The Gabelli Westwood Funds
==========================
Annual Report
September 30, 1997
o SmallCap Equity Fund
***** Equity Fund o Realty Fund
***** Balanced Fund o Intermediate Bond Fund
Morningstar rates the Equity Fund 5 stars overall and for the three and
five year periods and 4 stars for the ten year period ended 10/31/97.
Morningstar rates the Balanced Fund 5 stars overall and for the three and
five year periods ended 10/31/97. The Funds were rated among 2189, 1210
and 642 domestic equity funds for the three, five and ten year periods
ended 10/31/97, respectively.
Dear Fellow Shareholder:
We are pleased to provide the September 30, 1997 annual report for The
Gabelli Westwood Funds, including the Equity Fund, Balanced Fund, Intermediate
Bond Fund and the recently launched SmallCap Equity Fund.
On September 30, 1997, we launched the Realty Fund which invests in
publicly traded Real Estate Investment Trusts (REITs). The initial transaction
of the Realty Fund resulted in the sale of 10,000 shares of the Fund at $10 per
share to Gabelli Funds, Inc. on September 30, 1997. We look forward to sharing
the initial performance results for the Realty Fund in our next letter.
Economic Commentary
Over the past year, we, along with many other mutual fund managers, have
been the beneficiaries of this growing industry. One of the results is opening a
new fund for investors; the SmallCap Equity Fund which became available on April
15, 1997. The Fund is managed by Lynda J. Calkin, CFA, who has been working with
Westwood since 1993. The Equity and Balanced Funds have gained increasing
attention from Charles Schwab's OneSource program and have also been added to
the newly formed Fund of Funds portfolio program, the OneSource
Portfolio-Balanced Allocation, managed by Schwab. Additionally, the Equity Fund
has been added to Schwab's Select Funds List for 401(k) Plans which has resulted
in significant growth in the
- --------------------------------------------------------------------------------
Total returns and average annual returns reflect changes in share price and
reinvestment of dividends and are net of expenses. The net asset value of the
Fund is reduced on the ex-dividend (payment) date by the amount of the dividend
paid. Of course, returns represent past performance and do not guarantee future
results. Investment returns and the principal value of an investment will
fluctuate. When shares are redeemed they may be worth more or less than their
original cost. Morningstar proprietary ratings reflect historical risk-adjusted
performance as of October 31, 1997. The ratings are subject to change every
month. Morningstar ratings are calculated from the Funds' 3, 5 and 10 year
average annual returns in excess of 90 day T-bill returns with appropriate fee
adjustments and a risk factor that reflects fund performance below 90 day T-bill
returns. The top 10% of the funds in an investment category receive 5 stars and
the next 22.5% receive 4 stars. As of September 30, 1997, the Equity Fund Retail
Class received an overall rating of 5 stars (*****) from Morningstar. The Fund
was rated 5 stars for the 3 and 5 year periods and 4 stars for the 10 year
period ended September 30, 1997 among 2143, 1187 and 638 domestic equity funds,
respectively. As of September 30, 1997, the Balanced Fund Retail Class received
an overall rating of 4 stars (****) from Morningstar. The Fund was rated 4 stars
for the 3 and 5 year periods ended September 30, 1997 among 2143 and 1187
domestic equity funds, respectively.
<PAGE>
Fund's assets. As of October 31, 1997, the Equity and Balanced Funds hold
Morningstar's highest five star ***** ranking for overall performance among
2,189 domestic equity funds.
The preceding twelve months have been a strong period for the Funds. We
continued to identify attractive areas for investment that we believe are
positioned to perform well in an environment of low inflation and moderate
growth. Although our outlook for investments remains positive, we are cautious
and as such, made adjustments to the Funds which we believe will allow for
further protection of principal in more volatile market environments. In order
to maintain a higher than average yield, we increased our exposure in the energy
and utility sectors while continuing to maintain an overweighting in the REIT
sector which has been an important component of the portfolio since June 1995.
Over the previous twelve months, we decreased our exposure in the basic
materials and capital goods related sectors as securities achieved their price
objectives. The technology sector continues to remain an attractive area for
investment and maintains an equal weighting compared to the Standard & Poor's
(S&P) 500 Index.
Index Comparisons
The investment performance of the Equity, Intermediate Bond, Balanced and
SmallCap Equity Funds are compared to the Standard & Poor's (S&P) 500 Index,
Lehman Brothers Government/Corporate Bond Index, 60% S&P 500 Index and 40%
Lehman Brothers Government/Corporate Bond Index and Russell 2000 Index,
respectively, from January 2, 1987 for the Retail Class of the Equity Fund,
October 1, 1991 for the Intermediate Bond and Balanced Fund, April 15, 1997 for
the SmallCap Equity Fund, January 28, 1994 for the Service Class of the Equity
Fund and April 6, 1993 for the Service Class of the Balanced Fund (commencement
of operations for each of the Funds) through September 30, 1997. Effective
October 6, 1994, the Equity, Intermediate Bond and Balanced Fund's Retail Class
became no load. The Retail Class graphs reflect the current no load status. The
Service Class graphs reflect the effect of the maximum 4% sales charge at the
beginning of the period. The graphs assume all dividends and distributions from
the Fund are reinvested at net asset value.
Westwood Equity Fund
For the fiscal year ending September 30, 1997, the ***** rated Equity Fund
Retail Class posted a return of 39.6% and the Service Class returned 39.3%
versus an average annual return of 27.5% for the 245 capital appreciation funds
tracked by Lipper Analytical Services. Since our last letter to you we have sold
securities which reached their respective price objectives including Dell
Computer (one of the most successful investments in the Fund), Boise Cascade,
Southwest Airlines, CSX Corp. and Chateau Properties. Proceeds were redeployed
into the energy sector through purchases of Apache Corp., Burlington Resources
and Pioneer Natural Resources; into the finance sector with purchases of ABN
Amro and First Union; and the REIT sector with purchases of Equity Office
Properties, Simon DeBartolo, and Excel Realty Trust.
For the five and ten years ended September 30, 1997, the Equity Fund
Retail Class had total returns of 192.4% and 279.5%, which equate to average
annual returns of 23.9% and 14.3%, respectively. The Equity Fund Retail Class
and Service Class achieved total returns since their respective inceptions on
January 2, 1987 and January 28, 1994 through September 30, 1997 of 399.0% and
118.9%, which equate to average annual returns of 16.1% and 23.8%, respectively.
2
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
WESTWOOD EQUITY FUND RETAIL CLASS AND THE S&P 500 INDEX
[LINE CHART OMITTED]
- ---------------------------------------
Average Annual Total Return*
- ---------------------------------------
One Year 5 Year 10 Year Life of Fund
- ---------------------------------------
39.6% 23.9% 14.3% 16.1%
- ---------------------------------------
* Past performance is not predictive of future results.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
WESTWOOD EQUITY FUND SERVICE CLASS AND THE S&P 500 INDEX
[LINE CHART OMITTED]
- ---------------------------------------
Average Annual Total Return*
- ---------------------------------------
One Year 3 Year Life of Fund
- ---------------------------------------
33.7% 28.5% 22.4%
- ---------------------------------------
* Past performance is not predictive of future results.
The favorable performance of the Fund generated increased awareness from
many financial publications including Money Magazine and Institutional Investor,
both of which featured the firm with in-depth discussions of our investment
process and some of our favored holdings. Louis Rukeyser's Mutual Fund
Newsletter also included the Equity Fund among its "top 100 mutual funds".
- --------------------------------------------------------------------------------
As of September 30, 1997, the Equity Fund Retail Class and the Balanced Fund
Retail Class were included in The Rukeyser 100. The Rukeyser 100 ranks mutual
funds according to three year returns. The portfolio manager must be in place
for at least three years. The ranking does not include funds with front or back
end loads greater than 3% or funds that are closed to new investors, have less
than $50 million in assets, have minimums of $100,000 or more, have trust
restrictions or are single-state municipal bond funds. The Rukeyser 100 uses
Lipper and Morningstar as their source for information.
3
<PAGE>
Westwood Balanced Fund
For the fiscal year ending September 30, 1997, the ***** rated Balanced
Fund Retail Class posted a return of 28.3% and the Service Class returned 28.0%
versus an average annual return of 24.0% for the 372 balanced funds tracked by
Lipper Analytical Services. The blended return of 60% S&P 500 and 40% Lehman
Brothers Government/Corporate Bond Index for the same period was 28.1%. As of
September 30, 1997, the Balanced Fund had approximately 58% invested in
equities, 38% in fixed income and 4% invested in short term securities.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
WESTWOOD BALANCED FUND RETAIL CLASS AND A COMPOSITE OF 60% -- THE S&P 500 INDEX
AND 40% -- THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX
[LINE CHART OMITTED]
- ------------------------------
Average Annual Total Return*
- ------------------------------
One Year 5 Year Life of Fund
- ------------------------------
28.3% 18.1% 16.3%
- ------------------------------
* Past performance is not predictive of future results.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
WESTWOOD BALANCED FUND SERVICE CLASS AND A COMPOSITE OF 60% -- THE S&P 500 INDEX
AND 40% -- THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX
[LINE CHART OMITTED]
- ------------------------------
Average Annual Total Return*
- ------------------------------
One Year 3 Year Life of Fund
- ------------------------------
22.9% 21.1% 16.6%
- ------------------------------
* Past performance is not predictive of future results.
4
<PAGE>
For the three and five years ended September 30, 1997, the Balanced Fund
Retail Class had total returns of 86.3% and 129.3%, which equate to average
annual returns of 23.0% and 18.1%, respectively. The Balanced Fund Retail Class
and Service Class achieved total returns since their respective inceptions on
October 1, 1991 and April 6, 1993 through September 30, 1997 of 147.6% and
107.3%, which equate to average annual returns of 16.3% and 17.6%, respectively.
Strategies for the equity and fixed income Funds which are discussed in
this letter, also apply to their respective components in the Balanced Fund.
Louis Rukeyser's Mutual Fund Newsletter also included the Balanced Fund among
its "top 100 mutual funds".
