<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 30, 1998
REGISTRATION NOS. 33-6790 AND 811-4719
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 20
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 20
(CHECK APPROPRIATE BOX OR BOXES)
--------------------
THE GABELLI WESTWOOD FUNDS
(FORMERLY THE WESTWOOD FUNDS)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
ONE CORPORATE CENTER
RYE, NEW YORK 10580
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 921-5100
BRUCE N. ALPERT
GABELLI ADVISERS, INC.
ONE CORPORATE CENTER
RYE, NEW YORK 10580
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
MICHAEL R. ROSELLA, ESQ.
BATTLE FOWLER LLP
75 EAST 55TH STREET
NEW YORK, NEW YORK 10022
--------------------
It is proposed that this filing will be effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ X ] on December 21, 1998 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on (date) pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a) (2) of Rule 485.
<PAGE> 2
CROSS-REFERENCE SHEET
(AS REQUIRED BY RULE 495(A)
UNDER THE SECURITIES ACT OF 1933)
<TABLE>
<CAPTION>
NIA
ITEM NO LOCATION
- ------- --------
<S> <C> <C>
PART A PROSPECTUS CAPTION
Item 1. Cover Page Cover Page
Item 2. Synopsis Fee Table
Item 3. Condensed Financial Information Condensed Financial Information
Item 4. General Description of Registrant Cover Page; Description of the Funds and Risk
Considerations; General Information
Item 5. Management of the Fund Management of the Funds
Item 5(a) Management's Discussion of Performance Not Applicable
Item 6. Capital Stock and Other Securities Cover Page; How to Buy Fund Shares; Dividends,
Distributions and Taxes; General Information
Item 7. Purchase of Securities Being Offered How to Buy Fund Shares
Item 8. Redemption or Repurchase How to Redeem Fund Shares
Item 9. Legal Proceedings Not Applicable
PART B STATEMENT OF ADDITIONAL INFORMATION CAPTION
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information and History
Item 13. Investment Objectives and Policies Investment Objectives and Management Policies;
Appendix
Item 14. Management of the Fund Management of the Fund
Item 15. Control Persons and Principal Holders of Management of the Fund
Securities
Item 16. Investment Advisory and Other Services Investment Advisory and Other Services
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Securities Information About the Funds
Item 19. Purchase, Redemption and Pricing of Purchase of Fund Shares; Redemption of Fund
Securities Being Offered Shares; Shareholder Services; Determination of
Net Asset Value
Item 20. Tax Status and Taxes Dividends, Distributions and Taxes
Item 21. Underwriters Investment Advisory and Other Services --
Distribution of Fund Shares
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
</TABLE>
<PAGE> 3
THE GABELLI WESTWOOD FUNDS
================================================================================
One Corporate Center
Rye, New York 10580-1434
Telephone: 1-800-GABELLI (1-800-422-3554)
http://www/gabelli.com/westwood
RETAIL CLASS PROSPECTUS -- DECEMBER 21, 1998
The Gabelli Westwood Funds (the "Trust") is an open-end, diversified,
management investment company, known as a mutual fund. This prospectus contains
information about the following six separate investment portfolios
(collectively, the "Funds"):
GABELLI WESTWOOD EQUITY FUND (the "Equity Fund") seeks as its primary
goal to provide investors with capital appreciation; income is a secondary, but
nonetheless an important goal.
GABELLI WESTWOOD BALANCED FUND (the "Balanced Fund") seeks to realize
both capital appreciation and current income resulting in a high total
investment return consistent with prudent investment risk and a balanced
investment approach.
GABELLI WESTWOOD SMALLCAP EQUITY FUND (the "SmallCap Fund") seeks to
provide investors with long-term capital appreciation by investing primarily in
smaller capitalization equity securities.
GABELLI WESTWOOD MIGHTY MITES(SM) FUND (the "Mighty Mites Fund") seeks
to provide investors with long-term capital appreciation by investing primarily
in micro capitalization equity securities.
GABELLI WESTWOOD REALTY FUND (the "Realty Fund") seeks to provide
investors with long-term capital appreciation as well as current income through
investments primarily in a portfolio of publicly traded securities of domestic
issuers that are primarily engaged in or related to the real estate industry.
GABELLI WESTWOOD INTERMEDIATE BOND FUND (the "Intermediate Bond Fund")
seeks to maximize total return, while maintaining a level of current income
consistent with the maintenance of principal and liquidity.
The Funds offer two classes of shares, with the exception of the Realty
Fund, Mighty Mites Fund and the SmallCap Fund that offer only Retail Class
shares. This Prospectus provides information about "Retail Class" shares. Retail
Class shares are offered exclusively to investors who have not purchased their
shares through an entity that has signed a Dealer Agreement with Gabelli &
Company, Inc. (the "Distributor") to offer Service Class Shares, with the
exception of certain dealer-sold retirement plans and other special programs.
Each Fund has a separate investment objective, as set forth below. The net asset
value per share of each of these Funds will fluctuate and there is no assurance
that any of these investment objectives will be achieved.
The Statement of Additional Information ("Additional Statement"), dated
December 21, 1998, which may be revised from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission (the "SEC") and is available for reference, along with other
materials on the SEC Internet Web Site (http://www.sec.gov) and is incorporated
herein by reference. For a free copy, write or call The Gabelli Westwood Funds
at the address or telephone number shown above.
<PAGE> 4
Shares of the Funds are not deposits or obligations of any bank, and
are not endorsed or guaranteed by any bank, and are not insured or guaranteed by
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency. An investment in the Funds involves investment risks, including
the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE> 5
Gabelli Advisers, Inc. (formerly Teton Advisers LLC) (the "Adviser"), a
Delaware corporation organized by Gabelli Funds, Inc. ("Gabelli") and Westwood
Management Corporation ("Westwood"), is adviser to the Funds pursuant to an
investment advisory agreement with the Trust (the "Investment Advisory
Agreement"). The Adviser has entered into a sub-advisory agreement with Westwood
and the Trust whereby Westwood (the "Sub-Adviser") serves as sub-adviser to the
Funds (the "Sub-Advisory Agreement") with the exception of the Mighty Mites Fund
for which the Adviser is responsible for the management of such Fund's
portfolio. Prior to serving as Sub-Adviser, Westwood acted as adviser to the
Equity, Balanced and Intermediate Bond Funds from their inception through
October 6, 1994. The Adviser oversees the administration of each Fund's business
and affairs and in this connection is responsible for maintaining certain of the
Funds' books and records and providing other administrative services. (See
"Management of the Funds"). On November 18, 1997, the Trustees approved the
change in name to The Gabelli Westwood Funds.
FEE TABLE -- RETAIL CLASS
Each Fund is authorized to issue two separate classes of shares.
Service Class shares will be offered exclusively to investors who have purchased
their shares through an entity that has signed a Dealer Agreement with the
Distributor to offer such shares. Retail Class shares will be offered to all
other investors, including certain retirement plans or other special programs
offered through broker-dealers. Retail Class shares and Service Class shares are
identical in all respects, except that Service Class shares bear a sales load
and higher expenses incurred in the distribution and marketing of such shares
("12b-1 Fees"). Retail Class shares bear no sales load and lower 12b-1 Fees. The
table below sets forth certain information regarding annual operating expenses
incurred by the Retail Class for the fiscal year ended September 30, 1998.
<TABLE>
<CAPTION>
Equity Balanced SmallCap Mighty Realty Intermediate
Fund Fund Fund Mites(SM) Fund Fund Bond Fund
---- ---- ----- --------------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases None None None None None None
Annual Fund Operating Expenses:
Management Fees 1.00% 0.75% 1.00% 0.00%** 1.00% 0.60%
12b-1 Fees* 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses (After Expense
Reimbursements)** .24% .20% .47% .75% .45% .23%
Total Fund Operating Expenses (After
Expense Reimbursements)** 1.49% 1.20% 1.72% 1.00% 1.70% 1.08%
</TABLE>
- ---------------
* Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by the rules of the National
Association of Securities Dealers.
3
<PAGE> 6
** The Adviser has agreed to voluntarily waive its investment advisory
fees and reimburse the Funds (except the Equity Fund and the Balanced
Fund) to the extent necessary to maintain the Total Fund Operating
Expenses at the level set forth in the table above. Prior to any
expense reimbursements, "Other Expenses" for the SmallCap,
Intermediate Bond, Realty and Mighty Mites Funds would have been
0.86%, 1.23%, 2.70% and 3.25%, respectively and "Total Fund Operating
Expenses" would have been 2.11%, 2.08%, 3.95% and 4.50%, respectively.
Example:
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Fund $15 $47 $81 $178
Balanced Fund $12 $38 $66 $145
SmallCap Fund $17 $54 $93 $203
Mighty Mites Fund $10 $32 - -
Realty Fund $17 $54 $92 $201
Intermediate Bond Fund $11 $34 $60 $132
</TABLE>
The amounts listed in the example should not be considered as
representative of past or future expenses and actual expenses may be greater or
less than those indicated. The expense ratios used above are after expense
reimbursements and based on results of the fiscal year ended September 30.
Moreover, while the example assumes a 5% annual return, a Fund's actual
performance will vary and may result in an actual return greater or less than
5%. The purpose of the foregoing table is to assist you in understanding the
various costs and expenses that investors will bear, directly or indirectly, the
payment of which will reduce investors' return on an annual basis. (See
"Management of the Funds").
