<PAGE> 1
As Filed with the Securities and Exchange Commission on October 30, 1997
Registration Nos. 33-6790 and 811-4719
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ___
Post-Effective Amendment No. 17
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 17
(Check appropriate box or boxes)
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THE WESTWOOD FUNDS
(Exact Name of Registrant as Specified in Charter)
One Corporate Center
Rye, New York 10580
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 921-5100
Bruce N. Alpert
Teton Advisers LLC
One Corporate Center
Rye, New York 10580
(Name and Address of Agent for Service)
copies to:
Michael R. Rosella, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
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It is proposed that this filing will be effective (check appropriate box)
x o immediately upon filing pursuant to paragraph (b) of Rule 485
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o on (date) pursuant to paragraph (b) of Rule 485
o 60 days after filing pursuant to paragraph (a) of Rule 485
o on (date) pursuant to paragraph (a) of Rule 485
Registrant has registered an indefinite number of its shares of beneficial
interest under the Securities Act of 1933 pursuant to Section 24(f) of the
Investment Company Act of 1940. Registrant's Rule 24f-2 Notice for the fiscal
year ended September 30, 1997 will be filed on or before December 28, 1997.
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Total Pages:
Exhibit Index:
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PRELIMINARY NOTE
THE REGISTRANT'S PROSPECTUS DATED APRIL 14 , 1997, TO WHICH THE INTERIM
FINANCIAL STATEMENTS CONTAINED HEREIN ARE ADDED BY POST-EFFECTIVE AMENDMENT NO.
17, ARE INCORPORATED BY REFERENCE TO THE REGISTRANT'S FILING OF DEFINITIVE
COPIES UNDER RULE 497(C).
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WESTWOOD SMALLCAP EQUITY FUND
PORTFOLIO OF
THE WESTWOOD FUNDS
SUPPLEMENT DATED OCTOBER 30, 1997
TO THE PROSPECTUS DATED APRIL 14, 1997
FOR THE RETAIL CLASS
THIS SUPPLEMENT IS PROVIDED TO UPDATE, AND SHOULD BE READ IN CONJUNCTION WITH,
THE INFORMATION PROVIDED IN THE PROSPECTUS.
THE TABLE OF "FINANCIAL HIGHLIGHTS (UNAUDITED) FOR A SHARE OF BENEFICIAL
INTEREST OUTSTANDING THROUGH THE PERIOD ENDED SEPTEMBER 30, 1997" BELOW
SUPPLEMENTS THE UNAUDITED FINANCIAL STATEMENTS OF THE WESTWOOD SMALLCAP EQUITY
FUND, PORTFOLIO OF THE WESTWOOD FUNDS (THE "TRUST"), CONTAINED IN THE STATEMENT
OF ADDITIONAL INFORMATION AND SETS FORTH CERTAIN INFORMATION REGARDING THE
INVESTMENT OPERATIONS OF THE FUNDS FOR THE PERIOD PRESENTED.
Financial Highlights
<TABLE>
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For a share outstanding throughout the period (unaudited):
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FOR THE PERIOD ENDED SEPT.
30, 1997(a)
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WESTWOOD SMALLCAP EQUITY FUND
NET ASSET VALUE, BEGINNING OF PERIOD................................................ $ 10.00
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INCOME FROM INVESTMENT OPERATIONS:
Net investment income.......................................................... 0.08
Net realized and unrealized gain from investment transactions.................. 4.40
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Total from Investment Operations............................................. 4.48
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NET ASSET VALUE, END OF PERIOD...................................................... $ 14.48
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TOTAL RETURN: (not annualized)..................................................... 44.80%
NET ASSETS, END OF PERIOD (IN THOUSANDS):........................................... $ 8,546
RATIOS TO AVERAGE NET ASSETS OF:
Net investment income.......................................................... 1.89% (b)
Expenses net of waivers/reimbursements(c)...................................... 1.89% (b)
Expenses before waivers/reimbursements*........................................ 2.45% (b)
PORTFOLIO TURNOVER RATE............................................................. 146%
AVERAGE COMMISSION RATE (PER SHARE OF SECURITY)..................................... $ 0.0358
<FN>
(a) Period from April 15, 1997 (inception date of Fund) to September 30, 1997
(b) Annualized.
(c) The ratio does not include a reduction of expenses for custodian fee credits on cash balances maintained
with the custodian. Including such custodian fee credits, the expense ratio would be 1.50% (annualized).
* During the period, certain fees were voluntarily reduced and/or reimbursed. If such fee reductions and/or
reimbursements had not occurred, the ratios would have been as shown.
</TABLE>
Effective September 10, 1997, Battle Fowler LLP, 75 East 55th Street, 5th fl.,
New York, NY 10022 serves as legal counsel to The Westwood Funds.
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<TABLE>
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RETAIL CLASS
CROSS-REFERENCE SHEET
(AS REQUIRED BY RULE 495(a)
UNDER THE SECURITIES ACT OF 1933)
N1A
ITEM NO.................................................................LOCATION
Part A Prospectus Caption
<S> <C> <C>
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 and
Risk Considerations; 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
Part B Statement of Additional 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 Purchase of Fund Shares; Redemption of Fund
Securities Being Offered 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 Data Performance Information
Item 23. Financial Statements Financial Statements
</TABLE>
<PAGE> 5
PART A
<PAGE> 6
THE WESTWOOD FUNDS
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
APRIL 14 , 1997
SUPPLEMENTED OCTOBER 30, 1997
The Westwood Funds (the "Trust") is an open-end, diversified, management
investment company, known as a mutual fund, which currently consists of six
separate investment portfolios referred to as the Westwood Equity Fund (the
"Equity Fund"), the Westwood SmallCap Equity Fund (the "SmallCap Fund"), the
Westwood Realty Fund (the "Realty 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"). The Cash
Management Fund has not commenced operations. Each Fund is authorized to issue
two separate classes of shares, referred to as the "Service Class" and the
"Retail Class". The SmallCap and the Realty Fund are currently offering only
Retail Class shares.
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 April 14, 1997, 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)
GABELLI (1-800-422-3554).
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").
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TABLE OF CONTENTS
PAGE
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General Information and History B-2
Investment Objectives and Management Policies B-2
Management of the Funds B-12
Investment Advisory and Other Services B-15
Purchase and Redemption of Shares B-19
Determination of Net Asset Value B-119
Shareholder Services B-20
Dividends, Distributions and Taxes B-21
Performance Information B-24
Information About the Funds B-26
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Accountants B-27
Appendix B-28
Financial Statements B-29
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GENERAL INFORMATION AND HISTORY
The Adviser, which was organized in 1994, is a registered investment adviser and
is a subsidiary of Gabelli Funds, Inc. which was organized in 1980 and is
currently a registered investment adviser to sixteen 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, 1996 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". The Board
authorized the designation of the "Westwood SmallCap Equity Fund "and" Westwood
Realty Fund" series shares of the Trust on February 25, 1997.
The Trust operates a multi-class structure pursuant to Rule 18f-3 of the
Investment Company Act of 1940 and the Board of Trustees has authorized pursuant
thereto the designation of two separate classes of shares in each Fund referred
to as "Retail Class" and "Service Class" shares.
The Cash Management Fund has not commenced operations.
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 and Risk
Considerations".
The Funds will not (i) invest in real estate limited partnerships (except the
Realty Fund which may also invest in publicly traded master 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.
<PAGE> 8
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 issuer.
INVESTMENT COMPANY SECURITIES (ALL FUNDS). The Equity Fund may purchase
securities of investment companies in the open market where no commission except
the ordinary broker's 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.
REAL ESTATE INVESTMENTS SECURITIES (ALL FUNDS). The Funds may invest in REITs
and real estate operating companies, as well as other types of real estate
securities such as publicly traded common stock, preferred stock, limited
partnerships (including real estate master limited partnerships), rights or
warrants to purchase common stock or convertible securities of corporations
engaged in real estate development or companies whose financial prospects are
deemed by the Adviser to be real estate oriented and consistent with the Fund's
investment objectives. Investing in REITs involves certain unique risks in
addition to those risks associated with investing in the real estate industry in
general. Although the Funds will not invest directly in real estate, the Funds
may invest in securities of issuers primarily engaged in or related to the real
estate industry. Therefore, an investment in REITs or other real estate
securities is subject to certain risks associated with the direct ownership of
real estate and with the real estate industry in general. These risks include,
among others: possible declines in the value of real estate; risks related to
general and local economic conditions; possible lack of availability of mortgage
funds; overbuilding; extended vacancies of properties; increases in competition,
property taxes and operating expenses; changes in zoning laws; costs resulting
from the clean-up of, and liability to third parties for damages resulting from,
environmental problems; casualty or condemnation losses; uninsured damages from
floods, earthquakes or other natural disasters; limitations on and variations in
rents; and changes in interest rates. To the extent that assets underlying the
REITs' investments are concentrated geographically, by property type or in
certain other respects, the REITs may be subject to certain of the foregoing
risks to a greater extent. Equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of any credit extended. REITs are dependent upon
management skills, are not diversified, and are subject to heavy cash flow
dependency, default by borrowers and self-liquidation. REITs are also subject to
the possibilities of failing to qualify for tax-free pass-throughs of income
under the U.S. Internal Revenue Code and failing to maintain their exemptions
from registration under the 1940 Act.