Westwood Intermediate Bond Fund
For the fiscal year ending September 30, 1997, the Intermediate Bond Fund
posted a return of 11.4% versus an average annual return of 9.6% for the Lehman
Brothers Government/Corporate Bond Index. Fixed income investments benefited
from an environment in which the economy continued to grow at a moderate pace
with low inflation. The best performing sectors in the bond market were high
yield bonds and emerging market debt. The Bond Fund benefited from exposure to
lower rated corporate debt, increased allocations to long term Treasuries and a
continued overweighting of asset backed securities. The best performing bonds
for the year were corporate debt issued by Conseco, Jacor Communications and USA
Waste, as well as long term Treasuries.
For the three and five years ended September 30, 1997, the Intermediate
Bond Fund Retail Class had total returns of 29.3% and 34.8%, which equate to
average annual returns of 8.9% and 6.1%, respectively. The Intermediate Bond
Fund achieved a total return since its inception on October 1, 1991 through
September 30, 1997 of 50.8%, which equates to an average annual return of 7.1%.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE WESTWOOD INTERMEDIATE BOND FUND AND
THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX
[LINE CHART OMITTED]
- ------------------------------
Average Annual Total Return*
- ------------------------------
One Year 5 Year Life of Fund
- ------------------------------
11.4% 6.1% 7.1%
- ------------------------------
* Past performance is not predictive of future results.
5
<PAGE>
Westwood SmallCap Equity Fund
The SmallCap Equity Fund opened during a low point for small cap
securities. Fortunately, shareholders who chose to invest at the Fund's
inception have enjoyed returns exceeding the large cap universe for comparable
periods. From inception-to-date (April 15, 1997 through September 30, 1997) the
Fund has earned 44.8% compared to 34.1% for the Russell 2000 Index over the same
period. Top performers in the Fund included Wind River Systems, Hyperion
Software, Cliffs Drilling, Cinar Films and MiniMed.
The SmallCap Equity Fund applies the same investment discipline that is
used with all of the Gabelli Westwood Funds, which includes an assessment of the
economy first before selecting securities and attractive sectors for investment.
Comparison of change in value of $10,000 investment in
the Westwood SmallCap Equity Fund and the Russell 2000 Index
[LINE CHART OMITTED]
* Past performance is not predictive of future performance.
Change of Names
On July 27, 1994, Westwood Management Corp. entered into an agreement with
Gabelli Funds, Inc. to form a new limited liability company, Teton Advisers LLC
("Teton"). On October 6, 1994, Teton entered into a new investment advisory
agreement with The Westwood Funds ("Funds") and a sub-advisory agreement with
Westwood Management Corp. ("Westwood"). The terms of the sub-advisory agreement
with Westwood Management Corp. state that Westwood would continue to manage the
assets of the Funds. On November 7, 1997, the members of Teton approved a change
in name to Gabelli Advisers LLC. Additionally, on November 18, 1997, the Board
of Trustees approved a change in name of The Westwood Funds to The Gabelli
Westwood Funds to reflect the more closely aligned relationship with the Gabelli
family of funds. Full implementation of these changes will become effective upon
the completion of filings with the appropriate regulatory agencies.
6
<PAGE>
Minimum Initial Investment -- $1,000
The Funds' minimum initial investment for both regular and retirement
accounts is $1,000. There are no subsequent investment minimums. No initial
minimum is required for those establishing an Automatic Investment Plan.
Internet
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Funds, Inc., the
Gabelli Westwood Funds, IRAs, 401(k)s, quarterly reports, closing prices and
other current news. You can send us e-mail at [email protected] or
[email protected].
Capital Market Outlook
We have a positive outlook for stocks over the next twelve months but are
mindful that our first mission to our shareholders is to preserve their
principal investment. We remain watchful (of our investments) in an environment
where we continue to witness the market's ability to surpass historic highs. We
expect to stay fully invested in equities so long as the strong underpinnings of
low inflation and moderate growth remain intact to support continued strong
corporate earnings.
The Funds' daily net asset value is available in the financial press and
each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI
(1-800-422-3554) or 1-800-WESTWOOD (1-800-937-8966). Please call us during the
business day for further information.
As always, we thank you for your confidence in our investing abilities and
will strive to preserve the assets you have entrusted to us.
Sincerely,
/s/ Susan M. Byrne
Susan M. Byrne
President and Chief Investment Officer
November 19, 1997
7
<PAGE>
Westwood Equity Fund
Portfolio of Investments -- September 30, 1997
================================================================================
<TABLE>
<CAPTION>
Shares Cost Value
------ ---- -----
COMMON STOCKS -- 89.4%
AUTOMOTIVE -- 5.2%
<S> <C> <C> <C>
46,600 Chrysler Corp............................... $ 1,482,148 $ 1,715,462
37,200 Eaton Corp.................................. 2,625,011 3,436,350
34,800 Lear Corp.*................................. 1,266,490 1,713,900
------------ ------------
5,373,649 6,865,712
------------ ------------
BIOTECHNOLOGY -- 0.0%
1,431 Genzyme Corp. (Tissue Repair Division)*..... 0 13,952
------------ ------------
CAPITAL GOODS -- 2.4%
29,894 Lockheed Martin Corp........................ 2,596,152 3,187,448
------------ ------------
COMMUNICATIONS EQUIPMENT -- 2.6%
42,900 Lucent Technologies, Inc.................... 2,545,624 3,490,988
------------ ------------
COMPUTER EQUIPMENT -- 3.5%
33,100 International Business Machines Corp........ 2,416,527 3,506,531
67,200 NextLevel Systems, Inc.*.................... 1,131,718 1,125,600
------------ ------------
3,548,245 4,632,131
------------ ------------
COMPUTER SOFTWARE -- 2.5%
47,477 Sterling Commerce, Inc.*.................... 1,418,751 1,706,205
44,600 Sterling Software, Inc.*.................... 1,382,589 1,600,025
------------ ------------
2,801,340 3,306,230
------------ ------------
ELECTRONICS -- 3.9%
33,900 Berg Electronics Corp.*..................... 974,658 1,822,125
145,900 Scientific-Atlanta, Inc..................... 2,582,485 3,300,988
------------ ------------
3,557,143 5,123,113
------------ ------------
ENERGY -- 16.3%
41,500 Apache Corp................................. 1,433,951 1,779,312
76,300 Baker Hughes, Inc........................... 2,763,213 3,338,125
154,300 Houston Industries, Inc..................... 3,314,963 3,356,025
19,800 The Louisiana Land and
Exploration Co............................. 1,344,941 1,550,588
45,900 Mobil Corp.................................. 3,000,763 3,396,600
40,400 Pennzoil Co................................. 2,455,781 3,219,375
44,000 Pioneer Natural Resources Co................ 1,884,868 1,842,500
50,000 Texaco, Inc................................. 2,410,149 3,071,875
------------ ------------
18,608,629 21,554,400
------------ ------------
ENTERTAINMENT -- 2.1%
52,100 Time Warner Inc............................. 2,537,903 2,823,169
------------ ------------
EQUIPMENT and SUPPLIES -- 3.8%
63,000 Deere & Co.................................. 2,954,713 3,386,250
26,000 PPG Industries, Inc......................... 1,460,954 1,629,875
------------ ------------
4,415,667 5,016,125
------------ ------------
FINANCIAL SERVICES -- 3.9%
82,000 ABN Amro Holding NV-- SP ADR*............... 1,585,974 1,670,750
30,300 Ahmanson (H.F.) & Co........................ 1,229,108 1,721,419
36,200 First Union Corp............................ 1,791,649 1,812,263
------------ ------------
4,606,731 5,204,432
------------ ------------
FOOD and BEVERAGE -- 5.2%
74,700 Anheuser Busch Companies, Inc............... 3,068,122 3,370,838
69,900 Campbell Soup Co............................ 3,109,948 3,425,100
------------ ------------
6,178,070 6,795,938
------------ ------------
HEATLH CARE -- 6.8%
29,100 American Home Products Corp................. 2,087,316 2,124,300
53,700 Genzyme Corp. (General Division)*........... 1,308,579 1,597,575
38,600 SmithKline Beecham plc-ADR.................. 1,587,774 1,886,575
116,000 Tenet Healthcare Corp.*..................... 2,908,799 3,378,500
------------ ------------
7,892,468 8,986,950
------------ ------------
Principal/
Shares Cost Value
------ ---- -----
HOTEL -- 1.3%
23,300 Marriott International, Inc................. 1,279,096 1,655,756
------------ ------------
INSURANCE -- 5.0%
17,100 CIGNA Corp.................................. $ 2,483,478 $ 3,184,875
70,400 Conseco, Inc................................ 2,537,088 3,436,400
------------ ------------
5,020,566 6,621,275
------------ ------------
RAW MATERIALS -- 5.2%
41,900 Aluminum Company Of America................. 2,865,934 3,435,800
55,100 E.I. du Pont de Nemours and Co.............. 2,816,325 3,392,094
------------ ------------
5,682,259 6,827,894
------------ ------------
REAL ESTATE -- 0.1%
4,530 Crescent Operating, Inc.*................... 0 91,166
------------ ------------
REAL ESTATE INVESTMENT TRUSTS (REITS) -- 9.2%
39,900 American General Hospitality Corp........... 859,482 1,162,087
51,200 Crescent Real Estate Equities Co............ 1,252,828 2,054,400
72,600 Duke Realty Investments, Inc................ 1,357,473 1,656,187
20,000 Equity Office Properties Trust.............. 420,000 678,750
49,100 Highwoods Properties, Inc................... 1,649,252 1,736,913
55,799 Patriot American Hospitality, Inc........... 1,079,820 1,778,593
46,800 Prentiss Properties Trust................... 1,101,526 1,351,350
16,363 Security Capital Industrial Trust........... 310,976 381,462
42,171 Security Capital Pacific Trust.............. 839,714 991,019
12,600 Simon DeBartolo Group, Inc.................. 418,950 415,800
------------ ------------
9,290,021 12,206,561
------------ ------------
RETAIL -- 2.7%
62,100 CVS Corp.................................... 2,891,518 3,531,937
------------ ------------
TELECOMMUNICATIONS -- 7.7%
42,800 Bell Atlantic Corp.......................... 2,849,964 3,442,725
71,900 GTE Corp.................................... 3,151,762 3,262,462
55,700 SBC Communications, Inc..................... 2,987,567 3,418,588
------------ ------------
8,989,293 10,123,775
------------ ------------
TOTAL COMMON STOCKS......................... 97,814,374 118,058,952
------------ ------------
PREFERRED STOCKS -- 1.6%
22,000 Houston Industries, Inc. , 7.00%,
07/01/2000................................. 1,014,545 1,144,000
31,000 Excel Realty Trust -- Series A,
8.50%,12/31/2049........................... 775,000 930,000
------------ ------------
1,789,545 2,074,000
------------ ------------
CORPORATE BOND -- 0.9%
$1,150,000 Crescent, 6.625%, 9/15/2002................. 1,145,007 1,144,480
------------ ------------
U.S TREASURY OBLIGATIONS -- 8.2%
U.S. TREASURY BILL -- 0.7%
1,000,000 Bills, 4.975%**, 12/26/1997................. 988,625 988,100
------------ ------------
U.S. TREASURY NOTES -- 7.5%
440,000 Notes, 6.25%, 6/30/1998..................... 440,926 442,169
1,550,000 Notes, 6.375%, 4/30/1999.................... 1,557,282 1,563,857
750,000 Notes, 5.875%, 11/15/1999................... 747,257 750,450
1,500,000 Notes, 5.875%, 2/15/2000.................... 1,496,984 1,500,015
1,785,000 Notes, 6.25%, 1/31/2002..................... 1,777,858 1,800,512
500,000 Notes, 6.25%, 2/28/2002..................... 496,831 504,425
2,300,000 Notes, 6.50%, 5/31/2002..................... 2,326,007 2,342,619
450,000 Notes, 6.875%, 5/15/2006.................... 449,459 470,331
250,000 Notes, 7.00%, 7/15/2006..................... 250,432 263,550
250,000 Notes, 6.25%, 2/15/2007..................... 241,764 251,222
------------ ------------
9,784,800 9,889,150
------------ ------------
TOTAL U.S. TREASURY OBLIGATIONS............. 10,773,425 10,877,250
------------ ------------
TOTAL INVESTMENTS --
100.1%...................................... $111,522,351 $132,154,682
============
Other Assets and
Liabilities (Net) -- (0.1%).................. (120,145)
------------
NET ASSETS -- 100%........................... $132,034,537
============
</TABLE>
* Non-income producing security.
