assets of:
Net Investment Income ....................... 5.38% 4.85% 4.86% 6.05%** 3.74% 5.25%
Expenses net of waivers/reimbursements+ ..... 1.17% 1.45% 0.92% 1.34%** 2.40% 1.94%
Expenses before waivers/reimbursements+ ..... 2.47% 4.07% 1.75% 2.37%** 3.46% 3.40%
Portfolio Turnover Rate ..................... 165% 70% 203% 203% 222% 198%
</TABLE>
- -----------
(a) Per share based on the average number of shares outstanding during the
period.
(b) On November 8, 1994, all shares of the Service Class were redeemed and
there have been no further shares issued in this class since that date.
Accordingly, the NAV per share of $9.34 represents the net asset value on
November 8, 1994.
* Prior to January 31, 1994, no shares of the Service Class were issued.
** Annualized.
+ See footnote on page B-41.

See accompanying notes to financial statements

B-38

<PAGE>

Dividends from net investment income .... (0.19) (0.17) (0.13) (0.11) (0.24) (0.07) (0.31)
Distributions from net realized
capital gains ......................... -- -- (4.18) (4.18) (0.96) -- (0.04)
----- ----- ------ ------ ------ ------ ------
Total Distributions ..................... (0.19) (0.17) (4.31) (4.29) (1.20) (0.07) (0.35)
----- ----- ------ ------ ------ ------ ------
Net Asset Value, End of Period ................ $8.47 $8.45 $ 7.12 $ 7.10 $10.89 $10.88 $10.45
===== ===== ====== ====== ====== ====== ======
Total Return (not reflecting sales load) ...... 21.98% 21.67% 5.30% 4.67% 17.60% 6.96% 7.32%
Net Assets End of Period (in thousands) ....... $6,912 $7,212 $3,081 $10,810 $1,583 $114 $3,716

Ratios to average net assets of:
Net Investment Income ................... 2.47% 2.26% 1.55% 2.15% 1.90% 1.76%** 3.13%
Expenses net of waivers/reimbursements+.. 1.35% 1.62% 1.68% 1.17% 1.82% 2.07% 1.44%
Expenses before waivers/reimbursements+.. 1.86% 2.24% 2.36% 2.11% 2.97% 3.14%** 2.38%
Portfolio Turnover Rate ................. 133% 133% 168% 168% 192% 192% 178%
</TABLE>

- -----------
(a) Per share based on the average number of shares outstanding during the
period.
* Prior to April 6, 1993, no shares of the Service Class were issued.
** Annualized.
+ Effective 1995, the ratios do not include a reduction of expenses for
custodian fee credits on cash balances maintained with the custodian.
Including such custodian fee credits, the expense ratios would be 1.50% and
1.72% for Equity Retail and Service Class, respectively, net of waivers and
2.16% and 2.38% for Equity Retail and Service Class before waivers. For
Intermediate Bond Fund: 1.00% and 1.41% net of waivers for the Retail and
Service Class, respectively, and 2.18% and 4.23% before waivers for the
Retail and Service Class, respectively. For the Balanced Fund: expenses net
of waivers would be 1.25% and 1.50% for the Retail and Service Class,
respectively, and 1.85% and 2.11% before waivers for the Retail and Service
Class, respectively.

See accompanying notes to financial statements

B-39

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of
The Westwood Funds

In our opinion, the accompanying statement of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the selected per share data and ratios present fairly,
in all material respects, the financial position of Westwood Equity Fund,
Westwood Intermediate Bond Fund and Westwood Balanced Fund (constituting The
Westwood Funds, hereafter referred to as the "Fund") at September 30, 1995, the
results of each of their operations for the year then ended, the changes in each
of their net assets for each of the two years in the period then ended and the
selected per share data and ratios for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and selected per share data and ratios (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
September 30, 1995 by correspondence with the custodian and brokers and the
application of alternative procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November 10, 1995

B-40