REITs (especially mortgage REITs) are also subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investment in such loans will gradually
align themselves to reflect changes in market interest rates, causing the value
of such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
<PAGE> 9
Investing in REITs involves risks similar to those associated with investing in
small capitalization companies. REITs may have limited financial resources, may
trade less frequently and in a limited volume and may be subject to more abrupt
or erratic price movements than larger company securities.
CALL AND PUT OPTIONS ON SECURITIES (THE EQUITY FUND, BALANCED FUND, SMALLCAP
FUND AND REALTY 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.
<PAGE> 10
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
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.
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.
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.
STOCK INDEX OPTIONS (THE EQUITY FUND, THE SMALLCAP FUND, THE REALTY 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
<PAGE> 11
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. 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). In connection with its futures
transactions, a Fund will establish and maintain at its custodian bank or
qualified futures commission merchant a segregated account consisting of cash or
other high quality securities as determined by the Board of Trustees 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.
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
<PAGE> 12
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, THE SMALLCAP FUND, THE REALTY
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 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.
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.
While incidental to its securities activities, a Fund may use stock index
futures as
<PAGE> 13
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 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.
OPTIONS ON FUTURES (ALL FUNDS). 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
<PAGE> 14
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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (ALL FUNDS). 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
<PAGE> 15
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.
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.
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.
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
<PAGE> 16
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% (except for the SmallCap Fund and Realty Fund
which may invest up to 15%) 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
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
<PAGE> 17
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 (except for the SmallCap
Fund and Realty Fund which may invest up to 15%) 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.
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
<PAGE> 18
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
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%( 15% for the SmallCap and Realty Funds) 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.
<PAGE> 19
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.
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.
TRUSTEES AND OFFICERS OF THE FUNDS
ANTHONY J. COLAVITA, (61) 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. His address is One Corporate Center, Rye, New York
10580.
JAMES P. CONN, (59) 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. His address is One Corporate Center, Rye, New
York 10580.
WERNER ROEDER, M.D., (56) 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. His address is One Corporate Center, Rye,
New York 10580.
KARL OTTO POHL*, (67) Trustee.
Partner of Sal Oppenheim Jr. & Cie. (private investment bank); Former
President of the Deutsche Bundesbank (Germany's Central Bank) and Chairman
of its Central Bank Council (1980-1991); Currently board member of IBM
World Trade Europe/Middle East/Africa Corp.; Bertlesmann AG; Zurich
Versicherungs-Gesellshaft (insurance); the International Advisory Board of
General Electric Company; the International Council for JP Morgan & Co.;
the Board of Supervisory Directors of ROBECo/o Group; and the Supervisory
Board of Royal Dutch (petroleum company); Advisory Director of Unilever
N.V. and Unilever Deutchland; German Governor, International Monetary Fund
(1980-1991); Board Member, Bank for International Settlements (1980-1991);
Chairman, European Economic Community Central Bank Governors (1990-1991);
Director/Trustee of all the funds in the Gabelli family of funds. His
address is One Corporate Center, Rye, New York 10580.
SUSAN M. BYRNE*, (50) Trustee.
President and CEO of Westwood Management Corporation since 1983. Her
address is One Corporate Center, Rye, New York 10580.
<PAGE> 20
All of the Funds' Trustees were elected at a meeting of shareholders held on
September 30, 1994 except Mr. Pohl, who was elected by the Board of Trustees on
August 8, 1997 to begin serving on the Board on October 6, 1997. 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 and the Trust'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
Trust's outstanding shares.
The Trust 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
$11,250.00 for the fiscal year ended September 30, 1996. Each Trustee other
than Susan Byrne is paid an annual fee of $2,500 and $250 for each meeting
attended.
EXECUTIVE OFFICERS OF THE FUNDS NOT LISTED ABOVE
BRUCE N. ALPERT, (45) Vice President and Treasurer.
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.
PATRICIA R. FRAZE, (53) Vice President. Executive
Vice President of the Adviser, fixed income analyst and portfolio manager
since April 1990. Her address is One Corporate Center, Rye, New York
10580.
DOUGLAS G. LEHMAN, (33) Vice President.
Assistant Vice President of the Adviser, since December 1994. Previously,
Special Trader for First New York Securities, June 1993 to December 1994.
From September 1989 to May 1993, he was Vice President and Special Trader
for Lehman Brothers. His address is One Corporate Center, Rye, New York
19580.
JAMES E. McKEE, (33)
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.
Susan M. Byrne, Trustee of the Funds, owns approximately 3.5% of the
outstanding shares of the Westwood Realty Fund as of October 3, 1997.
The following persons were known by the Funds to own of record 5% or more of
the outstanding voting securities of any Fund on October 3, 1997:
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
OF HOLDER OF RECORD OF FUND
EQUITY FUND
<S> <C>
Retail Class
Charles Schwab & Co., Inc. 32.01%*
Special Custody Account
FBO Ben of Custs
</TABLE>
<PAGE> 21
<TABLE>
<S> <C>
Attn Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
The Bank of Tokyo Trust Co. TTEE 16.68%*
FBO The Komatsu Dresser Co. Sav. Plan
Pension & Investment
Attn Melissa Kruppa
100 Broadway 5th Floor
New York NY 10005-1904
SMALLCAP EQUITY FUND
Retail Class
Wendel & Co. 68.16%*
A/C #659115
c/o Bank of New York
Attn: Ellen Whalen
1 Wall Street
New York, NY 10286
REALTY FUND
Retail Class
Gabelli Funds, Inc. 7.05%
Attn John Fodera
One Corporate Center
Rye, NY 10580-1442
Margaret Byrne McKenzie 7.05%
118 John Street
Greenwich, CT
Joseph E. Simmons 7.05%
Gertrude H. Simmons Jt. Ten.
1645 Hillside Drive
Quakertown, PA 18951-2056
JBJA Partners Ltd. 19.57%
C. Baker Montgomery, Managing General Partner
100 Crescent Courtt Suite 250
Dallas, TX 75201-1860
Edward Lachman 7.05%
1 Humphrey Road
Morristown, NJ 07960-5707
Westwood Management Corporation 7.05%
Attn: Jacki Finley
300 Crescent Court Suite 1320
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
Dallas, TX 75201-7854
NAME AND ADDRESS PERCENTAGE
OF HOLDER OF RECORD OF FUND
<S> <C>
INTERMEDIATE BOND FUND
Retail Class
TCTCO 21.88%
200 Crescent Ct. Suite 1300
Dallas, TX 75201-7838
Trust Company of Texas Corporate 16.72%
200 Crescent Ct. Suite 1300
Dallas, TX 75201-7838
Southwest Securities, Inc. FBO 28.62%*
Guarantee & Trust Co. Tr.
P. O. Box 509 002
Dallas, TX 75250
BALANCED FUND
Charles Schwab & Co., Inc. 32.27%*
Special Custody Acct.
FBO Ben of Custs
Attn:Mutual Funds
101 Montgomery St.
*Beneficial ownership is disclaimed
</TABLE>
Ownership of shares representing 25% or more of the outstanding shares of
each class of the Funds may be deemed to have control, as that term is
defined in the 1940 Act.
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.
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
<PAGE> 23
Fund, subject to the approval of the 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, Douglas Lehman 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 SmallCap Fund, the Realty Fund, the Equity
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%, 1.0%, 1.0%, .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 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. For the year ended September 30, 1996,
Teton Advisers, LLC charged advisory fees of $214,970, $31,128 and
$178,593 respectively and waived fees of $82,555, $31,128 and $93,020 for
the Equity Fund, Intermediate 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 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.
The portfolio turnover rate is estimated to be 100% for the SmallCap Fund
and Realty Fund. For the fiscal years ended September 30, 1996, September
30, 1995 and September 30, 1994 the turnover rates were 106%, 107% and
137% in the
<PAGE> 24
case of the Equity Fund, 309%, 165% and 203% in the case of the
Intermediate Bond Fund and 111%, 133% and 168% 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 30,1994, September 30,1995 and September 30, 1996, the
Equity Fund paid brokerage commissions of $19,515, $28,530 and $48,678,
respectively. For the fiscal years ended September 30, 1994, September 30,
1995 and September 30, 1996, the Intermediate Bond Fund paid brokerage
commissions of $0, $110 and $0, respectively, and the Balanced Fund paid
brokerage commissions in the amount of $34,283, $23,156 and $36,359,
respectively. None of these amounts were paid to the affiliates.
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 BISYS Fund Services, Inc. ("BISYS") to provide
administrative services with respect to the Funds. Pursuant to the
Sub-Administration Contracts, BISYS 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, Gabelli & Company, Inc. 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 Gabelli & Company, Inc.
DISTRIBUTION OF FUND SHARES. The Funds have retained Gabelli & Company,
Inc. 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 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 Class 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. 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
<PAGE> 25
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 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 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 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 Retail 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. For the year
ended September 30, 1994, the Funds, with respect to the Service Class,
incurred distribution costs and expenses of $574, $525 and $56,229 for the
Equity Fund, Intermediate Bond Fund and the Balanced Fund, respectively.