Management's Discussion and Analysis of the Funds' performance
during the fiscal year ended September 30, 1998 is included in the Funds' Annual
Report to Shareholders dated September 30, 1998. The Funds' Annual Report to
Shareholders may be obtained upon request and without charge by writing or
calling the Fund at the address or telephone number listed on the Prospectus
cover.
4
<PAGE> 7
5
<PAGE> 8
6
<PAGE> 9
7
<PAGE> 10
FINANCIAL HIGHLIGHTS
The following information for each of the five most recent years or
periods through September 30, 1998 has been audited by PricewaterhouseCoopers
LLP, the Funds' independent accountants, whose report on the Financial
Statements appears in the Fund's Additional Statement dated December 21, 1998.
The Additional Statement is available, without charge, upon request.
Selected data for a share of
beneficial interest outstanding throughout each year:
EQUITY FUND -- RETAIL CLASS
YEAR ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net Asset Value, $9.57 $7.68 $6.59 $5.50 $9.91 $14.19 $14.23 $12.62 $15.11 $12.02
Beginning of Period
Net investment income 0.06 0.07 0.08 0.04 0.10 0.05 0.27 0.46 0.53 0.61
Net realized and
unrealized gain (loss) (0.21) 2.72 1.59 1.31 0.64 2.12 0.34 1.92 (2.04) 2.89
on investments
Total from Investment (0.15) 2.79 1.67 1.35 0.74 2.17 0.61 2.38 (1.51) 3.50
Operations
DISTRIBUTIONS TO
SHAREHOLDERS: (0.06) (0.07) (0.06) (0.06) (0.07) (0.55) (0.51) (0.61) (0.56) (0.41)
Net investment income
Net realized gain on (0.37) (0.83) (0.52) (0.20) (5.08) (5.90) (0.14) (0.16) (0.42) -----
investments
Total Distributions (0.43) (0.90) (0.58) (0.26) (5.15) (6.45) (0.65) (0.77) (0.98) (0.41)
NET ASSET VALUE, END OF $8.99 $9.57 $7.68 $6.59 $5.50 $9.91 $14.19 $14.23 $12.62 $15.11
PERIOD
Total Return (a) (1.4%) 39.61% 26.88% 25.85% 9.14% 20.16% 4.16% 19.61% (10.59%) (30.08%)
RATIOS TO AVERAGE NET
ASSETS AND SUPPLEMENTAL
DATA:
Net Assets End of Period $175,391 $128,697 $29,342 $14,903 $8,637 $5,172 $13,161 $52,884 $51,754 $57,763
(in thousands 000's)
Ratio of net investment
income to average net 0.73% 1.11% 1.16% 0.77% 1.63% 0.40% 1.85% 3.06% 3.74% 4.57%
assets
Expenses net of waivers/ 1.47% 1.53% 1.50% 1.61% 0.71% 1.95% 1.40% 1.29% 1.26% 1.27%
reimbursements(b)
Expenses before waivers/ 1.47% 1.59%(c) 1.95%(c) 2.29%(c) 1.94%(c) 2.32% 1.54% 1.29% 1.26% 1.27%
reimbursements
Portfolio Turnover Rate 77% 61% 106% 107% 137% 102% 75% 143% 127% 151%
</TABLE>
- --------------------------------------------------------------------------------
(a) Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends and does not reflect any applicable
sales charges.
(b) 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 1.45% for 1998 and 1.50% for the
prior years.
(c) During the period, certain fees were voluntarily reduced and/or reimbursed.
If such fee reductions and/or reimbursements had not occurred, the ratio
would have been as shown.
8
<PAGE> 11
Selected data for a share of
beneficial interest outstanding throughout each year
BALANCED FUND -- RETAIL CLASS
YEAR ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net Asset Value, Beginning of Period $11.49 $9.71 $8.47 $7.12 $10.89 $10.45 $10.00
------ ----- ----- ----- ------ ------ ------
Net investment income 0.26 0.25 0.22 0.19 0.12 0.20 0.31
Net realized and unrealized gain
(loss) on investments 0.05 2.36 1.37 1.35 0.42 1.44 0.49
------ ------ ------ ------ ------ ------ ------
Total from Investment Operations 0.31 2.61 1.59 1.54 0.54 1.64 0.80
------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (0.26) (0.25) (0.22) (0.19) (0.13) (0.24) (0.31)
Net realized gain on investments (0.56) (0.58) (0.13) ------ (4.18) (0.96) (0.04)
------ ------ ------ ------ ------ ------ ------
Total Distributions (0.82) (0.83) (0.35) (0.19) (4.31) (1.20) (0.35)
------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Period $10.98 $11.49 $9.71 $8.47 $7.12 $10.89 $10.45
====== ====== ===== ===== ===== ====== ======
Total Return(a) 2.8% 28.32% 19.11% 21.98% 5.30% 17.60% 7.32%
RATIOS TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Net Assets, End of Period (in 000's) $128,222 $67,034 $23,158 $6,912 $3,081 $1,583 $3,716
Ratio of net investment income to 2.37% 2.60% 2.62% 2.47% 1.55% 1.90% 3.13%
average net assets
Expenses net of waivers/ 1.20% 1.28%++ 1.32%++ 1.35%++ 1.68% 1.82% 1.44%
reimbursements(b)
Expenses before 1.20% 1.36%(c) 1.71%(c) 1.86%(c) 2.36%(c) 2.97%(c) 2.38%(c)
waivers/reimbursements
Portfolio Turnover Rate 77% 110% 111% 133% 168% 192% 178%
- --------------------------------------------------------------------------------
(a) Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends and does not reflect any applicable
sales charges.
(b) 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 1.17% for 1998 and 1.25% for the
prior years.
(c) During the period, certain fees were voluntarily reduced and/or reimbursed.
If such fee reductions and/or reimbursements had not occurred, the ratio
would have been as shown.
</TABLE>
9
<PAGE> 12
Selected data for a share of
beneficial interest outstanding throughout each year:
INTERMEDIATE BOND FUND -- RETAIL CLASS
YEAR ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net Asset Value, Beginning of Period $10.29 $9.88 $9.98 $9.48 $10.73 $10.65 $10.00
------ ----- ----- ----- ------ ------ ------
Net investment income 0.57 0.68 0.51 0.52 0.48 0.39 0.51
Net realized and unrealized gain 0.45 0.41 (0.10) 0.50 (1.04) 0.62 0.65
------ ----- ----- ----- ------ ------ ------
(loss) on investments
Total from Investment Operations 1.02 1.09 0.41 1.02 (0.56) 1.01 1.16
------ ----- ----- ----- ------ ------ ------
Distributions to shareholders:
Net investment income (0.57) (0.68) (0.51) (0.52) (0.48) (0.39) (0.51)
Net realized gains on investments == == == == (0.21) (0.54) ==
Total Distributions (0.57) (0.68) (0.51) (0.52) (0.69) (0.93) (0.51)
------ ----- ----- ----- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.74 $10.29 $9.88 $9.98 $9.48 $10.73 $10.65
====== ====== ===== ===== ===== ====== ======
Total Return (a) 10.2% 11.36% 4.50% 11.13% (5.46%) 10.24% 11.87%
RATIOS TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Net Assets, End of Period (in 000s) $7,618 $5,912 $5,496 $4,729 $7,339 $2,849 $3,153
Ratio of net investment income to
average net assets 5.45%(b) 6.71% 5.43% 5.38% 4.86% 3.74% 5.25%
Expenses net of 1.08%(b) 1.11% 1.09% 1.17% 0.92% 2.40% 1.94%
waivers/reimbursements(b)
Expenses before 2.08%(b) 1.70% 2.46% 2.47% 1.75% 3.46% 3.40%
waivers/reimbursements(c)
Portfolio Turnover Rate 232% 628% 309% 165% 203% 222% 198%
</TABLE>
- --------------------------------------------------------------------------------
(a) Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends and does not reflect any applicable
sales charges.
(b) 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 ratio would be 1.00% for each period.
(c) During the period, certain fees were voluntarily reduced and/or reimbursed.
If such fee reductions and/or reimbursements had not occurred, the ratio
would have been as shown.
10
<PAGE> 13
Selected data for a share of
beneficial interest outstanding throughout each year:
YEAR ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
RETAIL CLASS
------------
SMALLCAP EQUITY FUND REALTY MIGHTY
FUND MITES FUND
1998 1997(d) 1998(f) 1998(g)
---- ------- ------- ----------
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net Asset Value, Beginning of Period $14.48 $10.00 $10.00 $10.00
Net investment income (0.09) 0.08 0.37 0.04
Net realized and unrealized gain
(loss) on investments (2.39) 4.40 (1.37) (0.34)
Total from Investment Operations (2.48) 4.48 (1.00) (0.30)
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income == == (0.33) ==
In excess of net investment income (0.08) == == ==
Net realized gain on investments (0.60) == == ==
In excess of net realized gain on (0.14) == (0.24) ==
investments
Total Distributions (0.82) == (0.57) ==
Net Asset Value, End of Period $11.18 $14.48 $8.43 $9.70
Total Return (a) (17.7%) 44.8% (10.5%) (3.0%)
RATIOS TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Net Assets, End of Period (in 000s) $11,694 $8,546 $1,815 $4,838
Ratios of net investment income to (0.74%) 1.89%(e) 3.87% 1.60%(e)
average net assets:
Expenses net of waivers/ 1.72% 1.89%(e) 1.70% 2.05%(e)
reimbursements (b)
Expenses before waivers 2.11% 2.45%(e) 3.95% 4.50%(e)
reimbursements (c)
Portfolio Turnover Rate 200% 146% 142% 18%
</TABLE>
- --------------------------------------------------------------------------------
(a) Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends and does not reflect any applicable
sales charges.