** Rate represents effective yield at date of purchase.
ADR -- American Depository Receipts.
See accompanying notes to financial statements.
8
<PAGE>
Westwood Balanced Fund
Portfolio of Investments -- September 30, 1997
================================================================================
<TABLE>
<CAPTION>
Shares Cost Value
------ ---- -----
<S> <C> <C> <C>
COMMON STOCKS -- 58.6%
AUTOMOTIVE -- 3.4%
18,100 Chrysler Corp............................... $ 551,274 $ 666,306
14,500 Eaton Corp.................................. 912,979 1,339,437
16,100 Lear Corp.*................................. 562,224 792,925
----------- -----------
2,026,477 2,798,668
----------- -----------
BIOTECHNOLOGY -- 0.0%
696 Genzyme Corp. (Tissue Repair Division)*..... 0 6,786
----------- -----------
CAPITAL GOODS -- 1.6%
12,327 Lockheed Martin Corp........................ 894,690 1,314,366
----------- -----------
COMMUNICATIONS EQUIPMENT -- 1.7%
17,200 Lucent Technologies, Inc.................... 943,373 1,399,650
----------- -----------
COMPUTER EQUIPMENT -- 2.3%
13,200 International Business Machines Corp........ 852,396 1,398,375
27,000 NextLevel Systems, Inc.*.................... 459,212 452,250
----------- -----------
1,311,608 1,850,625
----------- -----------
COMPUTER SOFTWARE -- 1.7%
18,118 Sterling Commerce, Inc.*.................... 470,661 651,116
20,200 Sterling Software, Inc.*.................... 603,154 724,675
----------- -----------
1,073,815 1,375,791
----------- -----------
ELECTRONICS -- 2.6%
14,000 Berg Electronics Corp.*..................... 375,881 752,500
58,700 Scientific-Atlanta, Inc..................... 997,025 1,328,088
----------- -----------
1,372,906 2,080,588
----------- -----------
ENERGY -- 10.7%
16,300 Apache Corp................................. 560,060 698,862
29,800 Bakers Hughes, Inc.......................... 1,053,609 1,303,750
61,400 Houston Industries Inc...................... 1,328,924 1,335,450
8,300 The Louisiana Land & Exploration Co......... 564,714 649,994
17,900 Mobil Corp.................................. 1,097,500 1,324,600
17,100 Pennzoil Co................................. 996,803 1,362,656
17,100 Pioneer Natural Resources Co................ 735,168 716,062
21,200 Texaco, Inc................................. 942,285 1,302,475
----------- -----------
7,279,063 8,693,849
----------- -----------
ENTERTAINMENT -- 1.2%
17,800 Time Warner, Inc............................ 867,186 964,537
----------- -----------
EQUIPMENT and SUPPLIES -- 2.4%
24,600 Deere & Co.................................. 1,039,857 1,322,250
10,400 PPG Industries, Inc......................... 533,818 651,950
----------- -----------
1,573,675 1,974,200
----------- -----------
FINANCIAL SERVICES -- 2.6%
32,900 ABN Amro Holding NV -- SP ADR............... 627,032 670,337
13,500 Ahmanson (H.F.) & Co........................ 534,810 766,969
14,500 First Union Corp............................ 717,498 725,906
----------- -----------
1,879,340 2,163,212
----------- -----------
FOOD and BEVERAGE -- 3.3%
29,100 Anheuser-Busch Companies, Inc............... 1,146,003 1,313,137
27,300 Campbell Soup Co............................ 1,185,040 1,337,700
----------- -----------
2,331,043 2,650,837
----------- -----------
HEALTH CARE -- 4.3%
11,500 American Home Products, Inc................. 769,075 839,500
21,100 Genzyme Corp. (General Division)*........... 502,023 627,725
14,800 SmithKline Beecham plc-ADR.................. 601,846 723,350
46,400 Tenet Healthcare Corp.*..................... 1,100,302 1,351,400
----------- -----------
2,973,246 3,541,975
----------- -----------
Principal/
Shares Cost Value
------ ---- -----
HOTEL -- 0.8%
9,400 Marriott International, Inc................. $ 505,565 $ 667,988
----------- -----------
INSURANCE -- 3.2%
6,800 CIGNA Corp.................................. 830,272 1,266,500
28,200 Conseco, Inc................................ 1,008,365 1,376,512
----------- -----------
1,838,637 2,643,012
----------- -----------
RAW MATERIALS -- 3.3%
16,300 Aluminum Company of America................. 1,016,874 1,336,600
21,500 E.I. du Pont de Nemours and Co.............. 942,749 1,323,594
----------- -----------
1,959,623 2,660,194
----------- -----------
REAL ESTATE -- 0.1%
2,450 Crescent Operating, Inc.*................... 0 49,306
----------- -----------
REAL ESTATE INVESTMENT TRUSTS (REITS) -- 6.7%
19,500 American General Hospitality Corp........... 378,523 567,938
24,500 Crescent Real Estate Equities, Inc.......... 551,686 983,063
29,500 Duke Realty Investments, Inc................ 495,086 672,969
18,900 Highwoods Properties, Inc................... 550,512 668,588
26,726 Patriot American Hospitality, Inc........... 462,183 851,891
23,700 Prentiss Properties Trust................... 544,357 684,338
10,909 Security Capital Industrial Trust........... 191,589 254,316
23,885 Security Capital Pacific Trust.............. 456,547 561,298
7,400 Simon DeBartolo Group, Inc.................. 246,050 244,200
----------- -----------
3,876,533 5,488,601
----------- -----------
RETAIL -- 1.7%
24,200 CVS Corp.................................... 1,093,873 1,376,375
----------- -----------
TELECOMMUNICATIONS -- 5.0%
16,900 Bell Atlantic Corp.......................... 1,105,957 1,359,394
28,700 GTE Corp.................................... 1,228,637 1,302,262
22,900 SBC Communications, Inc..................... 1,182,914 1,405,488
----------- -----------
3,517,508 4,067,144
----------- -----------
TOTAL COMMON STOCKS......................... 37,318,161 47,767,704
----------- -----------
PREFERRED STOCK -- 0.6%
9,500 Houston Industries Inc., 7.00%, 7/01/2000.. 438,086 494,000
----------- -----------
ASSET BACKED SECURITIES -- 4.1%
$ 700,000 Contimortgage Home Equity 97-3
Class A7, 7.28%, 5/15/2024................. 699,572 712,810
15,759 EQCC Home Equity 93-3 Class A,..............
5.15%, 9/15/2008........................... 15,751 15,349
169,000 EQCC Home Equity 96-1 Class A2,.............
5.82%, 9/15/2009........................... 164,734 168,789
230,000 Ford Credit Auto Loan Master
Trust 95-1 Class A, 6.50%,
8/15/2002.................................. 228,446 232,139
444,467 GMAC Grantor Trust 97-A Class A,............
6.50%, 4/15/2002........................... 444,367 447,800
59,053 GMAC Grantor Trust 95-A Class A,............