For the year ended September 30, 1995, the Funds, with respect to the
Service Class, incurred distribution costs and expenses of $870, $18 and
$41,708 for the Equity Fund, Intermediate Bond and Balanced Fund,
respectively. For the year ended September 30, 1995, with respect to the
Retail Class, distribution costs and expenses of $28,920, $11,474 and
$11,200 were incurred for the Equity Fund, Intermediate Bond and Balanced
Fund, respectively.
For the year ended September 30, 1996, the Funds, with respect to the
Service Class, incurred distribution
<PAGE> 26
costs and expenses of $2,102 for the Equity Fund and $35,811 for the
Balanced Fund. There were no Service Class shares outstanding during the
year ended September 30, 1996 for the Intermediate Bond Fund. For the year
ended September 30, 1996, with respect to the Retail Class, distribution
costs and expenses of $53,172, $13,086 and $46,711 were incurred for the
Equity Fund, Intermediate Bond and Balanced Fund, respectively.
EXPENSES AND EXPENSE INFORMATION. Teton Advisers LLC reimbursed the
Intermediate Bond Fund in the amount of $39,693 for the period ended
September 30, 1996 for expenses in excess of the expense limitation of
certain states having jurisdiction over the Fund and of its own voluntary
limitation of expenses. On October 11, 1996 the "National Securities
Market Improvement of 1996" vested in the Securities and Exchange
Commission exclusive authority for the registration or qualification of
investment company offerings, thus, preempting any state law expense
limitation requirement, effective October 11, 1996.
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 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
<PAGE> 27
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, and therefore days upon which
shareholders can't redeem shares, currently are: New Year's Day, Martin
Luther King, Jr. 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-GABELLI
(1-800-422-3554). 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 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.
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
<PAGE> 28
year subsequent to October 31, may be deferred to the next taxable year
and used to reduce distributions in the subsequent year.
Amounts, other than tax-exempt interest, 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 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, requires a Fund to
generally include 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.
Investors should consult their own tax advisors in this regard.
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
<PAGE> 29
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.
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.
<PAGE> 30
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 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
<PAGE> 31
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 + 1)RAISED TO THE 6TH POWER-1]
---
cd
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.
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)RAISED TO THE NTH POWER = 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 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 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 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. For the fiscal year
ended September 30, 1996, for the Retail class of shares the total rate of
return of the Equity Fund, the Intermediate Bond Fund and the Balanced
Fund were 26.9%, 4.5% and 19.0%, respectively. For the year ended
September 30, 1996, for the Service Class of shares the total return for
the Equity Fund and the Balanced Fund were 26.3% and 18.8%, respectively.
For the period from April 15, 1997 to September 30, 1997, the total return
of the SmallCap Fund was 44.8%.
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
<PAGE> 32
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 six series representing six portfolios of the Trust (i.e., the
Funds).
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.
<PAGE> 33
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, 90 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.
Battle Fowler LLP, 75 East 55th Street, 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.
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
<PAGE> 34
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 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
The audited financial statements for the Funds dated September 30, 1996
and the Report of Price Waterhouse LLP thereon, are incorported herein by
reference to the Trust's Annual Report. The Annual Report is available
upon request and without charge. The unaudited financial statements for
the Westwood Small Cap Fund dated September 30, 1997are included herein.
<PAGE> 35
WESTWOOD SMALLCAP EQUITY FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Shares Cost Value
- ------ ---- -----
<S> <C> <C> <C>
COMMON STOCKS - 97.2%
AVIATION: PARTS and ACCESSORIES - 3.2%
7,600 BE Aerospace, Inc.* $245,833 $273,600
-------- --------
BANKING - 3.0%
5,200 Downey Financial Corp. 122,967 126,750
4,400 Golden State Bancorp* 117,707 131,450
-------- --------
240,674 258,200
-------- --------
BIOTECHNOLOGY - 1.0%
4,000 Monarch Dental Corp.* 61,106 86,000
-------- --------
BROADCASTING - 1.5%
3,700 Telemundo Group, Inc. - Class A* 96,068 129,500
-------- --------
BUILDING AND CONSTRUCTION - 1.0%
2,300 NCI Building Systems, Inc.* 68,237 82,800
-------- --------
COMMERCIAL SERVICES - 3.1%
3,100 Caribiner International, Inc.* 103,276 126,325
6,200 Medallion Financial Corp. 114,998 134,850
-------- --------
218,274 261,175
-------- --------
COMPUTER EQUIPMENT - 1.4%
3,200 TriQuint Semiconductor, Inc.* 106,425 116,600
-------- --------
COMPUTER SOFTWARE - 11.3%
6,700 GT Interactive Software Corp.* 82,331 78,725
3,600 Harbinger Corp.* 87,410 130,950
2,200 HNC Software, Inc.* 55,008 87,450
4,400 Hyperion Software Corp.* 75,489 137,225
15,100 Rational Software Corp.* 244,175 241,600
7,100 SELECT Software Tolls - SP-ADR* 62,438 60,350
1,500 Viasoft, Inc.* 73,120 74,250
3,700 Wind River Systems* 102,878 152,625
-------- --------
782,849 963,175
-------- --------
CONSUMER PRODUCTS - 1.4%
4,800 Wolverine World Wide, Inc. 128,678 121,200
-------- --------
DISTRIBUTION - 1.1%
5,700 Anicom, Inc.* 79,381 95,475
-------- --------
</TABLE>
See accompanying notes to financial statements.
<PAGE> 36
WESTWOOD SMALLCAP EQUITY FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Shares Cost Value
- ------ ---- -----
<S> <C> <C> <C>
ELECTRONICS - 4.0%
2,100 Ade Corp.* $ 73,928 $ 84,263
4,800 Berg Electronics Corp.* 157,116 258,000
-------- --------
231,044 342,263
-------- --------
ENERGY - 7.6%
13,100 AGL Resources, Inc. 262,743 248,081
1,900 Cliffs Drilling Co.* 87,613 132,288
9,600 Newfield Explorations Co.* 199,063 269,400
-------- --------
549,419 649,769
-------- --------
ENGINEERING - 1.0%
6,900 National Patent Development Corp.* 73,766 83,231
-------- --------
ENTERTAINMENT - 2.0%
4,500 Cinar Films, Inc.* 188,706 171,563
-------- --------
EQUIPMENT AND SUPPLIES - 5.5%
6,900 Comfort Systems USA, Inc.* 121,270 131,963
5,500 Culligan Water Technologies, Inc.* 258,789 253,000
1,800 Datum, Inc.* 81,799 82,125
-------- --------
461,858 467,088
-------- --------
FINANCIAL SERVICES - 4.9%
3,700 AMRESCO, Inc.* 70,147 137,363
3,200 E*TRADE Group, Inc.* 98,622 150,400
9,700 Long Beach Financial Corp.* 112,222 131,556
-------- --------
280,991 419,319
-------- --------
HEALTH CARE - 2.5%
3,200 IDEC Pharmaceuticals Corp.* 70,353 134,000
2,300 Surise Assisted Living, Inc.* 88,924 83,087
-------- --------
159,277 217,087
-------- --------
HOTELS - 1.0%
3,200 Suburban Lodges of America, Inc.* 64,406 84,400
-------- --------
INSURANCE - 2.5%
3,400 Frontier Insurance Group, Inc. 115,239 129,200
1,500 Triad Guaranty, Inc.* 56,382 83,813
-------- --------
171,621 213,013
-------- --------
</TABLE>
See accompanying notes to financial statements.
<PAGE> 37
WESTWOOD SMALLCAP EQUITY FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Shares Cost Value
- ------ ---- -----
<S> <C> <C> <C>
MANUFACTURING - 5.0%
4,200 Greenfield Industries, Inc. $110,035 $120,750
2,700 Hardinge, Inc. 73,093 92,812
1,800 Kulicke & Soffa Industries* 71,982 83,363
2,900 Waters Corp.* 95,928 128,144
-------- --------
351,038 425,069
-------- --------
MEDICAL EQUIPMENT AND SUPPLIES - 7.9%
4,600 Acuson Corp.* 109,985 125,350
6,600 MiniMed, Inc.* 176,399 259,050
4,300 Spine-Tech, Inc.* 174,003 161,788
4,800 ThermoTrex Corp.* 123,149 125,700
-------- --------
583,536 671,888
-------- --------
REAL ESTATE INVESTMENT TRUSTS - 7.1%
3,600 Apartment Investment & Management Co. - Class A 104,481 130,050
3,600 Brandywine Realty Trust 78,258 86,175
3,900 Excel Realty Trust, Inc. 101,048 122,362
6,500 FelCor Suite Hotels, Inc. 241,519 266,906
-------- --------
525,306 605,493
-------- --------
RETAIL - 9.5%
2,300 Abercrombie & Fitch Co. - Class A* 43,094 60,375
5,300 Dress Barn, Inc.* 130,262 127,200
6,700 Eagle Hardware & Garden, Inc.* 137,575 131,906
3,600 Lines 'N Things, Inc.* 88,123 120,600
3,700 Whole Foods Market, Inc.* 119,736 124,912
8,900 Zale Corp.* 174,905 230,843
-------- --------
693,695 813,836
-------- --------
STEEL - 3.2%
2,800 AK Steel Holding Corp. 122,682 119,350
6,400 Gibraltar Steel Corp.* 149,427 156,000
-------- --------
272,109 275,350
-------- --------
TRANSPORTATION - 4.1%
7,700 Alaska Airgroup, Inc.* 196,417 253,137
3,900 MotivePower Industries, Inc.* 75,977 101,400
-------- --------
272,394 354,537
-------- --------
TELECOMMUNICATIONS - 1.4%
3,650 Davox Corp.* 109,408 122,275
-------- --------
</TABLE>
See accompanying notes to financial statements.