(b) 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 ratio would be 1.50% for SmallCap Equity and
Realty Funds and 2.00% for Mighty Mites Fund.
(c) During the period, certain fees were voluntarily reduced and/or reimbursed.
If such fee reductions and/or reimbursements had not occurred, the ratio
would have been as shown.
(d) Period from April 15, 1997 (inception date of fund) to September 30, 1997.
(e) Annualized.
(f) Period from October 1, 1998 (inception date of fund) to September 30,
1998.
(g) Period from May 11, 1998 (inception date of fund) to September 30, 1998.
DESCRIPTION OF THE FUNDS AND RISK CONSIDERATIONS
INVESTMENT OBJECTIVES
Each Fund's investment objectives, as previously set forth on the cover
page of this Prospectus, are fundamental policies which cannot be changed
without approval by the holders of a majority (as defined in the Investment
Company Act of 1940) of each Fund's outstanding voting shares. There can be no
assurance that a Fund's investment objectives will be achieved.
11
<PAGE> 14
MANAGEMENT POLICIES
EQUITY FUND -- The Equity Fund attempts to achieve its goals by
investing primarily (i.e., in normal circumstances) at least 65% of its total
assets in common stocks, some of which may pay dividends, or securities
convertible into common stocks (see "Convertible Securities" below for a
complete description). The Equity Fund invests in securities issued by seasoned
companies (generally with market capitalizations in excess of $500,000,000 and
continuous operating histories of at least three years) believed to have proven
records and above-average historical earnings growth when compared to published
indexes, such as those published by the Department of Commerce, and in smaller
companies (generally with market capitalizations greater than $100,000,000 but
less than $500,000,000) believed to have outstanding potential for capital
appreciation, in both cases in industries which the Adviser has identified as
appropriate in light of the then current status of the economic and business
cycles. These securities may have above-average price/earnings ratios or less
than average current yields when compared to published indexes, such as the
Standard & Poor's 500 Composite Stock Price Index. Price/earnings ratio is a
comparison of a security's market price to its earnings per share, usually
expressed as a simple numeral, and current yield expresses the income on an
amount invested. The Equity Fund may invest in preferred stocks and common stock
issued by real estate investment trusts (see "Real Estate Investment Trusts"
below for more complete information). The Equity Fund also may invest, in normal
circumstances, up to 35% of its total assets in U.S. dollar- and foreign
currency-denominated debt securities of domestic and foreign issuers, which are
rated at least "BBB" by Standard & Poor's Rating Services, a division of the
McGraw-Hill Companies ("S&P") or "Baa" by Moody's Investors Service, Inc.
("Moody's") (except with respect to investments in commercial paper which will
consist only of direct obligations that at the time of purchase are rated in the
highest rating category by Moody's or S&P) or, if unrated, are determined to be
of comparable quality by the Adviser, or in index options when it believes they
hold less risk or greater potential for capital appreciation than equity
securities. Such investments are made without regard to the remaining maturities
of such securities. The Equity Fund may invest up to 10% of its total assets in
debt securities (other than commercial paper) that are rated or, if unrated,
determined to be below investment grade. (Investment grade debt securities are
those which are rated at least "BBB" by S&P or "Baa" by Moody's). These
investments generally carry a high degree of risk and are sometimes referred to
as "high yield, high risk" securities by the investment community (see "Lower
Rated Securities" below for more complete information).The Equity Fund will not
invest in below investment grade securities which are rated below "C" by S&P or
Moody's.
Debt securities rated "BBB" by S&P or "Baa" by Moody's are considered
medium grade obligations. Securities rated "Baa" by Moody's lack outstanding
investment characteristics and in fact have speculative characteristics as well,
while those rated "BBB" by S&P are regarded as having an adequate capacity to
pay principal and interest. Securities rated in these categories are generally
more sensitive to economic changes than higher rated securities. See the
"Appendix" in the Additional Statement for more details on the ratings of
Moody's and S&P.
In addition, the Equity Fund may invest up to 100% of its total assets
in U.S. Government securities, certificates of deposit, bankers' acceptances,
time deposits, repurchase agreements and other high quality debt instruments in
order to maintain a temporary "defensive" posture when, in the opinion of the
Adviser, it is advisable to do so.
The Equity Fund may invest in U.S. Government securities, certificates
of deposit, bankers' acceptances and other short-term debt instruments or high
quality corporate bonds, and repurchase agreements in respect of the foregoing.
Common stocks, debt securities in periods of declining interest rates,
and index options provide opportunities for capital growth. Dividend paying
common stocks, covered call options written by the Equity Fund and debt
securities are expected to provide income for the Equity Fund. The securities
purchasable for temporary defensive purposes provide income, but little
opportunity for capital growth.
The majority of the Equity Fund's investments are in securities listed
on the New York Stock Exchange ("NYSE") or other national securities exchanges.
The Equity Fund may also invest in unlisted securities; but these generally will
be securities that have an established over-the-counter market, although the
depth and liquidity of that market may vary from time to time and from security
to security. Generally, those securities are issued by smaller companies than
those whose securities are listed on national securities exchanges. The market
prices of equity securities of smaller companies may tend to be more volatile
than the market prices of equity securities generally.
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The Equity Fund may invest up to 25% of its total assets in the
securities of foreign issuers, either directly, or in the form of American
Depository Receipts ("ADRs") or other similar arrangements, such as European
Depository Receipts ("EDRs"). ADRs are receipts typically issued by a United
States bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. Generally, ADRs in registered form are designed
for use in United States securities markets. EDRs are similar to ADRs and are
issued and traded in Europe.
It is a fundamental policy of the Equity Fund that it may invest
(together with all other securities which are not readily marketable -- see
"Certain Fundamental Policies" below and "Investment Restrictions" in the
Additional Statement ) up to 10% of the value of its net assets in securities
that have not been registered under the Securities Act of 1933, as amended, and
therefore are subject to restrictions on resale, provided such investments are
consistent with the Equity Fund's goals. When purchasing unregistered
securities, the Equity Fund will endeavor to obtain the right to registration at
the expense of the issuer. Generally, there will be a lapse of time between the
Equity Fund's decision to publicly offer any such security and the registration
of the security permitting such offer. During any such period, the price of the
securities will be subject to market fluctuations.
The Equity Fund may invest up to 2% of its net assets in warrants,
except that this limitation does not apply to warrants acquired in units or
attached to securities. A warrant is an instrument issued by a corporation which
gives the holder the right to subscribe to a specified amount of the issuer's
securities at a set price for a specified period of time.
The Equity Fund also may invest in securities of investment companies
subject to the provisions of the Investment Company Act of 1940. The return on
such investments will be reduced by the operating expenses, including investment
advisory and administration fees, of such companies. See "Investment Objectives
and Management Policies -- Investment Company Securities" in the Additional
Statement.
BALANCED FUND -- The Balanced Fund pursues its objective through a
balanced and diversified program of investing in equity securities and debt
instruments.
With respect to its investments in equity securities, the Balanced Fund
invests between 30% to 70% of its assets in common stocks, some of which may pay
dividends, or securities convertible into common stocks. With respect to the
equity portion of its portfolio, the Balanced Fund invests in equity securities
using the same investment criteria as the Equity Fund.
The remaining 70% to 30% of the Balanced Fund's assets are invested in
U.S. dollar or foreign currency-denominated debt securities of domestic and
foreign issuers, including debt securities of corporate and government issuers,
commercial paper and mortgage and asset-backed securities, for the relative
stability of income and principal. With respect to these investments, at least
25% of the Balanced Fund's total assets will be invested in fixed income senior
securities. The debt securities in which the Balanced Fund invests are the same
types of securities used by the Intermediate Bond Fund.
As noted above, the Adviser may also select other equity securities in
addition to common stocks for investment by the Balanced Fund, such as preferred
stocks, real estate investment trusts ("REITs"), high grade securities
convertible into common stocks and warrants. The Balanced Fund may invest up to
25% of its total assets in the securities of foreign issuers, either directly,
or in the form of ADRs or EDRs, and up to 10% of the value of its net assets,
together with all other investments which are not readily marketable, in
securities which have not been registered under the Securities Act of 1933, as
amended, and which therefore are subject to restrictions on resale. (See the
information set forth above under "Management Policies -- Equity Fund" for more
information on these types of investments.) The Balanced Fund may also invest in
warrants.
In addition, the Balanced Fund may invest up to 100% of its total
assets in U.S. Government securities, certificates of deposit, bankers'
acceptances, time deposits, repurchase agreements and other high quality debt
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<PAGE> 16
instruments in order to maintain a temporary "defensive" posture when, in the
opinion of the Adviser, it is advisable to do so.