7.15%, 3/15/2000........................... 59,047 59,422
375,000 Green Tree Financial Trust 96-3
Class A2, 6.45%, 5/15/2027................. 375,000 377,587
1,000,000 GS Mortgage Securities Corp.,
6.94%, 7/13/2030........................... 1,014,855 1,022,100
98,391 Olympic Automobile Receivables
Trust 96-C Class A2, 6.30%,
1/15/2000.................................. 98,360 98,641
200,000 Spieker Properties LP,
7.125%, 12/01/2006......................... 199,755 202,180
----------- -----------
TOTAL ASSET BACKED SECURITIES............... 3,299,887 3,336,817
----------- -----------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
Westwood Balanced Fund
Portfolio of Investments -- September 30, 1997 (continued)
================================================================================
<TABLE>
<CAPTION>
Principal Cost Value
--------- ---- -----
<S> <C> <C> <C>
CORPORATE OBLIGATIONS -- 11.6%
AUTOMOTIVE FINANCE -- 0.4%
$ 330,000 GMAC, 8.00%, 10/1/1999...................... $ 336,584 $ 341,137
----------- -----------
CAPITAL GOODS -- 0.4%
150,000 Lockheed Martin Corp., 6.625%,
6/15/1998.................................. 149,993 150,825
175,000 Lockheed Martin Corp., 6.85%,
5/15/2001.................................. 174,892 178,220
----------- -----------
324,885 329,045
----------- -----------
COMMUNICATIONS EQUIPMENT -- 0.3%
270,000 Lucent Technologies, 7.25%,
7/15/2006.................................. 269,474 282,420
----------- -----------
COMPUTER SOFTWARE -- 0.4%
300,000 Oracle Corp., 6.72%, 2/15/2004.............. 300,000 300,750
----------- -----------
ENERGY -- 0.4%
200,000 COHO Energy, Inc., 8.875%, 10/15/2007....... 198,488 199,000
100,000 Texaco Capital, 9.00%, 11/15/1997........... 100,317 100,381
----------- -----------
298,805 299,381
----------- -----------
ENTERTAINMENT -- 0.4%
325,000 Viacom, Inc., 8.75%, 5/15/2001.............. 333,525 332,719
----------- -----------
FINANCIAL SERVICES -- 2.6%
600,000 Chase Capital II, 6.219%, 2/01/2027......... 596,796 587,250
1,500,000 Green Tree Financial Corp.,
6.42%**, 5/15/2029......................... 1,499,297 1,501,335
----------- -----------
2,096,093 2,088,585
----------- -----------
HEALTH CARE -- 0.3%
240,000 Healthcare Property Investors,
Inc., 6.50%, 2/15/2006..................... 236,222 233,808
----------- -----------
INDUSTRIAL GOODS and SERVICES -- 1.2%
1,000,000 USA Waste Services, 7.00%, 10/01/2004...... 997,980 1,013,100
----------- -----------
INSURANCE -- 0.9%
640,000 CIGNA Corp., 8.25%, 1/01/2007............... 674,879 700,000
----------- -----------
RAW MATERIALS -- 0.1%
100,000 E.I. du Pont de Nemours and
Company, 9.15%, 4/15/2000.................. 105,193 107,100
----------- -----------
REAL ESTATE INVESTMENT TRUSTS (REITS) -- 2.7%
730,000 Crescent Real Estate Equities Co.,
6.625%, 9/15/2002.......................... 726,831 726,496
450,000 Kimco Realty, 7.46%, 5/29/2007.............. 450,000 468,000
200,000 Simon DeBartolo Group, Inc.,
6.75%, 7/15/2004........................... 199,169 200,080
325,000 Simon DeBartolo Group, Inc.,
6.875%, 11/15/2006......................... 323,970 324,594
475,000 Spieker Properties, 7.125%, 7/01/2009....... 472,817 475,475
----------- -----------
2,172,787 2,194,645
----------- -----------
Principal Cost Value
--------- ---- -----
RETAIL -- 1.2%
$1,000,000 Staples, 7.125%, 8/15/2007.................. $ 997,899 $ 1,003,750
----------- -----------
TRANSPORTATION -- 0.3%
200,000 Norfolk Southern, 6.95%, 5/01/2002.......... 199,715 204,250
----------- -----------
TOTAL CORPORATE OBLIGATIONS................. 9,344,041 9,430,690
----------- -----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 0.1%
130,000 Federal National Mortgage Association
95-W4 Class A3, 7.20%, 7/25/2025........... 130,751 130,910
----------- -----------
U.S. TREASURY OBLIGATIONS -- 24.0%
U.S. TREASURY BILLS -- 1.8%
1,500,000 Bills, 5.17%**, 11/28/1997.................. 1,487,976 1,487,895
----------- -----------
U.S. TREASURY NOTES -- 22.2%
455,000 Notes, 5.125%, 4/30/1998.................... 453,034 454,113
925,000 Notes, 6.25%, 6/30/1998..................... 926,948 929,560
500,000 Notes, 7.00%, 4/15/1999..................... 507,852 508,915
500,000 Notes, 6.375%, 4/30/1999.................... 501,090 504,470
900,000 Notes, 5.875%, 11/15/1999................... 898,711 900,540
1,500,000 Notes, 5.875%, 2/15/2000.................... 1,490,860 1,500,015
1,710,000 Notes, 6.375%, 5/15/2000.................... 1,712,197 1,730,144
785,000 Notes, 6.25%, 1/31/2002..................... 779,061 791,822
1,670,000 Notes, 6.25%, 2/28/2002..................... 1,667,088 1,684,779
3,915,000 Notes, 6.50%, 5/31/2002..................... 3,966,596 3,987,545
1,575,000 Notes, 6.25%, 6/30/2002..................... 1,581,209 1,589,254
200,000 Notes, 7.50%, 2/15/2005..................... 221,650 215,784
275,000 Notes, 6.50%, 8/15/2005..................... 285,544 280,734
695,000 Notes, 6.875%, 5/15/2006.................... 697,919 726,400
2,135,000 Notes, 7.00%, 7/15/2006..................... 2,224,085 2,250,717
----------- -----------
17,913,844 18,054,792
----------- -----------
TOTAL U.S. TREASURY OBLIGATIONS............. 19,401,820 19,542,687
----------- -----------
TOTAL INVESTMENTS-- 99.0%................... $69,932,746 $80,702,808
===========
Other Assets and Liabilities (Net)-- 1.0%... 775,236
-----------
NET ASSETS -- 100%.......................... $81,478,044
===========
</TABLE>
* Non-income producing security.
** Rate represents effective yield at date of purchase.
ADR -- American Depository Receipts.
See accompanying notes to financial statements.
10
<PAGE>
Westwood Intermediate Bond Fund
Portfolio of Investments -- September 30, 1997
================================================================================
<TABLE>
<CAPTION>
Principal Cost Value
--------- ---- -----
<S> <C> <C> <C>
ASSET BACKED SECURITIES -- 15.2%
$ 275,000 Contimortgage Home Equity Loan
Trust 97-3 A7, 7.28%, 5/15/2024............ $ 274,832 $ 280,032
47,278 EQCC Home Equity Loan Trust
93-3 Class A, 5.15%, 9/15/2008............. 47,251 46,049
100,000 Ford Motor Credit Auto Loan
Master Trust 95-1 Class A,
6.50%, 8/15/2002........................... 99,760 100,930
101,015 GMAC Grantor Trust 97-A Class A,
6.50%, 4/15/2002........................... 100,993 101,773
39,369 GMAC Grantor Trust 95-A Class A,
7.15%, 3/15/2000........................... 39,365 39,615
125,000 Green Tree Financial Corp. 96-3 ............
Class A2, 6.45%, 5/15/2027................. 125,000 125,862
200,000 GS Mortgage Securities Corp.
97-GL Class A2D, 6.94%, 7/13/2030.......... 202,971 204,420
---------- ----------
TOTAL ASSET BACKED SECURITIES............... 890,172 898,681
---------- ----------
CORPORATE OBLIGATIONS -- 42.5%
BROADCASTING -- 1.8%
100,000 Jacor Communications Co., 9.75%,
12/15/2006................................. 100,000 107,500
---------- ----------
CAPTIAL GOODS -- 4.3%
50,000 Lockheed Martin Corp., 6.625%, 6/15/1998.... 49,998 50,275
200,000 Lockheed Martin Corp., 6.85%, 5/15/2001..... 199,877 203,680
---------- ----------
249,875 253,955
---------- ----------
ENERGY -- 7.5%
50,000 COHO Energy, Inc., 8.875%, 10/15/2007....... 49,622 49,750
140,000 Global Marine, 12.75%, 12/15/1999........... 144,573 144,662
250,000 Transamerican Energy, 11.50%, 6/15/2002..... 250,000 249,687
---------- ----------
444,195 444,099
---------- ----------
FINANCIAL SERVICES -- 2.8%
100,000 Chase Capital II, 6.219%, 2/01/2027......... 99,427 97,875
65,000 DecisionOne Corp., 9.75%, 8/01/2007......... 65,000 67,925
---------- ----------
164,427 165,800
---------- ----------
HEALTH CARE -- 2.3%
140,000 Health Care Property Investors,
Inc., 6.50%, 2/15/2006..................... 139,074 136,388
---------- ----------
INDUSTRIAL GOODS and SERVICES -- 2.6%
150,000 USA Waste Services, 7.00%, 10/01/2004....... 149,696 151,965
---------- ----------
INSURANCE -- 5.5%
100,000 CIGNA Corp., 8.25%, 1/01/2007............... 105,450 109,375
200,000 Conseco Finance Trust III, Inc.,
8.796%, 4/01/2027.......................... 203,445 216,000
---------- ----------
308,895 325,375
---------- ----------
Principal/
Shares Cost Value
------ ---- -----
RAW MATERIALS -- 0.9%
$ 50,000 E.I. du Pont de Nemours and Co.,
9.15%, 4/15/2000........................... $ 52,596 $ 53,550
---------- ----------
REAL ESTATE INVESTMENT TRUSTS (REITS) -- 6.8%
100,000 Crescent Real Estate Equities Co.,
6.625%, 9/15/2002.......................... 99,566 99,520
225,000 Simon DeBartolo Group, Inc.,
6.75%, 7/15/2004........................... 224,065 225,090
75,000 Spieker Properties LP, 7.125%, 12/01/2006... 74,908 75,818
---------- ----------
398,539 400,428
---------- ----------
RETAIL -- 4.2%
250,000 Staples, Inc., 7.125%, 8/15/2007............ 249,475 250,937
---------- ----------
TELECOMMUNICATIONS -- 3.8%
150,000 Lucent Technologies, Inc., 7.25%,
7/15/2006.................................. 149,708 156,900
65,000 Rogers Communications, Inc.,
8.875%, 7/15/2007.......................... 64,890 65,569
---------- ----------
214,598 222,469
---------- ----------
TOTAL CORPORATE OBLIGATIONS................. 2,471,370 2,512,466
---------- ----------
PREFERRED STOCK -- 2.2%
4,000 Wbk Strypes Trust, 7.20%, 7/25/2025......... 125,400 128,500
---------- ----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 2.1%
125,000 Federal National Mortgage
Association (FNMA) 95-W4
Class A3, 7.20%, 7/25/2025................. 125,722 125,875
---------- ----------
U.S. TREASURY OBLIGATIONS -- 37.4%
U.S. TREASURY BILL -- 8.4%
500,000 Bills, 5.46%**, 11/28/1997.................. 495,770 495,965
---------- ----------
U.S. TREASURY BONDS -- 6.8%
100,000 Bonds, 8.75%, 5/15/2017..................... 114,211 125,060
130,000 Bonds, 7.625%, 2/15/2025.................... 142,534 148,863
125,000 Bonds, 6.75%, 8/15/2026..................... 125,856 129,622
---------- ----------
382,601 403,545
---------- ----------
U.S. TREASURY NOTES -- 22.2%
375,000 Notes, 5.125%, 4/30/1998.................... 373,327 374,269
200,000 Notes, 7.00%, 4/15/1999..................... 202,886 203,566
125,000 Notes, 7.75%, 11/30/1999.................... 126,468 129,719
600,000 Notes, 6.25%, 6/30/2002..................... 605,901 605,430
............................................ --------- ---------
1,308,582 1,312,984
---------- ----------
TOTAL U.S. TREASURY OBLIGATIONS............. 2,186,953 2,212,494
---------- ----------
TOTAL INVESTMENTS -- 99.4%.................. $5,799,617 $5,878,016
==========
Other Assets and Liabilities (Net) -- 0.6%.. 33,818
----------
NET ASSETS -- 100%.......................... $5,911,834
==========
</TABLE>
** Rate represents effective yield at date of purchase.
See accompanying notes to financial statements.