<PAGE> 38
WESTWOOD SMALLCAP EQUITY FUND
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Cost Value
---- -----
<S> <C> <C>
TOTAL COMMON STOCKS $6,946,099 $8,303,906
---------- ----------
Other assets in excess of liabilities - 2.8% 242,073
----------
NET ASSETS $8,545,979
==========
</TABLE>
* Non-income producing security.
ADR - American Depository Receipts.
See accompanying notes to financial statements.
<PAGE> 39
THE WESTWOOD FUNDS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALLCAP
EQUITY FUND
---------------
<S> <C>
ASSETS
Investment in securities at value (cost $6,946,099) $ 8,303,906
Cash 194,496
Receivable for investments sold 183,888
Dividends and interest receivable 3,444
Receivable for fund shares sold 28,280
Deferred organizational costs 11,355
Prepaid expenses 8,168
Receivable from Advisor 14,207
---------------
Total Assets 8,747,744
---------------
LIABILITIES
Payable for securities purchased 164,696
Advisory fee payable 24,918
Distribution fee payable 4,019
Other accrued expenses 8,132
---------------
Total Liabilities 201,765
---------------
NET ASSETS $ 8,545,979
===============
Net Assets Consist of:
Capital Stock $ 590
Additional paid-in capital 6,796,341
Accumulated undistributed net investment income 47,186
Accumulated undistributed realized gain on investments 344,055
Unrealized appreciation on investments 1,357,807
===============
Net Assets $ 8,545,979
===============
SHARES OF BENEFICIAL INTEREST
Retail Class:
Shares of beneficial interest outstanding 590,203
===============
Net Asset Value, offering and redemption price per share $ 14.48
===============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 40
THE WESTWOOD FUNDS
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALLCAP
EQUITY FUND (a)
---------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 84,563
---------------
EXPENSES:
Advisory fees 24,918
Custodian fees 10,585
Amortization of organization fees 8,200
Distribution fees 6,229
Registration fees 4,034
Audit and Legal fees 3,722
Other expenses 2,419
Shareholder service fees 1,201
---------------
Total Expenses 61,308
Less: Fee waivers and expense reimbursements (14,207)
Custodial credits (9,724)
---------------
Total Net Expenses 37,377
---------------
NET INVESTMENT INCOME 47,186
---------------
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS:
Net realized gain on investment transactions 344,055
Change in unrealized appreciation of investments 1,357,807
---------------
Net realized/unrealized gain on investments 1,701,862
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,749,048
===============
<FN>
- --------------------------
(a) Period from April 15, 1997 (inception date of fund) to September 30, 1997.
</TABLE>
See accompanying notes to financial statements.
<PAGE> 41
THE WESTWOOD FUNDS
WESTWOOD SMALLCAP EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD ENDED
SEPTEMBER 30,
1997 (a)
---------------
<S> <C>
OPERATIONS:
Net investment income $ 47,186
Net realized gains on investment transactions 344,055
Net change in unrealized appreciation on investments 1,357,807
---------------
Net increase in net assets resulting from operations 1,749,048
---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares:
Retail Class 10,675,477
---------------
Net asset value of shares redeemed:
Retail Class (3,878,546)
---------------
Net increase in net assets from capital share transactions 6,796,931
---------------
Total increase in net assets 8,545,979
NET ASSETS
Beginning of period --
---------------
End of period $ 8,545,979
===============
<FN>
- ------------
(a) Period from April 15, 1997 (inception date of fund) to September 30, 1997.
</TABLE>
See accompanying notes to financial statements.
<PAGE> 42
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 five separate investment
portfolios: Westwood SmallCap Equity Fund (commenced operations on April, 15,
1997 with only one class of shares), 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. Each class of shares outstanding
bears the same voting, dividend, liquidation and other rights and conditions,
except that the expense 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, 1997, 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 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 in 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 SmallCap Equity Fund. Distributions of net
realized gain 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 bases 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.
(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 of the Funds 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.
<PAGE> 43
(g) Use of Estimates. Estimates and assumptions are required to be made
regarding assets, liabilities, and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ from these amounts.
NOTE 3 ---- INVESTMENT ADVISORY, ADMINISTRATIVE AND OTHER TRANSACTIONS WITH
AFFILIATES. 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 1.00% of the SmallCap Equity Fund's daily average net
asset value. For the fiscal year ended September 30, 1997, the adviser was
entitled to fees of $24,918 for the SmallCap Equity Fund. The Adviser has
voluntarily agreed to reimburse the Funds in the event the Funds' annual
expenses exceed 1.50% of average net assets. As of September 30, 1997, the
Advisor expects to reimburse the Funds $14,207.
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 to Gabelli & Company 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
30,1997, the Fund incurred distribution expenses in the amounts of $6,229 for
the Retail Class of the SmallCap Equity Fund.
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, 1997 were as follows:
<TABLE>
<CAPTION>
Common Stocks & Bonds
---------------------
Purchases Sales
--------- -----
<S> <C> <C>
SmallCap Equity Fund 13,341,813 6,739,768
</TABLE>
(b) Federal income tax basis. Gross unrealized appreciation and depreciation on
investment securities at September 30, 1997 based on cost for Federal income tax
purposes, is as follows:
<TABLE>
<CAPTION>
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation Depreciation Appreciation
<S> <C> <C> <C>
SmallCap Equity Fund $1,452,884 $95,077 $1,357,807
</TABLE>
Note 5 - Capital Share Transactions
<TABLE>
<CAPTION>
Period ended
September 30, 1997(a)
-----------------------
Shares Amount
------ ------
<S> <C> <C>
Retail Class
Shares sold 882,584 $10,675,477
Shares reinvested -- --
Shares redeemed (292,381) (3,878,546)
-------- -----------
Net increase (decrease) in shares 590,203 $ 6,796,931
======== ===========
</TABLE>
- --------------
(a)Period from April 15, 1997 (inception date of fund) to September 30, 1997.
<PAGE> 44
THE WESTWOOD FUNDS
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
WESTWOOD EQUITY FUND
WESTWOOD INTERMEDIATE BOND FUND
AND WESTWOOD BALANCED FUND
Financial Highlights for each of the five years in the period ended
September 30, 1996.
WESTWOOD SMALLCAP EQUITY FUND
Financial Highlights (unaudited) for the period ended September 30, 1997.
Included in Part B for all the Funds except Westwood SmallCap Equity Fund
and incorporated by reference to the Funds' Annual Report dated September
30, 1996:
WESTWOOD EQUITY FUND
Portfolio of Investments -- September 30, 1996.
Statement of Assets and Liabilities -- September 30, 1996.
Statement of Operations -- year ended September 30, 1996.
Statement of Changes in Net Assets -- for the years ended September 30,
1995 and September 30, 1996.
Notes to Financial Statements.
Selected Per Share Data and Ratios.
Report of Independent Accountants dated November 12, 1996.
(Incorporated by Reference)
WESTWOOD INTERMEDIATE BOND FUND AND WESTWOOD BALANCED FUND
Portfolio of Investments -- September 30, 1996.
Statement of Assets and Liabilities -- September 30, 1996.
Statement of Operations -- year ended September 30, 1996.
Statement of Changes in Net Assets -- years ended September 30, 1995 and
September 30, 1996.
Notes to Financial Statements.
Selected Per Share Data and Ratios.
<PAGE> 45
Report of Independent Accountants dated November 12, 1996.
(Incorporated by Reference)
WESTWOOD SMALLCAP EQUITY FUND
Portfolio of Investments -- (unaudited)-- September 30, 1997.
Statement of Assets and Liabilities --(unaudited)-- September 30, 1997.
Statement of Operations --(unaudited)-- the period ended September 30,
1997.
Statement of Changes in Net Assets --(unaudited)-- the period ended
September 30, 1997.
Notes to Financial Statements.
Selected Per Share Data and Ratios --(unaudited)-- the period ended
September 30, 1997..
(b) Exhibits:
(1) Registrant's Declaration of Trust and Amendments thereto are incorporated
by reference to Exhibit 1 of Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A, filed on December 22, 1986.
(2) Registrant's By-Laws are incorporated by reference to Exhibit 2 of
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A,
filed on December 22, 1986.
(3) None.
(4) The specimen copy of a share certificate is incorporated by reference to
Exhibit 4 of Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A, filed on December 22, 1986.
(5)(a) Revised form of Investment Advisory Agreement between the Registrant and
Teton Advisers, LLC. incorporated by reference to Exhibit 5(a) of
Post-Effective Amendment No. 16 to the Registration Statement on Form
N-1A, filed on April 14, 1997.