THE SMALLCAP FUND -- The SmallCap Fund will seek to achieve its
investment objective by investing, under normal circumstances as determined by
the Adviser, at least 65% of the Fund's total assets in equity securities,
including preferred stock and convertible securities ("equity securities"), of
companies that have market capitalization (defined as shares outstanding times
current market price) of $1 billion or less at the time of the Fund's initial
investment. The SmallCap Fund also may invest, under normal circumstances, up to
35% of its total assets in the equity securities of issuers without respect to
market capitalization. The SmallCap Fund may invest up to 25% of its total
assets in the equity securities of foreign issuers, either directly, or in the
form of ADRs or other similar arrangements, such as EDRs. The SmallCap Fund may
also invest in equity securities issued by real estate investment trusts (see
"Real Estate Investment Trusts" below). The SmallCap Fund may invest, in normal
circumstances, up to 35% of its total assets in U.S. dollar and foreign
currency-denominated debt securities of domestic and foreign issuers, which are
rated at least "BBB" by S&P or "Baa" by Moody's (except with respect to
investments in commercial paper which will consist only of direct obligations
that at the time of purchase are rated in the highest rating category by Moody's
or S&P) or, if unrated, are determined to be of comparable quality by the
Adviser, or in index options when it believes they hold less risk or greater
potential for capital appreciation than equity securities. Such investments are
made without regard to the remaining maturities of such securities. The SmallCap
Fund may invest up to 10% of its total assets in debt securities (other than
commercial paper) that are rated or, if unrated, determined to be below
investment grade. (Investment grade debt securities are those which are rated at
least "BBB" by S&P or "Baa" by Moody's). These investments generally carry a
high degree of risk and are sometimes referred to as "high yield, high risk"
securities by the investment community (see "Lower Rated Securities" below for
more complete information). The Fund may invest up to 15% of the value of its
net assets in illiquid securities (see "Illiquid Securities" below). The
SmallCap Fund may invest without limit in U.S. Government securities,
certificates of deposit, bankers' acceptances and other short-term debt
instruments or high quality corporate bonds, and repurchase agreements in
respect of the foregoing as a temporary "defensive" measure as deemed advisable
by the Adviser. The Adviser will utilize a disciplined investment approach to
identify companies that have above average sales and earnings growth prospects
or otherwise improving fundamentals captured on the balance sheet given the
current status of the economic and business cycles on selecting the SmallCap
Fund's securities. Fundamental analysis and computer-aided quantitative analysis
are used to identify companies with attractive fundamental investment
characteristics such as growth potential and earnings growth. Investing in small
capitalization stocks may involve greater risk than investing in medium and
large capitalization stocks, since they can be subject to more abrupt or erratic
movements in price. The Fund may invest in relatively new or unseasoned
companies, which are in their early stages of development, or small companies
positioned in new and emerging industries. Securities of small and unseasoned
companies present greater risks than securities of larger, more established
companies. The companies in which the SmallCap Fund may invest may have
relatively small revenues and limited product lines, and may have a small share
of the market for their products or services. Small companies may lack depth of
management. They may be unable to internally generate funds necessary for growth
or potential development or to generate such funds through external financing on
favorable terms. They may be developing or marketing new products or services
for which markets are not yet established and may never become established. Due
to these and other factors, small companies may incur significant losses, and
investments in such companies are therefore speculative. There can be no
assurance that the SmallCap Fund will achieve its investment objective.
THE MIGHTY MITES FUND -- The Mighty Mites Fund will seek to achieve its
investment objective by investing, under normal circumstances as determined by
the Adviser, at least 65% of the Fund's total assets in equity securities,
including preferred stock and convertible securities ("equity securities"), of
companies that have market capitalization (defined as shares outstanding times
current market price) of $300 million or less at the time of the Fund's initial
investment. The Mighty Mites Fund also may invest, under normal circumstances,
up to 35% of its total assets in the equity securities of issuers without
respect to market capitalization. The Mighty Mites Fund may invest up to 25% of
its total assets in the equity securities of foreign issuers, either directly,
or in the form of ADRs or other similar arrangements, such as EDRs. The Mighty
Mites Fund may also invest in equity securities issued by real estate investment
trusts (see "Real Estate Investment Trusts" below). The Mighty Mites Fund may
invest, in normal circumstances, up to 35% of its total assets in U.S. dollar
and foreign currency-denominated debt securities of domestic and foreign
issuers, which are rated at least "BBB" by S&P or "Baa" by Moody's (except with
respect to investments in commercial paper which will consist only of direct
obligations that at the time of purchase are rated in the highest rating
category by
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<PAGE> 17
Moody's or S&P) or, if unrated, are determined to be of comparable quality by
the Adviser, or in index options when it believes they hold less risk or greater
potential for capital appreciation than equity securities. Such investments are
made without regard to the remaining maturities of such securities. The Mighty
Mites Fund may invest up to 10% of its total assets in debt securities (other
than commercial paper) that are rated or, if unrated, determined to be below
investment grade. (Investment grade debt securities are those which are rated at
least "BBB" by S&P or "Baa" by Moody's). These investments generally carry a
high degree of risk and are sometimes referred to as "high yield, high risk"
securities by the investment community (see "Lower Rated Securities" below for
more complete information).The Fund may invest up to 15% of the value of its net
assets in illiquid securities, (see "Illiquid Securities" below). The Mighty
Mites Fund may invest without limit in U.S. Government securities, certificates
of deposit, bankers' acceptances and other short-term debt instruments or high
quality corporate bonds, and repurchase agreements in respect of the foregoing
as a temporary "defensive" measure as deemed advisable by the Adviser. The
Adviser will utilize a disciplined investment approach to identify companies
that have above average sales and earnings growth prospects or otherwise
improving fundamentals captured on the balance sheet given the current status of
the economic and business cycles on selecting the Mighty Mites Fund's
securities. Additionally, in pursuing the Mighty Mites Fund's investment
objective, the Adviser seeks companies that it believes are undervalued and that
by virtue of anticipated developments or catalysts particularly applicable to
such companies may, in the Adviser's judgment, achieve significant capital
appreciation. In identifying such companies, the Adviser seeks to invest in
companies that, in the public market, are selling at a significant discount to
their private market value, the value the Adviser believes informed
industrialists would be willing to pay to acquire companies with similar
characteristics. The Adviser's analysis of a company's value focuses on free
cash flow; earnings before interest, taxes, depreciation and amortization
(EBITDA) minus the capital expenditures necessary to grow the business. Also,
the Adviser endeavors to seek a catalyst; something happening in the company's
industry or indigenous to the company itself that will surface value. Examples
of such catalysts are a change in management, sale or spin-off of a division,
the development of a profitable new business or changes in governmental
regulations, political climate or competitive conditions. Fundamental analysis
and computer-aided quantitative analysis are used to identify companies with
attractive fundamental investment characteristics such as growth potential and
earnings growth. Investing in micro capitalization stocks may involve greater
risk than investing in small, medium and large capitalization stocks, since they
can be subject to more abrupt or erratic movements in price. The Fund may invest
in relatively new or unseasoned companies, which are in their early stages of
development, or micro-cap companies positioned in new and emerging industries.
Securities of micro-cap and unseasoned companies present greater risks than
securities of larger, more established companies. The companies in which the
Mighty Mites Fund may invest may have relatively small revenues and limited
product lines, and may have a small share of the market for their products or
services. Micro-cap companies may lack depth of management. They may be unable
to internally generate funds necessary for growth or potential development or to
generate such funds through external financing on favorable terms. They may be
developing or marketing new products or services for which markets are not yet
established and may never become established. Due to these and other factors,
micro-cap companies may incur significant losses, and investments in such
companies are therefore speculative. There can be no assurance that the Mighty
Mites Fund will achieve its investment objective.
THE REALTY FUND -- The Realty Fund will seek to achieve its investment
objective by investing at least 65% of the Fund's total assets, under normal
circumstances as determined by the Adviser, in the securities of publicly traded
real estate investment trusts ("REITs") and real estate operating companies. The
Fund's investments will be restricted to securities with a market capitalization
(defined as shares outstanding times current market price) of a minimum of $50
million at the time of the Fund's initial investment. The Fund may invest in
equity REITs, mortgage REITs and hybrid REITs and other types of real estate
securities such as publicly traded common stock, preferred stock, limited
partnerships (including real estate master limited partnerships), rights or
warrants to purchase common stock or convertible securities of corporations
engaged in real estate development, as well as companies whose financial
prospects are deemed by the Adviser to be real estate oriented (e.g., a
construction company) and consistent with the Fund's investment objectives. The
Fund may invest up to 25% of its total assets in foreign real estate securities.
The Realty Fund also may invest, in normal circumstances, up to 35% of its total
assets in domestic and foreign debt securities and equity securities, including
preferred stock and convertible securities, of issuers engaged in businesses
other than real estate. The Fund may invest up to 15% of the value of its net
assets in illiquid securities (see "Illiquid Securities" below). The Realty Fund
will not purchase direct interests in real estate. The Realty Fund may invest
without limit in U.S. Government securities, certificates of deposit, bankers'
acceptances and other short-term debt instruments or high quality corporate
bonds, and repurchase agreements in respect of the foregoing as a temporary
"defensive" measure as deemed advisable by the Adviser. The Adviser will utilize
a combination of fundamental and quantitative techniques to identify real estate
securities for investment that
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<PAGE> 18
meet various criteria, including various financial, geographical and strategic
criteria as appropriate in light of the then current status of the economic and
business cycles. Based on a weighting of the various criteria, securities are to
be integrated into the Fund's portfolio according to their contribution to the
portfolio's overall investment characteristics. The Fund's portfolio will be
diversified across regional, strategic, and financial parameters as deemed
appropriate by the Adviser. There can be no assurance that the Realty Fund will
achieve its investment objective. See "Real Estate Investment Trusts" below for
more complete information, including risk considerations.