11
<PAGE>
Westwood Small Cap Equity Fund
Portfolio of Investments -- September 30, 1997
================================================================================
<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
---------- ----------
BIOTECHNOLOGY -- 1.0%
4,000 Monarch Dental Corp.*....................... 61,106 86,000
---------- ----------
BROADCASTING -- 1.5%
3700 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 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 Tools-- 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
---------- ----------
ELECTRONICS -- 5.4%
2,100 Ade Corp.*.................................. 73,928 84,263
4,800 Berg Electronics Corp.*..................... 157,116 258,000
3,200 TriQuint Semiconductor, Inc.*............... 106,425 116,600
---------- ----------
337,469 458,863
---------- ----------
ENERGY -- 7.6%
13,100 AGL Resources, Inc.......................... 262,743 248,081
1,900 Cliffs Drilling Co.*........................ 87,613 132,288
9,600 Newfield Exploration 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.*.......................... 118,706 171,563
---------- ----------
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 -- 7.9%
3,700 AMRESCO, Inc.*.............................. 70,147 137,363
5,200 Downey Financial Corp....................... 122,967 126,750
3,200 E*TRADE Group, Inc.*........................ 98,622 150,400
4,400 Golden State Bancorp*....................... 117,707 131,450
9,700 Long Beach Financial Corp.*................. 112,222 131,556
---------- ----------
521,665 677,519
---------- ----------
HEALTH CARE -- 2.5%
3,200 IDEC Pharmaceuticals Corp.*................. $ 70,353 $ 134,000
2,300 Sunrise Assisted Living, Inc.*.............. 88,924 83,087
---------- ----------
159,277 217,087
---------- ----------
Shares Cost Value
------ ---- -----
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
---------- ----------
MANUFACTURING -- 5.0%
4,200 Greenfield Industries, Inc.................. 110,035 120,750
2,700 Hardinge, Inc............................... 73,093 92,812
1,800 Kulicke & Soffa Inc.*....................... 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 (REITS) -- 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 Linens 'N Things, Inc.*..................... 88,123 120,600
3,700 Whole Foods Market, Inc.*................... 119,736 142,912
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
---------- ----------
TOTAL COMMON STOCKS -- 97.2%................ $6,946,099 $8,303,906
==========
Other Assets and Liabilities (Net) -- 2.8%.. 242,073
----------
NET ASSETS -- 100%.......................... $8,545,979
==========
</TABLE>
* Non-income producing security.
ADR -- American Depository Receipts.
See accompanying notes to financial statements.
12
<PAGE>
THE WESTWOOD FUNDS
Statement of Assets and Liabilities
September 30 1997
================================================================================
<TABLE>
<CAPTION>
Equity Balanced Intermediate SmallCap
Fund Fund Bond Fund Equity Fund
------ -------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities at value (cost
$111,522,351, $69,932,746, $5,799,617
and $6,946,099, respectively) ...................... $132,154,682 $80,702,808 $ 5,878,016 $8,303,906
Cash ................................................. 651,086 1,096,877 140,325 194,496
Receivable for investments sold ...................... 454,465 32,249 -- 183,888
Dividends and interest receivable .................... 345,602 518,439 88,374 3,444
Receivable for fund shares sold ...................... 703,648 467,545 3,000 28,280
Deferred organization costs .......................... -- -- -- 11,355
Prepaid expenses ..................................... 521 521 333 8,168
------------ ----------- ----------- ----------
Total Assets ..................................... 134,310,004 82,818,439 6,110,048 8,733,537
------------ ----------- ----------- ----------
LIABILITIES
Dividends payable .................................... -- -- 6,806 --
Payable for fund shares redeemed ..................... 115,056 -- -- --
Payable for securities purchased ..................... 1,712,771 1,077,204 175,022 164,696
Advisory fee payable ................................. 294,669 160,113 7,471 10,711
Distribution fee payable ............................. 49,514 35,329 2,486 4,019
Other accrued expenses ............................... 103,457 67,749 6,429 8,132
------------ ----------- ----------- ----------
Total Liabilities ................................ 2,275,467 1,340,395 198,214 187,558
------------ ----------- ----------- ----------
NET ASSETS ........................................... $132,034,537 $81,478,044 $ 5,911,834 $8,545,979
============ =========== =========== ==========
Net Assets Consist of:
Paid-in capital (at par) ............................. $ 13,794 $ 7,094 $ 575 $ 590
Additional paid-in capital ........................... 105,688,950 66,597,837 6,320,988 6,796,341
Accumulated undistributed net investment income ...... 683,192 46,195 51 47,186
Accumulated undistributed realized gain (loss)
on investments ..................................... 5,016,270 4,056,856 (488,179) 344,055
Unrealized appreciation on investments ............... 20,632,331 10,770,062 78,399 1,357,807
------------ ----------- ----------- ----------
Net Assets ........................................... $132,034,537 $81,478,044 $ 5,911,834 $8,545,979
============ =========== =========== ==========
SHARES OF BENEFICIAL INTEREST
Retail Class:
Shares of beneficial interest outstanding ($0.001 par) 13,445,123 5,833,362 574,529 590,203
============ =========== =========== ==========
Net Asset Value, offering and redemption price
per share .......................................... $ 9.57 $ 11.49 $ 10.29 $ 14.48
============ =========== =========== ==========
Service Class:
Shares of beneficial interest outstanding ($0.001 par) 348,798 1,260,223
============ ===========
Net Asset Value and redemption price per share ....... $ 9.57 $ 11.46
============ ===========
Maximum offering price per service class share
($9.57/.96 and $11.46/.96, respectively) ........... $ 9.97 $ 11.94
============ ===========
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
THE WESTWOOD FUNDS
Statement of Operations
For the year ended September 30, 1997
================================================================================
<TABLE>
<CAPTION>
Equity Balanced Intermediate SmallCap
Fund Fund Bond Fund Equity Fund(a)
------ -------- ----------- --------------
<S> <C> <C> <C> <C>
Investment Income:
Interest ............................ $ 401,009 $ 1,384,125 $ 356,967 $ --
Dividends (net of foreign withholding
tax of $5,108, $2,396, $0 and $0,
respectively) ...................... 1,423,476 771,707 67,700 84,563
------------ ------------ --------- -----------
1,824,485 2,155,832 424,667 84,563
------------ ------------ --------- -----------
Expenses:
Advisory fees ....................... 700,389 419,264 33,052 24,918
Distribution fees -- Retail class ... 169,561 107,852 13,772 6,229
Distribution fees -- Service class .. 11,072 63,805 -- --
Audit & legal fees .................. 59,462 48,203 5,257 3,722
Custodian fees ...................... 26,614 24,800 8,055 10,585
Organization expenses ............... -- -- -- 1,158
Shareholder service fees ............ 66,826 54,906 9,812 1,201
Registration fees ................... 59,329 31,809 13,664 11,076
Reports to shareholders ............. 10,276 9,372 1,311 138
Other expenses ...................... 15,318 34,262 8,675 2,281
------------ ------------ --------- -----------
Total Expenses .................... 1,118,847 794,273 93,598 61,308
Less:
Expense reimbursements ............ (38,601) (43,972) (32,389) (14,207)
Custodian fees .................... (26,614) (20,131) (6,138) (9,724)
------------ ------------ --------- -----------
Total Net Expenses .................. 1,053,632 730,170 55,071 37,377
------------ ------------ --------- -----------
Net Investment Income ................. 770,853 1,425,662 369,596 47,186
------------ ------------ --------- -----------
Net Realized/Unrealized Gains on
Investments:
Net realized gain on investment
transactions ....................... 5,123,310 4,225,571 107,861 344,055
Change in unrealized appreciation
of investments ..................... 17,743,737 8,428,586 116,971 1,357,807
------------ ------------ --------- -----------
Net realized/unrealized gain on
investments ........................ 22,867,047 12,654,157 224,832 1,701,862
------------ ------------ --------- -----------
Increase in net assets resulting
from operations ...................... $ 23,637,900 $ 14,079,819 $ 594,428 $ 1,749,048
============ ============ ========= ===========
</TABLE>
- ----------
(a) Period from April 15, 1997 (inception date of fund) to September 30, 1997.