(5)(b) Sub-Administration Contract with BISYS Fund Services for The Westwood
Funds.*
(5)(c) The Form of Investment Sub-Advisory Agreement between Teton Advisers, LLC
and Westwood Management Corporation for the Westwood SmallCap Equity Fund
and Westwood Realty Fund, incorporated by reference to Exhibit 5(c) of
Post-Effective Amendment No. 16 to the Registration Statement on Form
N-1A, filed on April 14, 1997.
(6) The Distribution Agreement between Gabelli & Company, Inc. and The
Westwood Funds, incorporated by reference to Exhibit 6 of Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A, filed on
January 31, 1995.
<PAGE> 46
(7) None.
(8)(a) The Amended and Restated Custody Agreement dated August 18, 1989 is
incorporated by reference to Exhibit 8 of Post-Effective Amendment No. 4
to the Registration Statement on Form N-1A, filed on January 29, 1990.
(9) None.
(10)(a) Opinion of Baker & McKenzie, Trust Counsel, incorporated by reference to
Exhibit 10(a) of Post-Effective Amendment No. 15 to the Registration
Statement on Form N-1A, filed on February 20, 1997.
(10)(b) Consent of Battle Fowler LLP, Trust Counsel.*
(11) Consent of Price Waterhouse LLP, Independent Accountants*
(12) None.
(13) None.
(14) None.
(15) Rule 12b-1 Distribution Plan and Agreement for The Westwood Funds
(Retail Class) incorporated by reference to Exhibit (15)(b) of
Post-Effective Amendment No. 12 to the Registration Statement on Form
N-1A, filed on January 31, 1995.
(15)(a) Rule 12b-1 Distribution Plan and Agreement for The Westwood Funds
(Service Class) incorporated by reference to Exhibit (15)(b) of
Post-Effective Amendment No. 12 to the Registration Statement on Form
N-1A, filed on January 31, 1995.
(16) Schedule for Computation of Performance Quotations -- the Westwood
SmallCap Equity Fund.*
(17) Financial Data Schedule --the Westwood SmallCap Equity Fund*
Item 25. Persons Controlled by or Under Common Control with Registrant
Not Applicable.
- ------------
* Filed herewith.
2
<PAGE> 47
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
(1) (2)
Number of Record
Title of Class Holders as of October 3, 1997
<S> <C>
Westwood Equity Fund 6,143
Westwood Cash Management Fund --
Westwood Intermediate Bond Fund 514
Westwood Balanced Fund 3,394
Westwood Equity (Service Class) 94
Westwood Balanced (Service Class) 448
Westwood SmallCap Equity Fund 239
Westwood Realty Fund 113
</TABLE>
Item 27. Indemnification
The statement as to the general effect of any contract, arrangements or
statute under which a trustee, officer, underwriter or affiliated person
of the Registrant is indemnified is incorporated by reference to Item 27
of Part C of Pre-Effective Amendment No. 1 to the Registration Statement
onForm N-1A, filed on December 22, 1986.
Item 28. Business and Other Connections of the Investment Adviser
Teton Advisers LLC (the "Adviser"), a subsidiary of Gabelli Funds, Inc.,
serves as the Funds' investment adviser. The Adviser is a Texas limited
liability company. The Adviser was formed in 1994.
Westwood Management Corp. (the "Sub-Adviser") serves as the Fund's
investment adviser. The Sub-Adviser is a registered investment adviser
managing in excess of $900 million in separate accounts, primarily
corporate pension funds. The Sub-Adviser was formed in 1983.
<TABLE>
<CAPTION>
Officers and Directors of Investment Adviser
Name and Position
with Investment Adviser Other Businesses:
<S> <C>
Bruce N. Alpert Chief Operating Officer of Investment
President and General Manager Advisory Division of Gabelli Funds, Inc.
Gary P. Watson Chief Financial Officer of Gabelli
Chief Financial Officer Securities, Inc.
Joseph R. Rindler Chairman of Gabelli Asset Management
Member Company, Inc.
John D. Gabelli Vice President of Gabelli & Company,
Member Inc.
James E. McKee General Counsel of Gabelli Funds, Inc.
Secretary
</TABLE>
3
<PAGE> 48
<TABLE>
<CAPTION>
Officers and Directors of Investment Sub-Adviser
<S> <C>
Name and Position
with Investment Sub-Adviser Other Businesses:
Susan M. Byrne Director:
Director, President and Treasurer Southwest Securities Group
1201 Elm Street, #4300
Dallas, TX
Patricia Rice Fraze None
Executive Vice President
Lynda Jean Calkin None
Senior Vice President
Donald A. Buchholz Chairman of the Board:
Director Southwest Securities Group
1201 Elm Street, #4300
Dallas, TX
Director:
Trust Co. of Texas
Preston Road, Dallas, TX
Raymond E. Woolridge Vice Chairman:
Director Southwest Securities Group
1201 Elm Street, #4300
Dallas, TX
Director:
Trust Co. of Texas
Chairman:
Brokers Transactions
Services
Preston Road, Dallas, TX
David Glatstein President and Chief
Director Executive Officer:
Southwest Securities Group
1201 Elm Street, #4300
Dallas, TX
Jacqueline Finley None
Secretary
</TABLE>
Item 29. Principal Underwriter
(a) Gabelli & Company, Inc. or its affiliate is Distributor for the
Registrant, Gabelli Equity Series Funds, Inc., Gabelli Gold Fund,Inc., Gabelli
Global Series Funds, Inc., Gabelli International Growth Fund, Inc., Gabelli
Investor Funds, Inc., Gabelli Capital Asset Fund, Gabelli Asset Fund, Gabelli
Growth Fund, Gabelli Value Fund, Westwood Equity Fund, Westwood Intermediate
Bond Fund, Westwood Balanced Fund, Westwood Cash Management Fund, Westwood
Realty Fund and WestwoodSmallCap Equity Fund.
(b) Officers and Trustees
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Distributor with Registrant
<S> <C>
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Stephen G. Bondi Director, Vice President -- Finance None
James E. McKee Secretary Secretary
Donald C. Jenkins Director None
Walter K. Walsh Compliance Officer None
James G. Webster, III Chairman and Director None
Gary P. Watson Chief Financial Officer None
<FN>
- ------------
* All addresses are One Corporaate Center, Rye, New York 10580.
</TABLE>
4
<PAGE> 49
Item 30. Location of Accounts and Records
1. The Bank of New York
90 Washington Street
New York, New York 10266
2. Gabelli & Company, Inc.
One Corporate Center
Rye, New York 10580
3. Westwood Management Corp.
300 Crescent Court, Suite 1320
Dallas, TX 75201
4. BISYS Fund Services, Inc.
3435 Stelzer Rd., Suite 1000
Columbus, OH 43219
5. State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Registrant undertakes to call a meeting of shareholders for the
purpose of voting upon the removal of a trustee if requested to do
so by the holders of at least 10% of the Registrant's outstanding
shares.
(b) Registrant undertakes to provide the support to shareholders
specified in Section 16(c) of the 1940 Act as though that section
applied to the Registrant.
(c) Registrant hereby undertakes to file a post-effective amendment,
using financial statements which need not be certified, within four
to six months from the effective date of the Registrant's 1933 Act
Registration Statement relating to shares of the Westwood Realty
Fund (the "Shares") or the initial public offering of the Shares,
whichever is later.
<PAGE> 50
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Amendment to this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Rye, and State of New
York on the 30th day of October 1997.
THE WESTWOOD FUNDS
BY: * Susan M. Byrne
-------------------------
Susan M. Byrne,
President and Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Amendment to the Registration Statement has been
signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
* Susan M. Byrne Trustee, President and
Susan M. Byrne Principal Executive Officer October 30, 1997
* Anthony J. Colavita Trustee October 30, 1997
- ---------------------
Anthony J. Colavita
* James P. Conn Trustee October 30, 1997
- ----------------------
James P. Conn
* Werner Roeder, M.D. Trustee October 30, 1997
Werner Roeder, M.D.
___________________ Trustee October 30, 1997
Karl Otto Pohl
By: /Bruce N. Alpert/
-----------------
Bruce N. Alpert
Attorney-in-Fact
<FN>
* Pursuant to Power of Attorney filed as Exhibit 16(f) to this Post-Effective
Amendment No. 12 to Registration Statement on Form N-1A.
</TABLE>
<PAGE> 51
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
(5)(b) Sub-Administration Contract with BISYS Fund Services for The
Westwood Funds.
(10)(b) Consent of Battle Fowler LLP, Trust Counsel.
(11) Consent of Price Waterhouse LLP.
(16) Schedule for Computation of Performance Quotations -- the
Westwood SmallCap Equity Fund.
(17) Financial Data Schedule
<PAGE> 1
Exhibit 5(b)
SUB-ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this 1st day of May, 1997, by and between
TETON ADVISERS, LLC (the "Administrator"), and BISYS FUND SERVICES LIMITED
PARTNERSHIP, d/b/a BISYS FUND SERVICES ("BISYS").