INTERMEDIATE BOND FUND -- The Intermediate Bond Fund will pursue its
objective by investing, in normal circumstances, at least 65% of its total
assets in bonds of various types and with various maturities. Although it will
not be a fundamental policy of the Intermediate Bond Fund and there will be no
restrictions as to the maximum or minimum maturity of any individual security in
which the Fund may invest, the Intermediate Bond Fund will normally have a
dollar weighted average portfolio maturity of three to ten years. (See the
discussion below under "Description of Securities and Other Investment
Practices" for special information regarding the maturities of certain of the
Intermediate Bond Fund's permissible investments.)
To achieve its investment objective, the Intermediate Bond Fund invests
primarily in a diversified portfolio of investment grade, U.S. dollar or foreign
currency denominated bonds of domestic and foreign issuers. The Fund's portfolio
consists of bonds issued by both corporate and government entities. In pursuing
its investment objective, the Intermediate Bond Fund may also invest in other
types of investment grade debt securities, including debentures, notes,
convertible debt securities, municipal securities, mortgage-related securities,
and other collateralized securities that are backed by a pool of assets, such as
loans or receivables which generate cash flow to cover the payments due on the
collateralized securities, as well as zero coupon and payment in kind
securities. The Intermediate Bond Fund's portfolio, consisting primarily of
investment grade debt securities, will include bonds rated "BBB" or better by
S&P or "Baa" or better by Moody's, commercial paper rated "A-2" or better by S&P
or "P-2" or better by Moody's, mortgage and asset-backed securities rated "AA"
or better by S&P or "Aa" or better by Moody's and other investment grade-rated
debt securities or those which are unrated but determined to be of comparable
quality by the Adviser. The Intermediate Bond Fund may invest in preferred
stock, real estate investment trusts (REITs) or other equity securities
including securities of foreign issuers although it does not expect to invest
more than 25% of its assets in securities of foreign issuers.
Although the lowest rated investment grade securities and those which
are unrated in the Intermediate Bond Fund's portfolio may produce a higher
return, they are subject to a greater degree of market fluctuation and credit
risks than the high quality securities in which the Fund may invest and may be
regarded as having speculative characteristics as well. The Intermediate Bond
Fund may also invest up to 10% of its total assets in debt securities that are
rated or, if unrated, determined to be below investment grade. These investments
generally carry a high degree of risk and are sometimes referred to as "high
yield, high risk" securities by the investment community (see "Lower Rated
Securities" below for more complete information).
In view of the expected maturity of the Intermediate Bond Fund's
portfolio, in normal market conditions, it is anticipated that the Fund may
experience a higher yield and less stable net asset value than a fund which
invests primarily in shorter-term securities. Conversely, it is also anticipated
that the Intermediate Bond Fund may experience a lower yield and more stable net
asset value than a fund which invests primarily in longer-term securities.
The net asset value of the Intermediate Bond Fund will vary in response
to fluctuations in prevailing interest rates and changes in the value of its
portfolio securities. When interest rates decline, the value of securities
already held in the Intermediate Bond Fund's portfolio can be expected to rise.
Conversely, when interest rates rise, the value of existing portfolio security
holdings can be expected to decline. Although the lowest investment grade
securities and those which are unrated in the Intermediate Bond Fund's portfolio
may produce a higher return, they are subject to a greater degree of market
fluctuation and credit risks than the high quality securities in which the
Intermediate Bond Fund may invest. In addition, the Intermediate Bond Fund may
invest in zero coupon and payment in kind securities which may be subject to
greater fluctuations in value due to changes in interest rates than other debt
securities.
In normal circumstances, the Intermediate Bond Fund may invest up to
35% of its total assets in short-term, money market instruments of at least
comparable quality to the Fund's longer-term investments, and in repurchase
agreements. However, as a temporary "defensive" measure during, or in
anticipation of, a declining market or rising
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<PAGE> 19
interest rates, or for other reasons when, in the opinion of the Fund's
investment adviser, it is advisable to do so, the Intermediate Bond Fund may
invest up to 100% of its total assets in high quality short-term investments.
DESCRIPTION OF SECURITIES AND OTHER INVESTMENT PRACTICES
CONVERTIBLE SECURITIES (ALL FUNDS) -- A convertible security is a
fixed-income security, such as a bond or preferred stock, which may be converted
at a stated price within a specified period of time into a specified number of
shares of common stock of the same or a different issuer. Convertible securities
are senior to common stock in a corporation's capital structure, but usually are
subordinated to non-convertible debt securities. While providing a fixed income
stream (generally higher in yield than the income derivable from a common stock
but lower than that afforded by a similar non-convertible debt security), a
convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation of the common
stock into which it is convertible.
In general, the market value of a convertible security is the higher of
its "investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e., the value of the underlying shares of common stock if
the security is converted). As a fixed-income security, the market value of a
convertible security generally increases when interest rates decline and
generally decreases when interest rates rise. However, the price of a
convertible security also is influenced by the market value of the security's
underlying common stock.
REAL ESTATE INVESTMENT TRUSTS (ALL FUNDS) -- The Funds may invest in
the securities of real estate investment trusts ("REITs"). A REIT is a pooled
investment vehicle that is organized as a corporation or business trust which
invests primarily in income producing real estate or real estate related loans
or interests. REITs are generally classified as equity REITs, mortgage REITs or
a combination of equity and mortgage REITs. Equity REITs invest the majority of
their assets directly in real property and derive income primarily from the
collection of rents. Equity REITs can realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive income from the collection of
interest payments. REITs involve risks similar to those associated with
investing in common stock (i.e., securities market risks) and risks associated
with investing in the real estate industry in general: declines in real estate
value, general and local economic conditions, overbuilding and competition,
property tax and operating expense increases, changes in zoning laws, casualty
losses, variations in rental income, costs related to environmental problems and
increases in interest rates. REITs (especially mortgage REITs) are subject to
interest rate risks. In addition to these risks, equity REITs may be affected by
changes in the value of the underlying property owned by the trusts, while
mortgage REITs may be affected by the quality of any credit extended. Further,
equity and mortgage REITs are dependent upon management skills and generally may
not be diversified. Equity and mortgage REITs are also subject to heavy cash
flow dependency, defaults by borrowers and self-liquidation. In addition, equity
and mortgage REITS could possibly fail to qualify for tax free pass-through of
income under the Internal Revenue Code of 1986, as amended, or to maintain their
exemptions from registration under the Investment Company Act of 1940. The above
factors may also adversely affect a borrower's or a lessee's ability to meet its
obligations to the REIT. In the event of a default by a borrower or lessee, the
REIT may experience delays in enforcing its rights as a mortgagee or lessor and
may incur substantial costs associated with protecting its investments.
Investors in REITs indirectly bear a proportionate share of expenses incurred by
the REITs. See "Investment Objectives and Management Policies -- Real Estate
Investment Securities" in the Additional Statement for more details on REITs.
U.S. GOVERNMENT SECURITIES (ALL FUNDS) -- Securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities include
U.S. Treasury securities, which differ only in their interest rates, maturities
and times of issuance. Treasury Bills have initial maturities of one year or
less; Treasury Notes have initial maturities of one to ten years; and Treasury
Bonds generally have initial maturities of greater than ten years. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the U.S. Treasury; others, such as those
issued by the Federal National Mortgage Association, by discretionary authority
of the U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Student Loan Marketing
Association, only by credit of the
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agency or instrumentality. While the U.S. Government provides financial support
to such U.S. Government-sponsored agencies or instrumentalities, no assurance
can be given that it will always do so since it is not so obligated by law. A
Fund will invest in such securities only when it is satisfied that the credit
risk with respect to the issuer is minimal.
REPURCHASE AGREEMENTS (ALL FUNDS) -- Repurchase agreements involve the
acquisition by a Fund of a security, subject to an obligation of the seller to
repurchase, and the Fund to resell, the security at a fixed price, usually not
more than one week after its purchase. The Fund's custodian will have custody
of, and will hold in a segregated account, securities acquired by the Fund under
a repurchase agreement. Repurchase agreements are considered by the staff of the
SEC to be loans by a Fund. In an attempt to reduce the risk of incurring a loss
on the repurchase agreement, a Fund will enter into repurchase agreements only
with domestic banks with total assets in excess of one billion dollars or
primary government securities dealers reporting to the Federal Reserve Bank of
New York, with respect to highest rated securities of the type in which a Fund
may invest. It will also require that the repurchase agreement be at all times
fully collateralized in an amount at least equal to the repurchase price
including accrued interest earned on the underlying securities, and that the
underlying securities be marked to market every business day to assure that the
repurchase agreement remains fully collateralized. Certain costs may be incurred
by a Fund in connection with the sale of the securities if the seller does not
repurchase them in accordance with the repurchase agreement. If bankruptcy
proceedings are commenced with respect to the seller of the securities,
realization on the securities by the Fund may be delayed or limited. A Fund will
consider on an ongoing basis the creditworthiness of the institutions with which
it enters into repurchase agreements.