See accompanying notes to financial statements
14
<PAGE>
THE WESTWOOD FUNDS
Westwood Equity Fund
Statement of Changes in Net Assets
================================================================================
For the For the
Year ended Year ended
September 30, September 30,
1997 1996
------------- ------------
Operations:
Net investment income ...................... $ 770,853 $ 245,203
Net realized gain on investment transactions 5,123,310 3,776,460
Net change in unrealized appreciation
on investments ............................ 17,743,737 732,252
------------- ------------
Net increase in net assets resulting
from operations ............................ 23,637,900 4,753,915
------------- ------------
Dividends to shareholders from net
investment income:
Retail Class ............................... (298,531) (136,789)
Service Class .............................. (10,884) --
------------- ------------
(309,415) (136,789)
------------- ------------
Distributions to shareholders from net
realized gain on investments:
Retail Class ............................... (3,698,285) (1,203,822)
Service Class .............................. (148,096) (4,738)
------------- ------------
(3,846,381) (1,208,560)
------------- ------------
Change in net assets from shareholder
distributions .............................. (4,155,796) (1,345,349)
------------- ------------
Capital Share Transactions:
Proceeds from sales of shares:
Retail Class ............................... 92,918,827 13,671,023
Service Class .............................. 1,867,426 1,193,888
------------- ------------
94,786,253 14,864,911
------------- ------------
Net asset value of shares issued
to shareholders upon reinvestment
of dividends and distributions:
Retail Class ............................... 3,960,522 1,328,732
Service Class .............................. 158,980 4,738
------------- ------------
4,119,502 1,333,470
------------- ------------
Net asset value of shares redeemed:
Retail Class ............................... (16,427,813) (3,924,009)
Service Class .............................. (488,462) (91,065)
------------- ------------
(16,916,275) (4,015,074)
------------- ------------
Net increase in net assets from
capital share transactions ................. 81,989,480 12,183,307
------------- ------------
Total increase in net assets ................ 101,471,584 15,591,873
Net Assets:
Beginning of period ........................ 30,562,953 14,971,080
------------- ------------
End of period (including undistributed
net investment income of $683,192 and
$199,066, respectively) ................... $ 132,034,537 $ 30,562,953
============= ============
See accompanying notes to financial statements
15
<PAGE>
THE WESTWOOD FUNDS
Westwood Balanced Funds
Statement of Changes in Net Assets
================================================================================
For the For the
Year ended Year ended
September 30, September 30,
1997 1996
------------- ------------
Operations:
Net investment income ...................... $ 1,425,662 $ 596,382
Net realized gain on investment transactions 4,225,571 2,402,768
Net change in unrealized appreciation
on investments ............................ 8,428,586 761,337
------------ ------------
Net increase in net assets resulting
from operations ............................ 14,079,819 3,760,487
------------ ------------
Dividends to shareholders from net
investment income:
Retail Class ............................... (1,102,900) (388,690)
Service Class .............................. (271,666) (207,865)
------------ ------------
(1,374,566) (596,555)
------------ ------------
Distributions to shareholders from net
realized gain on investments:
Retail Class ............................... (1,720,932) (136,634)
Service Class .............................. (687,890) (108,437)
------------ ------------
(2,408,822) (245,071)
------------ ------------
Change in net assets from shareholder
distributions .............................. (3,783,388) (841,626)
------------ ------------
Capital Share Transactions:
Proceeds from sales of shares:
Retail Class ............................... 42,596,591 16,778,536
Service Class .............................. 3,254,037 4,707,239
------------ ------------
45,850,628 21,485,775
------------ ------------
Net asset value of shares issued
to shareholders upon reinvestment
of dividends and distributions:
Retail Class ............................... 2,681,092 501,337
Service Class .............................. 857,303 276,240
------------ ------------
3,538,395 777,577
------------ ------------
Net asset value of shares redeemed:
Retail Class ............................... (9,471,412) (2,761,202)
Service Class .............................. (3,109,777) (2,171,662)
------------ ------------
(12,581,189) (4,932,864)
------------ ------------
Net increase in net assets from
capital share transactions ................. 36,807,834 17,330,488
------------ ------------
Total increase in net assets ................ 47,104,265 20,249,349
Net Assets:
Beginning of period ........................ 34,373,779 14,124,430
------------ ------------
End of period (including undistributed
net investment income of $46,195 and
$473, respectively) ....................... $ 81,478,044 $ 34,373,779
============ ============
See accompanying notes to financial statements
16
<PAGE>
THE WESTWOOD FUNDS
Statement of Changes in Net Assets
================================================================================
For the For the
Year ended Year ended
September 30, September 30,
Westwood Intermediate Bond Fund 1997 1996
------------ ------------
Operations:
Net investment income ....................... $ 369,596 $ 281,492
Net realized gain on investment
transactions ............................... 107,861 92,155
Net change in unrealized appreciation
(depreciation) on investments .............. 116,971 (143,346)
------------ -----------
Net increase in net assets resulting
from operations ............................. 594,428 230,301
------------ -----------
Dividends to shareholders from net
investment income (Retail Class): ........... (370,062) (281,492)
------------ -----------
Capital Share Transactions:
Proceeds from sales of shares
(Retail Class): ............................ 1,191,667 1,825,411
------------ -----------
Net asset value of shares issued to
shareholders upon reinvestment of
dividends and distributions (Retail Class): 258,261 184,446
------------ -----------
Net asset value of shares redeemed
(Retail Class): ............................ (1,258,153) (1,192,260)
------------ -----------
Net increase in net assets from capital
share transactions ......................... 191,775 817,597
------------ -----------
Total increase in net assets ................. 416,141 766,406
Net Assets:
Beginning of period ......................... 5,495,693 4,729,287
------------ -----------
End of period (including undistributed
net investment income of $51 and $466,
respectively) .............................. $ 5,911,834 $ 5,495,693
============ ===========
For the
Period ended
September 30,
Westwood SmallCap Equity Fund 1997 (a)
------------
Operations:
Net investment income ....................... $ 47,186
Net realized gain 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 (including undistributed
net investment income of $47,186) .......... $ 8,545,979
============
- ----------
(a) Period from April 15, 1997 (inception date of fund) to September 30, 1997.
See accompanying notes to financial statements
17
<PAGE>
THE WESTWOOD FUNDS
Notes to Financial Statements
================================================================================
Note 1 -- Description. The Westwood Funds (the "Trust") is registered
under the Investment Company Act of 1940, as amended, as an open-end diversified
management investment company and currently consists of six separate investment
portfolios: Westwood Equity Fund, Westwood SmallCap Equity Fund (commenced
operations April 15, 1997), Westwood Intermediate Bond Fund, Westwood Balanced
Fund (collectively, the "Funds"), Westwood Realty Fund and Westwood Cash
Management Fund, each, with the exception of the SmallCap Equity Fund and Realty
Fund, with two (2) classes of shares known as the Service Class and the Retail
Class (formerly the "Institutional Class"). 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. The Westwood
Realty Fund was launched on September 30, 1997 and had no operations other than
the sale of 10,000 shares of common stock at $10.00 per share to Gabelli Funds,
Inc. The Westwood Cash Management Fund has not commenced operations.
On July 27, 1994, Westwood Management Corp. entered into an agreement with
Gabelli Funds, Inc. to form a new limited liability company, Teton Advisers LLC
("Teton"). On October 6, 1994, Teton entered into a new investment advisory
agreement with The Westwood Funds ("Funds") and a sub-advisory agreement with
Westwood Management Corp. ("Westwood"). The terms of the sub-advisory agreement
with Westwood Management Corp. state that Westwood would continue to manage the
assets of the Funds. Teton became the investment adviser to the Funds and is
responsible for overseeing Westwood's activities. On November 7, 1997, the
members of Teton approved a change in name to Gabelli Advisers LLC.
Additionally, on November 18, 1997, the Board of Trustees approved a change in
name of The Westwood Funds to The Gabelli Westwood Funds to reflect the more
closely aligned relationship with the Gabelli family of funds.
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 Equity Fund and SmallCap Equity
Fund, and quarterly for the Balanced Fund. The Intermediate Bond Fund
declares dividends of such income daily and pays those dividends monthly.
Distributions of net realized 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
18
<PAGE>
THE WESTWOOD FUNDS
Notes to Financial Statements (continued)
================================================================================
income tax regulations which may differ with generally accepted accounting
principles. These "book/tax" differences are either temporary or permanent
in nature. To the extent these differences are permanent in nature, such
amounts are reclassified within the capital accounts based on their
tax-basis treatment; temporary differences do not require a
reclassification.
(d) Federal income taxes. It is the policy of each of the Funds to qualify
as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended. By so qualifying, the Funds will not be
subject to Federal income taxes to the extent that they distribute all of
their taxable income for the fiscal year.
(e) Organizational expenses. Costs incurred in connection with the
organization and initial registration of the Funds have been deferred and
are being amortized on a straight line basis over sixty months beginning
with each Fund's commencement of operations.
(f) Determination of net asset value and calculation of expenses. Expenses
directly attributable to a Fund are charged to that Fund. Other expenses
are allocated proportionately among each Fund within the Trust in relation
to the net assets of each Fund or on another reasonable basis. In
calculating net asset value per share of each class, investment income,
realized and unrealized gains and losses and expenses other than class
specific expenses, are allocated daily to each class of shares based upon
the proportion of net assets of each class at the beginning of each day.
Distribution expenses are solely borne by the Class incurring the expense.
(g) Repurchase Agreements. Repurchase agreements are considered to be
loans by a Fund under the 1940 Act. The Funds may acquire repurchase
agreements from domestic banks with total assets in excess of one billion
dollars or primary government securities dealers reporting to the Federal
Reserve Bank of New York, subject to the seller's agreement to repurchase
such securities at a mutually agreed-upon date and price. It is also
required that the repurchase agreement be at all times fully
collateralized in an amount at least equal to the repurchase price
including accrued interest earned on the underlying securities, and that
the underlying securities be marked to market every business day to assure
that the repurchase agreement remains fully collateralized. A Fund will
consider on an ongoing basis the creditworthiness of the institutions with
which it enters into repurchase agreements.
(h) 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 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% for both the Equity Fund and the SmallCap Equity Fund, .60% for the
Intermediate Bond Fund and .75% for the Balanced Fund of each Fund's daily
average net asset value. For the fiscal year ended September 30, 1997, the
adviser was entitled to fees of $700,389, $24,918, $33,052, $419,264 for the
Equity, SmallCap Equity, Intermediate Bond and Balanced Funds, respectively. For
the same period, the Adviser has voluntarily agreed to reimburse the Funds in
the event the Funds' annual expenses exceed certain prescribed limits. As of
September 30, 1997, the Adviser reimbursed expenses in the amount of $38,601,
$14,207, $32,389 and $43,972, respectively.