WHEREAS, the Administrator is the investment adviser for The Westwood
Funds (the "Company") and is responsible for the provision of administrative
services to the Company and each of the Portfolios (hereinafter referred to
individually as a "Portfolio" and collectively as the "Portfolios") of the
Company;
WHEREAS, the Company is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Administrator desires to retain BISYS to assist it in
performing administrative services with respect to each Portfolio and BISYS is
willing to perform such services on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Administrator and BISYS hereby agree as follows:
ARTICLE 1. RETENTION OF BISYS. The Administrator hereby engages BISYS
to furnish each Portfolio with the administrative services as set forth in
Article 2 below (collectively, the "Services"). BISYS shall, for all purposes
herein, be deemed to be an independent contractor and, unless otherwise
expressly provided or authorized, shall have no authority to act for or
represent the Administrator or the Company in any way.
ARTICLE 2. ADMINISTRATIVE SERVICES. BISYS shall perform or supervise
the performance by others of administrative services in connection with the
operations of the Portfolios, and, on behalf of the Company, will investigate,
assist in the selection of and conduct relations with custodians, depositories,
accountants, legal counsel, underwriters, brokers and dealers, corporate
fiduciaries, insurers, banks and persons in any other capacity deemed to be
necessary or desirable for the Portfolios' operations. BISYS shall provide the
Trustees of the Company with such reports regarding investment performance as
they may reasonably request but shall have no responsibility for supervising the
performance by any investment adviser or sub-adviser of its responsibilities.
BISYS shall provide the Company with regulatory reporting, all
necessary office space, equipment, personnel, compensation and facilities
(including facilities for meetings of shareholders ("Shareholders") and
Directors of the Company) for handling the affairs of the Portfolios and such
other services as BISYS and the Administrator shall, from time to time,
determine to be necessary to perform BISYS' obligations under this Agreement. In
addition, at the request of the Board of
<PAGE> 2
Directors, BISYS shall make reports to the Company's Directors
concerning the performance of its obligations hereunder.
Without limiting the generality of the foregoing, BISYS shall:
(a) calculate contractual Company expenses and provide necessary
instructions for all disbursements for the Company, and as
appropriate compute the Company's yields, total return,
expense ratios, portfolio turnover rate, average commission
rate and, if required, portfolio average dollar-weighted
maturity;
(b) assist Company counsel with the preparation of prospectuses,
statements of additional information, registration statements
and proxy materials;
(c) prepare such reports, applications and documents (including
reports regarding the sale and redemption of Shares as may be
required in order to comply with Federal and state securities
law) as may be necessary or desirable to register the
Company's Shares with state securities authorities, monitor
the sale of Company Shares for compliance with state
securities laws, and file with the appropriate state
securities authorities the registration statements and reports
for the Company and the Company's Shares and all amendments
thereto, as may be necessary or convenient to register and
keep effective the Company and its Shares with state
securities authorities to enable the Company to make a
continuous offering of its Shares;
(d) develop and prepare, with the assistance of the Administrator,
communications to Shareholders, including the annual report to
Shareholders, coordinate the mailing of prospectuses, notices,
proxy statements, proxies and other reports to Shareholders,
and supervise and facilitate the proxy solicitation process
for all shareholder meetings, including the tabulation of
shareholder votes;
(e) administer contracts on behalf of the Company with, among
others, the Company's investment adviser, distributor,
custodian, transfer agent and fund accountant;
(f) supervise the Company's transfer agent with respect to the
payment of dividends and other distributions to Shareholders;
(g) calculate performance data of the Portfolios for dissemination
to information services covering the investment company
industry;
(h) prepare or cause to be prepared at its expense the filing of
the Company's tax returns;
(i) examine and review the operations and performance of the
various organizations providing services to the Company or any
Portfolio, including, without limitation, the investment
adviser, distributor, custodian, fund accountant, transfer
agent, outside
2
<PAGE> 3
legal counsel and independent public accountants, and, at the
request of the Board of Directors, report to the Board on the
performance of such organizations;
(j) assist with the layout and printing of publicly disseminated
prospectuses and assist with and coordinate layout and
printing of the Company's quarterly, semi-annual and annual
reports to Shareholders;
(k) assist with the design, development, and operation of the
Portfolios, including new classes, investment objectives,
policies and structure;
(l) provide individuals reasonably acceptable to the Company's
Board of Directors to serve as officers of the Company, who
will be responsible for the management of certain of the
Company's affairs as determined by the Company's Board of
Directors;
(m) advise the Company and its Board of Directors on matters
concerning the Company and its affairs;
(n) obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for the
Company in accordance with the requirements of Rules 17g-1 and
17d-1(7) under the 1940 Act as such bonds and policies are
approved by the Company's Board of Directors;
(o) monitor and advise the Company and its Portfolios on their
regulated investment company status under the Internal Revenue
Code of 1986, as amended;
(p) perform all administrative services and functions of the
Company and each Portfolio to the extent administrative
services and functions are not provided to the Company or such
Portfolio pursuant to the Company's or such Portfolio's
administration agreement, investment advisory agreement,
distribution agreement, custodian agreement, transfer agent
agreement and fund accounting agreement;
(q) furnish advice and recommendations with respect to other
aspects of the business and affairs of the Portfolios as the
Administrator and BISYS shall determine desirable;
(r) prepare and file with the SEC the semi-annual report for the
Company on Form N-SAR and all required notices pursuant to
Rule 24f-2;
(s) assist the Company with respect to SEC examinations, including
the furnishing of documents and information, as appropriate,
and responding to SEC examination letters; and
(t) assist the Company in preparing for Board meetings by (i)
coordinating board book production and distribution, (ii)
preparing Board agendas, (iii) preparing the BISYS
3
<PAGE> 4
section of Board materials, (iv) preparing special Board
meeting materials, including but not limited to, materials
relating to annual contract approvals and 12b-1 plan
approvals, as agreed upon by the parties, and (v) such other
Board meeting functions that are agreed upon by the parties.
BISYS shall perform such other services for the Company that are
mutually agreed upon by the parties from time to time. Such services may include
performing internal audit examinations; mailing the annual reports of the
Portfolios; preparing an annual list of Shareholders; and mailing notices of
Shareholders' meetings, proxies and proxy statements, for all of which the
Administrator will pay or cause to be paid BISYS' reasonable out-of-pocket
expenses.
ARTICLE 3. ALLOCATION OF CHARGES AND EXPENSES.
(A) BISYS. BISYS shall furnish at its own expense the executive,
supervisory and clerical personnel necessary to perform its obligations under
this Agreement. BISYS shall also provide the items which it is obligated to
provide under this Agreement, and shall pay all compensation, if any, of
officers of the Company as well as all Directors of the Company who are
affiliated persons of BISYS or any affiliated company of BISYS; provided,
however, that unless otherwise specifically provided, BISYS shall not be
obligated to pay the compensation of any employee of the Company retained by the
Directors of the Company to perform services on behalf of the Company.
(B) THE ADMINISTRATOR. The Administrator hereby represents that the
Company has undertaken to pay or cause to be paid all other expenses of the
Company not otherwise allocated herein, including, without limitation,
organization costs, taxes, expenses for legal and auditing services, the
expenses of preparing (including typesetting), printing and mailing reports,
prospectuses, statements of additional information, proxy solicitation material
and notices to existing Shareholders, all expenses incurred in connection with
issuing and redeeming Shares, the costs of custodial services, the cost of
initial and ongoing registration of the Shares under Federal and state
securities laws, fees and out-of-pocket expenses of Directors who are not
affiliated persons of the Administrator or the Investment Adviser to the Company
or any affiliated corporation of the Administrator or the Investment Adviser,
insurance, interest, brokerage costs, litigation and other extraordinary or
nonrecurring expenses, and all fees and charges of investment advisers to the
Company.
ARTICLE 4. COMPENSATION OF BISYS.
(A) SUB-ADMINISTRATION FEE. For the services rendered, the facilities
furnished and the expenses assumed by BISYS pursuant to this Agreement, the
Administrator shall pay to BISYS compensation at an annual rate specified in
Schedule A attached hereto.
4
<PAGE> 5
(B) SURVIVAL OF COMPENSATION RIGHTS. All rights of compensation under
this Agreement for services performed as of the termination date shall survive
the termination of this Agreement.
ARTICLE 5. LIMITATION OF LIABILITY OF BISYS. The duties of BISYS shall
be confined to those expressly set forth herein, and no implied duties are
assumed by or may be asserted against BISYS hereunder. BISYS shall not be liable
for any error of judgment or mistake of law or for any loss arising out of any
act or omission in carrying out its duties hereunder, except a loss resulting
from willful misfeasance, bad faith or negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties
hereunder, except as may otherwise be provided under provisions of applicable
law which cannot be waived or modified hereby. (As used in this Article 5, the
term "BISYS" shall include partners, officers, employees and other agents of
BISYS as well as BISYS itself.)