BANK OBLIGATIONS (ALL FUNDS) -- Time deposits are non-negotiable
deposits maintained in a banking institution for a specified period of time (in
no event longer than seven days) at a stated interest rate. Time deposits which
may be held by a Fund will not benefit from insurance from the Bank Insurance
Fund or the Savings Association Insurance Fund administered by the Federal
Deposit Insurance Corporation. Certificates of deposit are certificates
evidencing the obligation of a bank to repay funds deposited with it for a
specified period of time. Bankers' acceptances are credit instruments evidencing
the obligation of a bank to pay a draft drawn on it by a customer. These
instruments reflect the obligation both of the bank and of the drawer to pay the
face amount of the instrument upon maturity.
COMMERCIAL PAPER (ALL FUNDS) -- Commercial paper includes short-term
unsecured promissory notes, variable rate demand notes and variable rate master
demand notes issued by domestic and foreign bank holding companies, corporations
and financial institutions (see "Variable and Floating Rate Demand and Master
Demand Notes" below for more details) as well as similar taxable and tax-exempt
instruments issued by government agencies and instrumentalities. Each Fund
establishes its own standards of creditworthiness for issuers of such
instruments.
OTHER MUTUAL FUNDS (ALL FUNDS) -- Each Fund may invest in shares of
other management investment companies, subject to the limitations of the 1940
Act and subject to such investments being consistent with the overall objective
and policies of the Fund making such investment, provided that any such
purchases will be limited to short-term investments in shares of unaffiliated
investment companies. The purchase of securities of other mutual funds results
in duplication of expenses such that investors indirectly bear a proportionate
share of the expenses of such mutual funds including operating costs, and
investment advisory and administrative fees.
CORPORATE DEBT SECURITIES (ALL FUNDS) -- A Fund's investments in
corporate debt may include U.S. dollar or foreign currency denominated corporate
bonds, debentures, notes and other similar corporate debt instruments of
domestic and foreign issuers, which meet the previously disclosed minimum
ratings and maturity criteria established for each Fund under the direction of
the Board of Trustees and the Adviser or, if unrated, are in the Adviser's
opinion comparable in quality to rated corporate debt securities in which each
Fund may invest. The rate of return or return of principal on some debt
obligations in which the Funds may invest may be linked or indexed to the level
of exchange rates between the U.S. dollar and a foreign currency or currencies.
VARIABLE AND FLOATING RATE DEMAND AND MASTER DEMAND NOTES (ALL FUNDS) -
A Fund may, from time
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to time, buy variable or floating rate demand notes issued by corporations, bank
holding companies and financial institutions and similar taxable and tax-exempt
instruments issued by government agencies and instrumentalities. These
securities will typically have a maturity over one year but carry with them the
right of the holder to put the securities to a remarketing agent or other entity
at designated time intervals and on specified notice. The obligation of the
issuer of the put to repurchase the securities may be backed up by a letter of
credit or other obligation issued by a financial institution. The purchase price
is ordinarily par plus accrued and unpaid interest. Generally, the remarketing
agent will adjust the interest rate every seven days (or at other specified
intervals) in order to maintain the interest rate of the prevailing rate for
securities with a seven-day or other designated maturity. A Fund's investment in
demand instruments which provide that the Fund will not receive the principal
note amount within seven days' notice, in combination with the Fund's other
investments which are not readily marketable, will be limited to an aggregate
total of 10% of that Fund's net assets.
A Fund may also buy variable rate master demand notes. The terms of
these obligations permit a Fund to invest fluctuating amounts at varying rates
of interest pursuant to direct arrangements between the Fund, as lender, and the
borrower. These instruments permit weekly and, in some instances, daily changes
in the amounts borrowed. The Fund has the right to increase the amount under the
note at any time up to the full amount provided by the note agreement, or to
decrease the amount, and the borrower may repay up to the full amount of the
note without penalty. The notes may or may not be backed by bank letters of
credit. Because the notes are direct lending arrangements between a Fund and
borrower, it is not generally contemplated that they will be traded, and there
is no secondary market for them, although they are redeemable (and, thus,
immediately repayable by the borrower) at principal amount, plus accrued
interest, at any time. In connection with any such purchase and on an ongoing
basis, the Adviser will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and interest on
demand, including a situation in which all holders of such notes make demand
simultaneously. While master demand notes, as such, are not typically rated by
credit rating agencies, a Fund may, under its minimum rating standards, invest
in them only if, at the time of an investment, the issuer meets the criteria set
forth in this Prospectus for commercial paper obligations.
WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES (ALL FUNDS) -- New issues of
fixed-income securities usually are offered on a when-issued or delayed-delivery
basis, which means that delivery and payment for such securities ordinarily take
place within 45 days after the date of the commitment to purchase. The payment
obligation and the interest rate that will be received on such securities are
fixed at the time the Fund enters into the commitment. The Fund will make
commitments to purchase such securities only with the intention of actually
acquiring the securities, but the Fund may sell these securities before the
settlement date if it is deemed advisable. The Fund will not accrue income in
respect of a when-issued or delayed-delivery security prior to its stated
delivery date. No additional when-issued commitments will be made if more than
20% of a Fund's net assets would be so committed.
Securities purchased on a when-issued or delayed-delivery basis and
certain other securities held in a Fund's portfolio are subject to changes in
value (both generally changing in the same way, i.e., appreciating when interest
rates decline and depreciating when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Securities purchased on a
when-issued or delayed-delivery basis may expose a Fund to the risk that such
fluctuations will occur prior to their actual delivery. Purchasing securities on
a when-issued or delayed-delivery basis can involve an additional risk that the
yield available in the market when the delivery takes place actually may be
higher than that obtained in the transaction itself. A segregated account of a
Fund consisting of cash or other liquid securities at least equal at all times
to the amount of the when-issued commitments will be established and maintained
at the Fund's custodian bank.
FOREIGN SECURITIES (ALL FUNDS, EXCEPT AS SPECIFICALLY NOTED) -- A Fund
may invest directly in both sponsored and unsponsored U.S. dollar- or foreign
currency-denominated corporate debt securities, certificates of deposit and
bankers' acceptances issued by foreign banks, and obligations of foreign
governments or their subdivisions, agencies and instrumentalities, international
agencies and supranational entities, and the Equity Fund, Balanced Fund,
SmallCap Fund, Mighty Mites Fund and Realty Fund may invest directly in foreign
equity securities and in securities represented by EDRs or ADRs. ADRs are
dollar-denominated receipts generally issued by domestic banks, which represent
the deposit with the bank of a security of a foreign issuer, and which are
publicly traded on
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exchanges or over-the-counter in the United States. EDRs are receipts similar to
ADRs and are issued and traded in Europe.
Thus, investment in shares of the Funds should be made with an
understanding of the risks inherent in an investment in foreign securities
either directly or in the form of ADRs or EDRs, including risks associated with
government, economic, monetary and fiscal policies, possible foreign withholding
taxes, inflation and interest rates, economic expansion or contraction, and
global or regional political, economic or banking crises. Investment in
obligations of foreign issuers and in direct obligations of foreign nations
involves somewhat different investment risks from those affecting obligations of
United States domestic issuers. Foreign issuers are not necessarily subject to
uniform accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic issuers. In addition,
for the foreign issuers that are not subject to the reporting requirements of
the Securities Exchange Act of 1934, there may be less publicly available
information than is available from a domestic issuer. Dividends and interest
paid by foreign issuers may be subject to withholding and other foreign taxes,
which may decrease the net return on foreign investments as compared to
dividends and interest paid to the Funds by domestic companies. Additional risks
include future political and economic developments, the possibility that a
foreign jurisdiction might impose or change withholding taxes on income payable
with respect to foreign securities, the possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits and the possible
adoption of foreign governmental restrictions such as exchange controls.
There are certain risks associated with investments in unsponsored ADR
programs. Because the non-U.S. company does not actively participate in the
creation of the ADR program, the underlying agreement for service and payment
will be between the depository and the shareholder. The company issuing the
stock underlying the ADRs pays nothing to establish the unsponsored facility, as
fees for ADR issuance and cancellation are paid by brokers. Investors directly
bear the expenses associated with certificate transfer, custody and dividend
payment.
In an unsponsored ADR program, there also may be several depositories
with no defined legal obligations to the non-U.S. company. The duplicate
depositories may lead to marketplace confusion because there would be no central
source of information to buyers, sellers and intermediaries. The efficiency of
centralization gained in a sponsored program can greatly reduce the delays in
delivery of dividends and annual reports.
In addition, with respect to all ADRs and EDRs, there is always the
risk of loss due to currency fluctuations.
The expected introduction of a single currency, the Euro, on January 1,
1999 for participating nations in the European Economic and Monetary Union
presents unique uncertainties, including whether the payment and operational
systems of banks and other financial institutions will be ready by the scheduled
launch date; the legal treatment of certain outstanding financial contracts
after January 1, 1999 that refer to existing currencies rather than the Euro;
the establishment of exchange rates for existing currencies and the Euro; and
the creation of suitable clearing and settlement payment systems for the new
currency. These or other factors, including political and economic risks, could
cause market disruptions before or after the introduction of the Euro, and could
adversely affect the value of securities held by the Fund.