Gabelli & Company, an indirect subsidiary of Gabelli Funds, Inc. serves as
distributor of the Funds. On September 30, 1994 the Funds' shareholders approved
a Plan of Distribution (the "Plan") for the Retail Class of shares pursuant to
Rule 12b-1. The Plan authorizes payment by the Funds to reimburse 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
$169,561, $6,229, $13,772, $107,852 for the Retail
19
<PAGE>
THE WESTWOOD FUNDS
Notes to Financial Statements (continued)
================================================================================
Class of the Equity, SmallCap Equity, Intermediate Bond and Balanced Funds,
respectively. Under the Distribution Plan and Agreement (the "Plan") for the
Service Class, each Fund may reimburse Gabelli & Company on a monthly basis for
cost and expenses in connection with the distribution and marketing of Service
Class shares. This distribution expense is subject to a maximum limit of 0.35%
per annum of the average daily net assets of the Service Class of the
Intermediate Bond Fund and 0.50% per annum of the Service Class of the Equity
and Balanced Funds. The Funds, with respect to the Service Class, incurred
distribution costs and expenses of $11,072 in the Equity Fund and $63,805 in the
Balanced Fund, for the year ended September 30, 1997. There were no service
class shares outstanding during the year ended September 30, 1997 for the
Intermediate Bond Fund or 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:
Purchases Sales
--------- -----
SmallCap Equity Fund* .......... $13,341,813 $6,739,768
Intermediate Bond Fund ......... 31,478,062 31,475,651
Balanced Fund .................. 91,256,742 60,205,564
Equity Fund .................... 118,565,380 42,453,207
* For the period from April 15, 1997 (commencement of operations)
through September 30, 1997.
(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
Intermediate Bond Fund................. 85,513 (7,114) 78,399
Balanced Fund.......................... 10,996,098 (140,767) 10,885,331
Equity Fund............................ 21,144,040 (426,333) 20,717,707
</TABLE>
20
<PAGE>
THE WESTWOOD FUNDS
Notes to Financial Statements (continued)
================================================================================
Note 5 -- Capital Share Transactions. Transactions in shares of common stock
were as follows:
<TABLE>
<CAPTION>
Equity Fund Balanced Fund Intermediate Bond Fund SmallCap Equity
----------- ------------- ---------------------- ---------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Period Ended
September 30, September 30, September 30, September 30, September 30, September 30, September 30,
SHARE TRANSACTIONS 1997 1996 1997 1996 1997 1996 1997(a)
- ------------------ ----------- ---------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Retail Class
Issued ................. 11,047,947 1,899,542 4,088,896 1,807,225 117,171 184,406 882,585
Reinvested ............. 531,614 204,420 269,893 54,134 25,519 18,608 --
Redeemed ............... (1,955,697) (542,403) (910,694) (292,132) (124,506) (120,336) (292,382)
----------- ---------- ---------- ---------- -------- -------- --------
Change in Retail shares 9,623,864 1,561,559 3,448,095 1,569,227 18,184 82,678 590,203
=========== ========== ========== ========== ======== ======== ========
Service Class
Issued.................. 222.950 160,373 312,801 509,146
Reinvested.............. 21,311 726 85,955 30,203
Redeemed................ (54,301) (12,695) (296,196) (235,513)
----------- ---------- ---------- ----------
Change in Service shares 189,960 148,404 102,560 303,836
=========== ========== ========== ==========
</TABLE>
(a) Period from April 15, 1997 (inception date of fund) to September 30, 1997.
Note 6 -- Federal Income Information. At September 30, 1997 the Intermediate
Bond Fund had a capital loss carryforward of $478,655 which will be available
through September 2003 to offset future capital gains as provided by Federal
Income Tax regulations. To the extent that this carryforward loss is used to
offset future capital gains, the gains so offset would not be distributed to
shareholders.
Under current tax law, capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the following fiscal year.
The Intermediate Bond Fund incurred losses of $9,524 after October 31, 1996.
Such losses will be treated, for tax purposes, as arising on October 1, 1997.
As of September 30, 1997, the following reclassifications have been made
to increase (decrease) such accounts with offsetting adjustments made to
additional paid-in-capital:
Accumulated Accumulated
Undistributed Net Realized Gain (Loss)
Investment Income (Loss) on Investments
Intermediate Bond Fund..... $ 51 $ (51)
Balanced Fund.............. (5,373) (3,443)
Equity Fund................ 22,688 (32,815)
21
<PAGE>
THE WESTWOOD FUNDS
Selected Per Share Data and Ratios
For a share outstanding throughout each period
================================================================================
<TABLE>
<CAPTION>
Year Ended September 30,
------------------ ----------------- ----------------- ---------------- ------
1997 1996 1995 1994 1993
------------------ ----------------- ----------------- ---------------- ------
Retail Service Retail Service Retail Service Retail Service Retail
Equity Fund Class Class Class Class Class Class Class Class+ Class
-------- ------- ------- ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ..... $ 7.68 $ 7.69 $ 6.59 $ 6.57 $ 5.50 $ 5.48 $ 9.91 $ 5.53 $14.19
-------- ------- ------- ------- ------- ------ ------ ------ ------
Income from Investment Operations:
Net investment income ................... 0.07 0.06 0.08 0.06 0.04 0.04 0.10 0.06 0.05
Net realized and unrealized gain on
investment transactions ................ 2.72 2.71 1.59 1.58 1.31 1.29 0.64 (0.11) 2.12
-------- ------- ------- ------- ------- ------ ------ ------ ------
Total Income from Investment Operations 2.79 2.77 1.67 1.64 1.35 1.33 0.74 (0.05) 2.17
-------- ------- ------- ------- ------- ------ ------ ------ ------
Less Distributions:
Dividends from net investment income ... (0.07) (0.06) (0.06) -- (0.06) (0.04) (0.07) -- (0.55)
Distributions from net realized
capital gains ......................... (0.83) (0.83) (0.52) (0.52) (0.20) (0.20) (5.08) -- (5.90)
-------- ------- ------- ------- ------- ------ ------ ------ ------
Total Dividends and Distributions
Distributions ......................... (0.90) (0.89) (0.58) (0.52) (0.26) (0.24) (5.15) -- (6.45)
-------- ------- ------- ------- ------- ------ ------ ------ ------
Net Asset Value, End of Period ........... $ 9.57 $ 9.57 $ 7.68 $ 7.69 $ 6.59 $ 6.57 $ 5.50 $ 5.48 $ 9.91
======== ======= ======= ======= ======= ====== ====== ====== ======
Total Return (excludes sales charge) ..... 39.61% 39.31% 26.88% 26.33% 25.85% 25.54% 9.14% (0.90)% 20.16%
Net Assets End of Period (in thousands) .. $128,697 $ 3,338 $29,342 $ 1,221 $14,903 $ 68 $8,637 $ 254 $5,172
Ratios to Average Net Assets of:
Net Investment Income ................... 1.11% 0.85% 1.16% 0.92% 0.77% 0.64% 1.63% 1.64%++ 0.40%
Expenses net of waivers/reimbursements(a) 1.53% 1.78% 1.50% 1.74% 1.61% 1.85% 0.71% 1.04%++ 1.95%
Expenses before waivers/reimbursements(c) 1.59% 1.84% 1.95% 2.19% 2.29% 2.63% 1.94% 2.29%++ 2.32%
Portfolio Turnover Rate ................. 61% 61% 106% 106% 107% 107% 137% 137% 102%
Average Commission Rate (per share of
security)** ............................. $ 0.0572 $0.0572 $0.0540 $0.0540 -- -- -- -- --
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------------------
1997 1996 1995 1994
------- ------- ------- ------- ------ ------ ------ -------
Retail Service Retail Service Retail Service Retail Service
Balanced Fund Class Class Class Class Class Class Class Class
------- ------- ------- ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ............ $ 9.71 $ 9.69 $ 8.47 $ 8.45 $ 7.12 7.10 $10.89 $ 10.88
------- ------- ------- ------- ------ ------ ------ -------
Income from Investment Operations:
Net investment income .......................... 0.25 0.24 0.22 0.20 0.19 0.17 0.12 0.15
Net realized and unrealized gain
on investment transactions .................... 2.36 2.33 1.37 1.37 1.35 1.35 0.42 0.36
------- ------- ------- ------- ------ ------ ------ -------
Total Income from Investment Operations ........ 2.61 2.57 1.59 1.57 1.54 1.52 0.54 0.51
------- ------- ------- ------- ------ ------ ------ -------
Less Distributions:
Dividends from net investment income ........... (0.25) (0.22) (0.22) (0.20) (0.19) (0.17) (0.13) (0.11)
Distributions from net realized capital gains .. (0.58) (0.58) (0.13) (0.13) -- -- (4.18) (4.18)
------- ------- ------- ------- ------ ------ ------ -------
Total Dividends and Distributions .............. (0.83) (0.80) (0.35) (0.33) (0.19) (0.17) (4.31) (4.29)
------- ------- ------- ------- ------ ------ ------ -------
Net Asset Value, End of Period .................. $ 11.49 $ 11.46 $ 9.71 $ 9.69 $ 8.47 $ 8.45 $ 7.12 $ 7.10
======= ======= ======= ======= ====== ====== ====== =======
Total Return (not reflecting sales load) ........ 28.32% 27.98% 19.11% 18.85% 21.98% 21.67% 5.30% 4.67%
Net Assets End of Period (in thousands) ......... $67,034 $14,444 $23,158 $11,216 $6,912 $7,212 $3,081 $10,810
Ratios to Average Net Assets of:
Net Investment Income .......................... 2.60% 2.37% 2.62% 2.34% 2.47% 2.26% 1.55% 2.15%
Expenses net of waivers/reimbursements(b) ...... 1.28% 1.53% 1.32% 1.57% 1.35% 1.62% 1.68% 1.17%
Expenses before waivers/reimbursements(c) ...... 1.36% 1.61% 1.71% 1.96% 1.86% 2.24% 2.36% 2.11%
Portfolio Turnover Rate ........................ 110% 110% 111% 111% 133% 133% 168% 168%
Average Commission Rate (per share of security)** $0.0593 $0.0593 $0.0550 $0.0550 -- -- -- --
==============================================================================================================================
</TABLE>
-----------------
1993
------ ------
Balanced Fund Retail Service
Class Class+
------ ------
Net Asset Value, Beginning of Period ............
$10.45 $10.24
Income from Investment Operations: ------ ------
Net investment income ..........................
Net realized and unrealized gain 0.20 0.19
on investment transactions ....................
1.44 0.52
Total Income from Investment Operations ........ ------ ------
1.64 0.71
Less Distributions: ------ ------
Dividends from net investment income ...........
Distributions from net realized capital gains .. (0.24) (0.07)
(0.96) --
Total Dividends and Distributions .............. ------ ------
(1.20) (0.07)
Net Asset Value, End of Period .................. ------ ------
$10.89 $10.88
Total Return (not reflecting sales load) ........ ====== ======
Net Assets End of Period (in thousands) ......... 17.60% 6.96%
Ratios to Average Net Assets of: $1,583 $ 114
Net Investment Income ..........................