So long as BISYS acts in good faith and with due diligence and without
negligence, the Administrator assumes full responsibility and shall indemnify
BISYS and hold it harmless from and against any and all actions, suits and
claims, whether groundless or otherwise, and from and against any and all
losses, damages, costs, charges, reasonable counsel fees and disbursements,
payments, expenses and liabilities (including reasonable investigation expenses)
arising directly or indirectly out of BISYS' actions taken or nonactions with
respect to the performance of services hereunder. The indemnity and defense
provisions set forth herein shall indefinitely survive the termination of this
Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Administrator may be asked to indemnify or
hold BISYS harmless, the Administrator shall be fully and promptly advised of
all pertinent facts concerning the situation in question, and it is further
understood that BISYS will use all reasonable care to identify and notify the
Administrator promptly concerning any situation which presents or appears likely
to present the probability of such a claim for indemnification against the
Administrator, but failure to do so in good faith shall not affect the rights
hereunder.
The Administrator shall be entitled to participate at its own expense
or, if it so elects, to assume the defense of any suit brought to enforce any
claims subject to this indemnity provision. If the Administrator elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Administrator and satisfactory to BISYS, whose approval shall not
be unreasonably withheld. In the event that the Administrator elects to assume
the defense of any suit and retain counsel, BISYS shall bear the fees and
expenses of any additional counsel retained by it. If the Administrator does not
elect to assume the defense of a suit, it will reimburse BISYS for the
reasonable fees and expenses of any counsel retained by BISYS.
5
<PAGE> 6
BISYS may apply to the Administrator at any time for instructions and
may consult counsel for the Administrator or its own counsel and with
accountants and other experts with respect to any matter arising in connection
with BISYS' duties, and BISYS shall not be liable or accountable for any action
taken or omitted by it in good faith in accordance with such instruction or with
the opinion of such counsel, accountants or other experts.
Also, BISYS shall be protected in acting upon any document which it
reasonably believes to be genuine and to have been signed or presented by the
proper person or persons. BISYS will not be held to have notice of any change of
authority of any officers, employees or agents of the Administrator until
receipt of written notice thereof from the Administrator.
ARTICLE 6. ACTIVITIES OF BISYS. The services of BISYS rendered
hereunder are not to be deemed to be exclusive. BISYS is free to render such
services to others and to have other businesses and interests. It is understood
that directors, officers, employees and Shareholders are or may be or become
interested in BISYS, as officers, employees or otherwise and that partners,
officers and employees of BISYS and its counsel are or may be or become
similarly interested in the Company, and that BISYS may be or become interested
in the Company as a Shareholder or otherwise.
ARTICLE 7. DURATION OF THIS AGREEMENT. The Term of this Agreement shall
be as specified in Schedule A hereto.
ARTICLE 8. ASSIGNMENT. This Agreement shall not be assignable by either
party without the written consent of the other party; provided, however, that
BISYS may, with the prior consent of the Administrator, at its expense,
subcontract with any entity or person concerning the provision of the services
contemplated hereunder. BISYS shall not, however, be relieved of any of its
obligations under this Agreement by the appointment of such subcontractor and
provided further, that BISYS shall be responsible, to the extent provided in
Article 5 hereof, for all acts of such subcontractor as if such acts were its
own. This Agreement shall be binding upon, and shall inure to the benefit of,
the parties hereto and their respective successors and permitted assigns.
ARTICLE 9. AMENDMENTS. This Agreement may be amended if such amendment
is specifically approved in writing by the parties hereto.
ARTICLE 10. CERTAIN RECORDS. BISYS shall maintain customary records in
connection with its duties as specified in this Agreement. Any records required
to be maintained and preserved pursuant to Rules 31a-1 and 31a-2 under the 1940
Act which are prepared or maintained by BISYS on behalf of the Company shall be
prepared and maintained at the expense of BISYS, but shall be the property of
the Company and will be made available to or surrendered promptly to the Company
on request.
6
<PAGE> 7
In case of any request or demand for the inspection of such records by
another party, BISYS shall notify the Administrator and follow the
Administrator's instructions as to permitting or refusing such inspection;
provided that BISYS may exhibit such records to any person in any case where it
is advised by its counsel that it may be held liable for failure to do so,
unless (in cases involving potential exposure only to civil liability) the
Administrator or the Company has agreed to indemnify BISYS against such
liability.
ARTICLE 11. DEFINITIONS OF CERTAIN TERMS. The terms "interested person"
and "affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
ARTICLE 12. NOTICE. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the following address: if to BISYS, to it at 3435 Stelzer Road,
Columbus, Ohio 43219, Attention: George O. Martinez, Esq.; if to the
Administrator, to it at One Corporate Center, Rye, New York 10580-1434,
Attention: Bruce N. Alpert, or at such other address as such party may from time
to time specify in writing to the other party pursuant to this Section.
ARTICLE 13. CONFIDENTIAL INFORMATION. Each party acknowledges that it
may acquire knowledge and information relating to the other party and its
affiliates or the Company including, but not limited to, information pertaining
to business plans, employees, customers and/or suppliers, and that all such
knowledge and information acquired or developed is and shall be confidential and
proprietary information (all such confidential and proprietary information is
herein collectively referred to as the "Confidential Information"). Each party
agrees to hold the Confidential Information in strict confidence, to refrain
from directly or indirectly disclosing it to others or using it in any way
except for purposes of performing services hereunder, and to prevent any
unauthorized person access to it either before or after termination of this
Agreement, without the prior written consent of the other party. Both parties
further agree to take all action reasonable and necessary to protect the
confidentiality of the Confidential Information. The parties shall use their
best efforts to have their directors, officers, employees and agents agree to
the terms of this Section. The obligations of the parties contained in this
section shall survive termination of this Agreement. Neither party's
confidentiality obligations under this provision shall apply to such information
that (i) was in the public domain or available to a third party without
restrictions at or prior to the time such information was made known to such
party, (ii) had been independently known to such party at the time of disclosure
from persons who were not subject to similar confidentiality obligations, or
(iii) is required to be disclosed by law (except that each party will use best
efforts to give the other party written notice prior to any such disclosure).
7
<PAGE> 8
ARTICLE 14. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Ohio and the applicable provisions of
the 1940 Act. To the extent that the applicable laws of the State of Ohio, or
any of the provisions herein, conflict with the applicable provisions of the
1940 Act, the latter shall control.
ARTICLE 15. MULTIPLE ORIGINALS. This Agreement may be executed in two
or more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
TETON ADVISERS, LLC
By: /s/ Bruce N. Alpert
----------------------------------------
Title: General Manager
-------------------------------------
BISYS FUND SERVICES LIMITED PARTNERSHIP
BY: BISYS FUND SERVICES, INC.
GENERAL PARTNER
By: /s/ George O. Martinez
----------------------------------------
Title: Senior Vice President
-------------------------------------
8
<PAGE> 9
SCHEDULE A
TO THE SUB-ADMINISTRATION AGREEMENT
DATED AS OF MAY 1, 1997
BETWEEN TETON ADVISERS, LLC
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
Portfolios: This Agreement shall apply to all Portfolios, either now or
hereafter created, of the Company. The current Portfolios are
set forth below.
Westwood Equity Fund
Westwood Intermediate Bond Fund
Westwood Balanced Fund
Westwood Cash Management Fund
Westwood Small Cap Fund
Westwood Realty Fund
Fees: Pursuant to Article 4, in consideration of services rendered
and expenses assumed pursuant to this Agreement, the
Administrator will pay BISYS on the first business day of each
month, or at such time(s) as BISYS shall request and the
parties hereto shall agree, a fee based upon a prorated
portion (as more particularly described below) of the assets
of all registered management investment companies for which
BISYS serves as Subadministrator that are advised by Teton
Advisers, LLC, Gabelli Funds, Inc., Gabelli Fixed Income
L.L.C. or their affiliates ("BISYS-administered Investment
Companies"). Such fee shall be computed daily at the annual
rate of:
Six and one-quarter one-hundredths of one percent
(.0625%) of the BISYS-administered Investment
Companies' average daily net assets up to $350
million.
Four and one-quarter one-hundredths of one percent
(.0425%) of the BISYS-administered Investment
Companies' average daily net assets in excess of $350
million up to $700 million.
Two and one-quarter one-hundredths of one percent
(.0225%) of the BISYS-administered Investment
Companies' average daily net assets in excess of $700
million.
The prorated portion of the fees that are payable to BISYS
under this Agreement shall be that portion of the fees
described above that is attributable to the average daily net
assets of the Portfolios. The fees set forth above shall be
subject to a minimum annual fee of $30,000 for each Portfolio.
Such fees shall be paid to BISYS
A-1
<PAGE> 10
on the first business day of each month or at such other
time(s) as the parties may agree upon.
The parties hereby acknowledge and agree that the compensation
under this Agreement due to BISYS shall be reduced in each
month (or other applicable payment period) by the amount of
compensation payable to BISYS Fund Services, Inc. under its
Fund Accounting Agreement with the Administrator with respect
to the Company. The fee for the period from the day of the
month this Agreement is entered into until the end of that
month shall be prorated according to the proportion which such
period bears to the full monthly period. Upon any termination
of this Agreement before the end of any month, the fee for
such part of a month shall be prorated according to the
proportion which such period bears to the full monthly period
and shall be payable upon the date of termination of this
Agreement.
For purposes of determining the fees payable to BISYS, the
value of the net assets of a particular Portfolio shall be
computed in the manner described in the Company's Articles of
Incorporation or in the Prospectus or Statement of Additional
Information respecting that Portfolio as from time to time is
in effect for the computation of the value of such net assets
in connection with the determination of the liquidating value
of the shares of such Portfolio.