ZERO COUPON AND PAYMENT IN KIND SECURITIES (THE BALANCED FUND AND THE
INTERMEDIATE BOND FUND) -- A Fund may invest in zero coupon bonds, deferred
interest bonds and bonds on which the interest is payable in kind ("PIK
securities"). Zero coupon and deferred interest bonds are debt obligations which
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds will accrue and compound over the period
until maturity or the first interest accrual date at a rate of interest
reflecting the market rate of the security at the time of issuance. While zero
coupon bonds do not require the periodic payment of interest, deferred interest
bonds provide for a period of delay before the regular payment of interest
begins. Although this period of delay is different for each deferred interest
bond, a typical period is approximately a third of the bond's term to maturity.
PIK securities are debt obligations which provide that the issuer thereof may,
at its option, pay interest on such bonds in cash or in the form of additional
debt obligations. Such investments benefit the issuer by mitigating its need for
cash to meet debt service, but also require a higher rate of return to attract
investors who are willing to defer receipt of such cash. Such investments
experience greater volatility in market value due to changes in interest rates
than debt obligations which provide for regular payments of interest. A Fund
will accrue income on such investments based on an effective interest method,
which is
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distributable to shareholders and which, because no cash is received at the time
of accrual, may require the liquidation of other portfolio securities to satisfy
the Fund's distribution obligations. As a result, a Fund may have to sell
securities at a time when it may be disadvantageous to do so.
LOWER RATED SECURITIES (ALL FUNDS) -- Debt securities rated lower than
investment grade involve much greater risk of principal and income, and often
involve greater volatility of price, than securities in the higher rating
categories. They are also subject to greater credit risks (including, without
limitation, the possibility of default by or bankruptcy of the issuers of such
securities) than securities in higher rating categories. In this connection,
there have been recent instances of such defaults and bankruptcies which were
not foreseen by the financial and investment communities. The lower quality and
unrated obligations in which the Funds may invest will have speculative
characteristics in varying degrees. While such obligations may have some quality
and protective characteristics, these characteristics can be expected to be
offset or outweighed by large uncertainties or major risk exposures to adverse
conditions. The value of such obligations may be more susceptible to real and
perceived adverse economic or industry conditions than is the case of higher
rated securities. The Funds are dependent on the Adviser's judgment, analysis
and experience in the evaluation of high yield obligations. In evaluating the
creditworthiness of a particular issue, whether rated or unrated, the Adviser
will normally take into consideration, among other things, the issuer's
financial resources, its sensitivity to economic conditions and trends, the
operating history of the issuer, the ability of the issuer's management and
regulatory matters. The Adviser will attempt to reduce the risks of investing in
lower rated or unrated obligations through active portfolio management,
diversification, credit analysis and attention to current developments and
trends in the economy and the financial markets. The Funds will also take such
action as they consider appropriate in the event of anticipated financial
difficulties, default or bankruptcy of the issuers of any such obligation.
DERIVATIVES
The Funds may invest in derivative securities as described below,
however, none of the Funds have a present intention to utilize one or more of
the various practices such that five percent or more of a Fund's net assets will
be at risk with respect to derivative practices. The successful use by a Fund of
derivatives is subject to the Adviser's ability to predict correctly movements
in one or more underlying instruments, indexes, stocks, the market generally or
a particular industry. The use of derivatives requires different skills and
techniques than predicting changes in the price of individual stocks. There can
be no assurance of a Fund's successful use of derivatives if and when utilized.
See Additional Statement for more information on derivatives, including risk
considerations.
CALL AND PUT OPTIONS ON SPECIFIC SECURITIES (THE EQUITY FUND, THE
BALANCED FUND, THE SMALLCAP FUND, THE MIGHTY MITES(SM) FUND AND THE REALTY FUND)
- -- A Fund may invest up to 5% of its assets, represented by the premium paid, in
the purchase of call and put options in respect of specific securities. A Fund
may write covered call and put option contracts to the extent of 10% of the
value of its net assets at the time such option contracts are written. A call
option gives the purchaser of the option the right to buy, and obligates the
writer to sell, the underlying security at the exercise price at any time during
the option period. Conversely, a put option gives the purchaser of the option
the right to sell, and obligates the writer to buy, the underlying security at
the exercise price at any time during the option period.
STOCK INDEX OPTIONS (THE EQUITY FUND, THE BALANCED FUND, THE SMALLCAP
FUND, THE MIGHTY MITES(SM) FUND AND THE REALTY FUND) -- A Fund may purchase and
write put and call options on stock indexes listed on national securities
exchanges as an investment vehicle for the purpose of realizing its investment
objectives or for the purpose of hedging its portfolio. A stock index fluctuates
with changes in the market values of the stocks included in the index. Should a
Fund seek to engage in transactions concerning put and call options on stock
indexes, options would be purchased or written with respect to not more than 25%
of the value of the Fund's net assets.
FUTURES TRANSACTIONS -- IN GENERAL (ALL FUNDS AS NOTED BELOW) -- The
Funds are not commodity pools. However, the Funds may engage in futures
transactions, including those relating to indexes, as described below.
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A Fund's commodities transactions must constitute bona fide hedging or
other permissible transactions pursuant to regulations promulgated by the
Commodity Futures Trading Commission (the "CFTC"). In addition, a Fund may not
engage in such activities if the sum of the amount of initial margin deposits
and premiums paid for unexpired commodity options would exceed 5% of the fair
market value of a Fund's assets, after taking into account unrealized profits
and unrealized losses on such contracts it has entered into; provided, however,
that in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in calculating the 5%.
STOCK INDEX FUTURES (THE EQUITY FUND, THE BALANCED FUND, THE SMALLCAP
FUND, THE MIGHTY MITES FUND(SM) AND THE REALTY FUND) -- A Fund may purchase and
sell stock index futures contracts. A stock index future obligates the seller to
deliver (and the purchaser to take) an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the underlying stocks in the index is
made. A Fund will intend to purchase and sell futures contracts on the stock
index for which it can obtain the best price with consideration also given to
liquidity. A Fund may not purchase or sell stock index futures contracts if,
immediately thereafter, more than 25% of its net assets would be hedged.
INTEREST RATE FUTURES (THE BALANCED FUND AND THE INTERMEDIATE BOND
FUND) -- A Fund may purchase an interest rate futures contract, in anticipation
of a decline in interest rates, and resulting increase in market price, in debt
securities the Fund intends to acquire. A Fund may sell an interest rate futures
contract, in anticipation of an increase in interest rates, and resulting
decline in market price, in debt securities the Fund owns. An interest rate
futures contract is an agreement to purchase or sell an agreed amount of debt
securities at a set price for delivery on a future date. These transactions are
subject to similar risk factors as those described above with respect to stock
index futures. A Fund may not purchase or sell interest rate futures contracts
if, immediately thereafter, more than 25% of its net assets would be hedged.
OPTIONS ON FUTURES (ALL FUNDS) -- A Fund may purchase and write call
and put options on futures contracts which are traded on a United States
exchange or board of trade. An option on a futures contract gives the purchaser
the right, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time during the option period.
Upon exercise of the option, the writer of the option is obligated to convey the
appropriate futures position to the holder of the option. If an option is
exercised on the last trading day before the expiration date of the option, a
cash settlement will be made in an amount equal to the difference between the
closing price of the futures contract and the exercise price of the option. The
risks associated with these transactions are similar to those described above
with respect to options on securities. A Fund may not purchase or write options
on futures if, immediately thereafter, more than 25% of its net assets would be
hedged.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (ALL FUNDS) -- A Fund may
enter into forward foreign currency exchange contracts for hedging and
non-hedging purposes. A forward foreign currency exchange contract is a contract
individually negotiated and privately traded by currency traders and their
customers. A forward contract involves an obligation to purchase or sell a
specific currency for an agreed price at a future date, which may be any fixed
number of days from the date of the contract. A Fund may engage in cross-hedging
by using forward contracts in one currency to hedge against fluctuations in the
value of securities denominated in a different currency. The purpose of entering
into forward currency contracts for hedging purposes is to minimize the risk to
a Fund from adverse changes in the relationship between the U.S. Dollar and
foreign currencies.
MORTGAGE-RELATED SECURITIES (THE BALANCED FUND AND THE INTERMEDIATE
BOND FUND) -- Mortgage pass-through securities are securities representing
interests in "pools" of mortgages in which payments of both interest and
principal on the securities are made monthly, in effect "passing through"
monthly payments made by the individual borrowers on the residential mortgage
loans which underlie the securities (net of fees paid to the issuer or guarantor
of the securities).
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Early repayment of principal on mortgage pass-through securities
(arising from prepayments of principal due to sale of the underlying property,
refinancing, or foreclosure, net of fees and costs which may be incurred) may
expose a Fund to a lower rate of return upon reinvestment of principal. Also, if
a security subject to repayment has been purchased at a premium, in the event of
prepayment the value of the premium would be lost. Like other fixed-income
securities, when interest rates rise, the value of a mortgage-related security
generally will decline and generally may also increase the inherent volatility
of the mortgage-related security by effectively converting short-term debt
instruments into long-term debt instruments; however, when interest rates
decline, the value of mortgage-related securities with prepayment features may
not increase as much as other fixed-income securities. In recognition of this
prepayment risk to investors, the Public Securities Association (the "PSA") has
standardized the method of measuring the rate of mortgage loan principal
prepayments. The PSA formula, the Constant Prepayment Rate (the "CPR") or other
similar models that are standard in the industry will be used by a Fund in
calculating maturity for purposes of its investment in mortgage-related
securities.