Expenses net of waivers/reimbursements(b) ...... 1.90% 1.76%++
Expenses before waivers/reimbursements(c) ...... 1.82% 2.07%++
Portfolio Turnover Rate ........................ 2.97% 3.14%++
192% 192%
Average Commission Rate (per share of security)**
-- --
=======================================================================
- ----------
(a) The ratios do not include a reduction of expenses for custodian fee
credits on cash balances maintained with the custodian. Including such
custodian fee credits, the expense ratios would be 1.50% (retail class)
and 1.75% (service class).
(b) 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 ratios would be 1.25% (retail class)
and 1.50% (service class).
(c) During the period, certain fees were voluntarily reduced and/or
reimbursed. If such fees reductions and/or reimbursements had not
occurred, the ratios would have been as shown.
** For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate paid per share for
security trades on which commissions are charged. The amount may vary from
period to period and fund to fund depending on the mix of trades executed
in various markets where trading practices and commission rate structures
may differ.
+ Prior to April 6, 1993, no shares of the service Class were issued.
++ Annualized.
See accompanying notes to financial statements.
22
<PAGE>
THE WESTWOOD FUNDS
Selected Per Share Data and Ratios (continued)
For a share outstanding throughout each period
================================================================================
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
------- -------- ----------------- ----------------- ------
Retail Service Retail Service Retail
Intermediate Bond Fund Retail Class Class Class(d) Class Class+ Class
----------------- ------ -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................ $ 9.88 $ 9.98 $ 9.48 $ 9.48 $10.73 $10.51 $10.65
------ ------ ------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income ..................................... 0.68 0.51 0.52 0.05 0.48 0.41 0.39
Net realized and unrealized gain on investment transactions 0.41 (0.10) 0.50 (0.14) (1.04) (1.03) 0.62
------ ------ ------ ------ ------ ------ ------
Total Income from Investment Operations ................... 1.09 0.41 1.02 (0.09) (0.56) (0.62) 1.01
------ ------ ------ ------ ------ ------ ------
Less Distributions:
Dividends from net investment income ...................... (0.68) (0.51) (0.52) (0.05) (0.48) (0.41) (0.39)
Distributions from net realized capital gains ............. -- -- -- -- (0.21) -- (0.54)
------ ------ ------ ------ ------ ------ ------
Total Distributions and Distributions ..................... (0.68) (0.51) (0.52) (0.05) (0.69) (0.41) (0.93)
------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Period .............................. $10.29 $ 9.88 $ 9.98 $ 9.34 $ 9.48 $ 9.48 $10.73
====== ====== ====== ====== ====== ====== ======
Total Return (excludes sales charge) ........................ 11.36% 4.50% 11.13% (0.95) (5.46)% (6.81)% 10.24%
Net Assets End of Period (in thousands) ..................... $5,912 $5,496 $4,729 $ 0 $7,339 $ 76 $2,849
Ratios to Average Net Assets of:
Net Investment Income ..................................... 6.71% 5.43% 5.38% 4.85% 4.86% 6.05%++ 3.74%
Expenses net of waivers/reimbursements(c) ................. 1.11% 1.09% 1.17% 1.45% 0.92% 1.34%++ 2.40%
Expenses before waivers/reimbursements(e) ................. 1.70% 2.46% 2.47% 4.07% 1.75% 2.37%++ 3.46%
Portfolio Turnover Rate ................................... 628% 309% 165% 70% 203% 203% 222%
</TABLE>
================================================================================
1997(a)
-----------
Retail
SmallCap Equity Fund Class
-----------
Net Asset Value, Beginning of Period .......... $ 10.00
-----------
Income from Investment Operations:
Net investment income ....................... 0.08
Net realized and unrealized gain on
investment transactions ..................... 4.40
-----------
Total Income from Investment Operations ..... 4.48
-----------
Net Asset Value, End of Period ................ $ 14.48
===========
Total Return .................................. 44.80%
Net Assets End of Period (in thousands) ....... $ 8,546
Ratios to Average Net Assets of:
Net Investment Income ....................... 1.89%++
Expenses net of waivers/reimbursements(b) ... 1.89%++
Expenses before waivers/reimbursements(e) ... 2.45%++
Portfolio Turnover Rate ..................... 146%
Average Commission Rate (per share of security) $ 0.0358
================================================================================
- ----------
(a) Period from April 15, 1997 (inception date of fund)to September 30, 1997.
(b) 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).
(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 1.00%.
(d) On November 8, 1994, all shares of the Service Class were redeemed and
there have been no further shares issued in this class since that date.
Accordingly, the NAV per share represents the net asset value on November
8, 1994.
(e) 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.
+ Prior to January 28, 1994 no shares of the service Class were issued.
++ Annualized.
See accompanying notes to financial statements.
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
The Westwood Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the selected per share data and ratios present fairly,
in all material respects, the financial position of Westwood Equity Fund,
Westwood Intermediate Bond Fund, Westwood SmallCap Equity Fund and Westwood
Balanced Fund (constituting The Westwood Funds, hereafter referred to as the
"Fund") at September 30, 1997, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period then ended, except for Westwood SmallCap Equity Fund which
is for the period April 15, 1997 (commencement of operations) through September
30, 1997, and the selected per share data and ratios for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and selected per share data and ratios (hereafter referred
to as "financial statements") are the responsibility of the Fund's managment;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
September 30, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November 7, 1997
24
<PAGE>
THE WESTWOOD FUNDS
1997 Tax Notice to Shareholders (unaudited)
================================================================================
U.S. Government Income:
The percentage of the ordinary income dividend paid by the Westwood Equity Fund,
Westwood Balanced Fund, Westwood Intermediate Bond Fund and Westwood SmallCap
Equity Fund (collectively, the "Funds") during fiscal 1997 which was derived
from U.S. Treasury securities was 20.8%, 40.2%, 32.1% and 0%, respectively. Such
income is exempt from state and local income tax in all states. However, many
states, including New York and California, allow a tax exemption for a portion
of the income earned only if a mutual fund has invested at least 50% of its
assets at the end of each quarter of the Fund's fiscal year in U.S. Government
securities. The Funds did not meet this strict requirement in 1997. Due to the
diversity in state and local tax law, it is recommended that you consult your
personal tax advisor for the applicability of the information provided as to
your specific situation.
Westwood Equity Fund
23.1% of the income distributed qualifies for the Corporate Dividends Received
Deduction. The $0.49 distribution of long term capital gains paid on December
20, 1996 was designated by the Trustees as a capital gain distribution.
Westwood Balanced Fund
19.1% of the income distributed qualifies for the Corporate Dividends Received
Deduction. The $0.322 distribution of long term capital gains paid on December
20, 1996 was designated by the Trustees as a capital gain distribution.
Westwood Intermediate Bond Fund
None of the income distributed qualifies for the Corporate Dividends Received
Deduction.
25
<PAGE>
[This page intentionally left blank]
26
<PAGE>
The Gabelli Westwood Funds
==========================
EQUITY FUND
BALANCED FUND
INTERMEDIATE BOND FUND
SMALLCAP EQUITY FUND
(unaudited)
Gabelli Westwood Funds -- Retail Class Shares
---------------------------------------------
Average Annual Returns -- September 30, 1997 (a)
Calendar
--------
Third Quarter 1 yr 5 yr Life of Fund Inception Date
------------- ---- ---- ------------ --------------
Equity ............. 9.0% 39.6% 23.9% 16.1% 1/02/87
Balanced ........... 6.9 28.3 18.1 16.3 10/01/91
Intermediate Bond .. 3.7 11.4 6.1 7.1 10/01/91
SmallCap Equity .... 18.1 -- -- N/A 4/15/97
Gabelli Westwood Funds -- Service Class Shares
----------------------------------------------
Average Annual Returns -- September 30, 1997 (a)(b)
1 yr 3 yr Life of Fund Inception Date
---- ---- ------------ --------------
Equity ....... 33.7% 28.5% 22.4% 1/28/94
Balanced ..... 22.9 21.1 16.6 4/06/93
(a) Average annual and total returns reflect changes in share price and
reinvestment of dividends and are net of expenses. The net asset value of
the Fund is reduced on the ex-dividend (payment) date by the amount of the
dividend paid. Of course, returns represent past performance and do not
guarantee future results. Investment returns and the principal value of an
investment will fluctuate. When shares are redeemed they may be worth more
or less than their original cost.
(b) Includes the effect of the maximum 4.0% sales charge at the beginning of
the period.
27
<PAGE>
The Gabelli Westwood Funds
==========================
One Corporate Center
Rye, NY 10580
General and Account Information:
1-800 GABELLI (422-3554)
Fax: 1-914-921-5118
http://www.gabelli.com
email: [email protected]
[email protected]
Board of Trustees
SUSAN M. BYRNE
President and
Chief Investment Officer
KARL OTTO POHL
Former President
Deutsche Bundesbank
ANTHONY J. COLAVITA
Attorney-at-Law
Anthony J. Colavita, P.C.
JAMES P. CONN
Managing Director and
Chief Investment Officer
Financial Security Assurance
DR. WERNER J. ROEDER
Director of Surgery
Lawrence Hospital
Officers
SUSAN M. BYRNE
President and
Chief Investment Officer
BRUCE N. ALPERT
Vice President and
Treasurer
JAMES E. McKEE
Secretary
LYNDA J. CALKIN, CFA
Vice President
PATRICIA R. FRAZE
Vice President
DOUGLAS LEHMAN
Vice President
Investment Adviser
Gabelli Advisers LLC
Investment Sub-Adviser
Westwood Management Corporation
Distributor
Gabelli & Company, Inc.
Custodian
The Bank of New York
Legal Counsel
Battle Fowler LLP
Independent Accountants
Price Waterhouse LLP
- --------------------------------------------------------------------------------
This report is for the information of the shareholders of The Gabelli Westwood
Funds. It is not authorized for distribution to prospective investors unless
preceded or accompanied by an effective prospectus.
- --------------------------------------------------------------------------------
The
Gabelli
Westwood
Funds
Equity Fund *****
Balanced Fund *****
SmallCap Equity Fund
Realty Fund
Intermediate Bond Fund
ANNUAL REPORT
SEPTEMBER 30, 1997
***** As of October 31, 1997