The parties hereby confirm that the fees payable hereunder
shall be applied to each Portfolio as a whole, and not to
separate classes of shares within the Portfolios.
Term: The initial term of this Agreement (the "Initial Term") shall
commence on May 1, 1997 and shall remain in effect through
December 31, 1997. This Agreement shall be renewed
automatically for successive periods of one year after the
Initial Term, unless written notice of nonrenewal is provided
by either party not less than 90 days prior to the end of the
Initial Term or 90 days advance written notice of termination
is provided by either party at any time following the Initial
Term. In the event of any breach of this Agreement by either
party, the non-breaching party shall notify the breaching
party in writing of such breach and upon receipt of such
notice, the breaching party shall have 45 days to remedy the
breach. In the event any material breach is not remedied
within such time period, the nonbreaching party may
immediately terminate this Agreement.
Notwithstanding the foregoing, after such termination for so
long as BISYS, with the written consent of the Administrator,
in fact continues to perform any one or more of the services
contemplated by this Agreement or any schedule or exhibit
hereto, the provisions of this Agreement, including without
limitation the provisions dealing with indemnification, shall
continue in full force and effect. Compensation due BISYS and
unpaid by the Administrator upon such termination shall be
immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled
A-2
<PAGE> 11
to collect from the Administrator, in addition to the
compensation described in this Schedule A, all costs
reasonably incurred in connection with BISYS' activities in
effecting such termination, including without limitation, the
delivery to the Company and/or its designees of the Company's
property, records, instruments and documents, or any copies
thereof. To the extent that BISYS may retain in its possession
copies of any Company documents or records subsequent to such
termination which copies had not been requested by the
Administrator on behalf of the Company in connection with the
termination process described above, BISYS will provide the
Company with reasonable access to such copies; provided,
however, that, in exchange therefor, the Administrator shall
reimburse BISYS for all costs reasonably incurred in
connection therewith.
A-3
<PAGE> 1
Exhibit 10(b)
CONSENT OF BATTLE FOWLER LLP
We consent to the reference to our Firm under the heading "Custodian,
Transfer and Dividend Disbursing Agent, Counsel and Independent Accountants" in
Amendment No. 17 to the Registration Statement on Form N-1A of The Westwood
Funds as filed with the Securities and Exchange Commission on October 30, 1997.
/s/ Battle Fowler LLP
BATTLE FOWLER LLP
New York, New York
October 30, 1997
<PAGE> 1
Exhibit 11.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 17 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
November 12, 1996, relating to the financial statements and financial highlights
of Westwood Equity Fund, Westwood Intermediate Bond Fund, and Westwood Balanced
Fund (constituting The Westwood Funds), which appears in such Statement of
Additional Information, and to the incorporation by reference to our report into
the Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Independent Accountants" in
the Prospectus and under the headings "Custodian, Transfer and Dividend
Disbursing Agent, Counsel and Independent Accountants" and "Financial
Statements" in the Statement of Additional Information.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
October 30, 1997
<PAGE> 1
WESTWOOD MUTUAL FUNDS
EXHIBIT 16
TOTAL RETURN
WESTWOOD SMALLCAP EQUITY FUND
AGGREGATE TOTAL RETURN
- ----------------------
T=(ERV/P)-1
WHERE T= TOTAL RETURN
ERV= REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 04/15/97 TO 09/30/97):
( 1,448.00 /1,000)-1= 44.80%
YEAR TO DATE: ( 04/15/97 TO 09/30/97):
( 1,448.00 /1,000)-1= 44.80%
QUARTERLY: ( 07/01/96 TO 09/30/97):
( 1,181.08 /1,000)-1= 18.11%
MONTHLY: ( 09/01/97 TO 09/30/97):
( 1,078.99 /1,000)-1= 7.90%
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> WESTWOOD SMALL CAP EQUITY FUND RETAIL CLASS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 6,946
<INVESTMENTS-AT-VALUE> 8,304
<RECEIVABLES> 235
<ASSETS-OTHER> 214
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,753
<PAYABLE-FOR-SECURITIES> 165
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 42
<TOTAL-LIABILITIES> 207
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,797
<SHARES-COMMON-STOCK> 590
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 47
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 344
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,358
<NET-ASSETS> 8,546
<DIVIDEND-INCOME> 85
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 37
<NET-INVESTMENT-INCOME> 47
<REALIZED-GAINS-CURRENT> 344
<APPREC-INCREASE-CURRENT> 1,358
<NET-CHANGE-FROM-OPS> 1,749
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 883
<NUMBER-OF-SHARES-REDEEMED> 292
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 8,546
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 25
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 52
<AVERAGE-NET-ASSETS> 5,395
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 4.40
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.48
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> WESTWOOD EQUITY FUND RETAIL CLASS
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 28,287
<INVESTMENTS-AT-VALUE> 31,175
<RECEIVABLES> 619
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 41
<TOTAL-ASSETS> 31,840
<PAYABLE-FOR-SECURITIES> 1,168
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 109
<TOTAL-LIABILITIES> 1,277
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,699
<SHARES-COMMON-STOCK> 4
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 190
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,772
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,889
<NET-ASSETS> 30,563
<DIVIDEND-INCOME> 433
<INTEREST-INCOME> 137
<OTHER-INCOME> 0
<EXPENSES-NET> 325
<NET-INVESTMENT-INCOME> 245
<REALIZED-GAINS-CURRENT> 3,776
<APPREC-INCREASE-CURRENT> 732
<NET-CHANGE-FROM-OPS> 4,754
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 137
<DISTRIBUTIONS-OF-GAINS> 1,209
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,865
<NUMBER-OF-SHARES-REDEEMED> 4,015
<SHARES-REINVESTED> 1,333
<NET-CHANGE-IN-ASSETS> 15,592
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 215
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 407
<AVERAGE-NET-ASSETS> 21,502
<PER-SHARE-NAV-BEGIN> 6.59
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> 1.59
<PER-SHARE-DIVIDEND> .06
<PER-SHARE-DISTRIBUTIONS> .58
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.68
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> WESTWOOD EQUITY FUND SERVICE CLASS
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 28,287
<INVESTMENTS-AT-VALUE> 31,175
<RECEIVABLES> 619
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 41
<TOTAL-ASSETS> 31,840
<PAYABLE-FOR-SECURITIES> 1,168
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 109
<TOTAL-LIABILITIES> 1,277
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,699
<SHARES-COMMON-STOCK> 4
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 190
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,772
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,889
<NET-ASSETS> 30,563
<DIVIDEND-INCOME> 433
<INTEREST-INCOME> 137
<OTHER-INCOME> 0
<EXPENSES-NET> 325
<NET-INVESTMENT-INCOME> 245
<REALIZED-GAINS-CURRENT> 3,776
<APPREC-INCREASE-CURRENT> 732
<NET-CHANGE-FROM-OPS> 4,754
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 137
<DISTRIBUTIONS-OF-GAINS> 1,209
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,865
<NUMBER-OF-SHARES-REDEEMED> 4,015
<SHARES-REINVESTED> 1,333
<NET-CHANGE-IN-ASSETS> 15,592
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 215
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 407
<AVERAGE-NET-ASSETS> 21,502
<PER-SHARE-NAV-BEGIN> 6.57
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> 1.58
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .52
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.69
<EXPENSE-RATIO> 1.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME>WESTWOOD INTERMEDIATE BOND FD
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 5,199
<INVESTMENTS-AT-VALUE> 5,160
<RECEIVABLES> 834
<ASSETS-OTHER> 1,188
<OTHER-ITEMS-ASSETS> 245
<TOTAL-ASSETS> 6,241
<PAYABLE-FOR-SECURITIES> 700
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45
<TOTAL-LIABILITIES> 745
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,129
<SHARES-COMMON-STOCK> 556
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 466
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (596)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (39)
<NET-ASSETS> 4,596
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 338
<OTHER-INCOME> 0
<EXPENSES-NET> 57
<NET-INVESTMENT-INCOME> 281
<REALIZED-GAINS-CURRENT> 92
<APPREC-INCREASE-CURRENT> (143)
<NET-CHANGE-FROM-OPS> 230
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 281
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,825
<NUMBER-OF-SHARES-REDEEMED> 1,192
<SHARES-REINVESTED> 184
<NET-CHANGE-IN-ASSETS> 766
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 31
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 128
<AVERAGE-NET-ASSETS> 5,189
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> (.10)
<PER-SHARE-DIVIDEND> .51
<PER-SHARE-DISTRIBUTIONS> .51
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.88
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> WESTWOOD BALANCED FUND RETAIL CLASS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 32,054
<INVESTMENTS-AT-VALUE> 34,396
<RECEIVABLES> 719
<ASSETS-OTHER> 1,760
<OTHER-ITEMS-ASSETS> 343
<TOTAL-ASSETS> 35,459
<PAYABLE-FOR-SECURITIES> 855
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 231
<TOTAL-LIABILITIES> 1,086
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,785
<SHARES-COMMON-STOCK> 4
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 472
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,244
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,341
<NET-ASSETS> 34,374
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