Payment of principal and interest on some mortgage pass-through
securities (but not the market value of the securities themselves) may be
guaranteed by the full faith and credit of the U.S. Government (in the case of
securities guaranteed by the Government National Mortgage Association ("GNMA"));
or guaranteed by agencies or instrumentalities of the U.S. Government (in the
case of securities guaranteed by the Federal National Mortgage Association
("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"), which are
supported only by the discretionary authority of the U.S. Government to purchase
the agency's obligations). Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers) may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance, and
letters of credit, which may be issued by governmental entities, private
insurers or the mortgage poolers.
Collateralized Mortgage Obligations ("CMOs") are hybrid instruments
with characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and prepaid principal on a CMO are paid,
in most cases, monthly. CMOs may be collateralized by whole mortgage loans but
are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured into multiple
classes, with each class bearing a different stated maturity and principal
payment schedule. To the extent a particular CMO is issued by an investment
company, a Fund's ability to invest in such CMOs will be limited. See
"Investment Restrictions" in the Additional Statement.
OTHER ASSET-BACKED SECURITIES (THE BALANCED FUND AND THE INTERMEDIATE
BOND FUND) -- Other asset-backed securities (unrelated to mortgage loans) have
been offered to investors, such as Certificates for Automobile Receivables
("CARS(SM)"). CARS(SM) represent undivided fractional interests in a trust
("trust") whose assets consist of a pool of motor vehicle retail installment
sales contracts and security interests in the vehicles securing the contracts.
Payments of principal and interest on CARS(SM) are "passed through" monthly to
certificate holders and are guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution unaffiliated
with the trustee or originator of the trust or by the existence of a
subordinated class of securities. Underlying sales contracts are subject to
prepayment, which may reduce the overall return to certificate holders. If the
letter of credit is exhausted, certificate holders may also experience delays in
payment or losses on CARS(SM) if the full amounts due on underlying sales
contracts are not realized by the trust because of unanticipated legal or
administrative costs of enforcing the contracts, or because of depreciation,
damage or loss of the vehicles securing the contracts, or other factors. For
asset-backed securities, the industry standard uses a principal prepayment
model, the ABS model, which is similar to the PSA described previously under
"Mortgage-Related Securities". Either the PSA model, the ABS model or other
similar models that are standard in the industry will be used by a Fund in
calculating maturity for purposes of its investment in asset-backed securities.
LENDING PORTFOLIO SECURITIES (ALL FUNDS) -- To earn additional income,
a Fund may lend securities from its portfolio to brokers, dealers or other
financial institutions needing to borrow securities to complete certain
transactions. Such loans may not exceed 33 1/3% of a Fund's total assets. In
connection with such loans, a Fund will receive collateral which will be
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. A Fund can increase its income through
the investment of such collateral.
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ILLIQUID SECURITIES (ALL FUNDS, EXCEPT AS NOTED IN "CERTAIN FUNDAMENTAL
POLICIES" BELOW) -- Each Fund may invest its net assets in securities as to
which a liquid trading market does not exist, provided such investments are
consistent with the Fund's investment objective. Such securities may include
securities that are not readily marketable, such as certain securities that are
subject to legal or contractual restrictions on resale, repurchase agreements
providing for settlement in more than seven days after notice, and certain
privately negotiated, non-exchange traded options and securities used to cover
such options. As to these securities, the Fund is subject to a risk that should
the Fund desire to sell them when a ready buyer is not available at a price the
Fund deems representative of their value, the value of the Fund's net assets
could be adversely affected. Illiquid securities do not include securities
eligible for resale pursuant to Rule 144A of the Securities Act of 1933, or
other restricted securities, which have been determined liquid by the Fund's
Board of Trustees.
CERTAIN FUNDAMENTAL POLICIES (ALL FUNDS, EXCEPT AS NOTED BELOW) -- Each
Fund (i) may borrow money from banks, but only for temporary or emergency (not
leveraging) purposes, in an amount up to 5% of the value of its total assets
(including the amount borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made; (ii) may pledge, hypothecate, mortgage or otherwise encumber its assets,
but only in an amount up to 10% of the value of its total assets to secure
borrowings for temporary or emergency purposes, or up to 20% in connection with
the purchase and sale of put and call options; (iii) may invest up to 5% of the
value of its total assets in the securities of any one issuer (This restriction
applies only with respect to 75% of the total assets of each Fund); (iv) may
invest up to 25% of its total assets in any single industry; and (v) may invest
up to 10% of its total assets in time deposits maturing from two business days
through seven calendar days. The Equity Fund may invest up to 10% of its net
assets in securities that have not been registered under the Securities Act of
1933, as amended, and therefore are subject to restrictions on resale, in
repurchase agreements providing for settlement in more than seven days after
notice and in securities that are not readily marketable (including those
options in respect of specific securities that are not traded on a national
securities exchange, and the underlying securities, which are not readily
marketable). Subject to this limitation, the Equity Fund may invest in
securities eligible for resale pursuant to Rule 144A of the Securities Act of
1933 which have been determined to be liquid by the Fund's Board of Trustees
based upon the trading markets for the securities. Each of the other Funds
excluding the SmallCap Fund, Mighty Mites Fund and Realty Fund may invest up to
10% of its net assets in repurchase agreements providing for settlement in more
than seven days after notice and in securities that are not readily marketable.
Included in this limitation are "restricted" securities and any other assets for
which an active and substantial market does not exist at the time of purchase or
subsequent valuation. Restricted securities for purposes of this limitation do
not include investments by these Funds in securities eligible for resale
pursuant to Rule 144A of the Securities Act of 1933 which have been determined
to be liquid by the Fund's Board of Trustees based upon the trading markets for
the securities (see "Investment Objectives and Management Policies -- Rule 144A
Securities" in the Additional Statement for further details). This paragraph
describes fundamental policies that cannot be changed without approval by the
holders of a majority (as defined in the Investment Company Act of 1940) of each
Fund's outstanding voting shares. See "Investment Objectives and Management
Policies -- Investment Restrictions" in the Additional Statement.
OTHER INVESTMENT CONSIDERATIONS -- Investment decisions for each Fund
are made independently from those of other investment advisory accounts that may
be advised by the Adviser or Sub-Adviser. However, if such other investment
advisory accounts are prepared to invest in, or desire to dispose of, securities
of the type in which a Fund invests at the same time as the Fund, available
investments or opportunities for sales will be allocated equitably to each of
them. In some cases, this procedure may adversely affect the size of the
position obtained for or disposed of by a Fund or the price paid or received by
the Fund.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER AND ADMINISTRATOR
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Gabelli Advisers, Inc. (formerly Teton Advisers LLC prior to November
7, 1997), located at One Corporate Center, Rye, New York 10580-1434, is adviser
to the Funds. The Adviser is a Delaware corporation. Gabelli and its affiliates
own a majority of the Adviser. Gabelli and Gabelli Advisers are registered
investment advisers. The Adviser has entered into a Sub-Advisory Agreement with
Westwood whereby Westwood serves as sub-advisor to the Funds, with the exception
of the Mighty Mites Fund with which there is not a Sub-Advisory Agreement. Under
the Sub-Advisory Agreement, the Adviser pays Westwood out of its advisory fees
with respect to the Funds (except the Mighty Mites Fund) a fee computed daily
and payable monthly in an amount equal on an annualized basis to the greater of
(i) $150,000 per year on an aggregate basis for all the applicable Funds or (ii)
35% of the net revenues to the Adviser from the applicable Funds. Westwood
Management Corporation, formed in 1983 and located at 300 Crescent Court, Suite
1300, Dallas, TX 75201, is a registered investment adviser managing, as of
September 30, 1998, an aggregate of approximately $1.7 billion in separate
accounts, primarily corporate pension funds. Westwood Management Corporation is
a wholly owned subsidiary of Southwest Securities Group, Inc., a Dallas based
securities firm. Susan M. Byrne, President of the Sub-Adviser since 1983, is
responsible for the day-to-day management of the Equity Fund along with Kellie
R. Stark, Vice President of the Sub-Advisor since 1992. Patricia R. Fraze,
Executive Vice President of the Sub-Adviser since 1990, is a co-manager, along
with Ms. Byrne, for the Balanced Fund's portfolio. Ms. Fraze is also responsible
for the day-to-day management of the Intermediate Bond Funds' portfolio. Lynda
Calkin, Senior Vice President of the Sub-Advisor since 1993, and C.J. MacDonald,
Vice President of the Sub-Advisor since 1994, are responsible for the day-to-day
management of the SmallCap Equity Fund. Ms. Byrne and Timothy M. Ognisty, Vice
President of the Sub-Advisor since 1996, are responsible for the day-to-day
management of the Realty Fund. Mario J. Gabelli, Marc J. Gabelli, Laura Linehan
and Walter Walsh are the individuals primarily responsible for the day-to-day
management of the Mighty Mites Fund. Mario J. Gabelli has been Chairman, Chief
Executive Officer and Chief Investment Officer of Gabelli Funds, Inc. since its
organization in 1980; Marc J. Gabelli has been Managing Director and an analyst
of Gabelli Funds, Inc. since 1993 and Portfolio Manager of the Gabelli Global
Interactive Couch Potato Fund and co-manager of the Gabelli Global Opportunity
Fund; Laura Linehan has been Director of Creative Research at Gabelli & Company,
Inc. where she has been a securities analyst since May 1995, an associate in
Corporate Finance at Smith Barney from May 1994 and a senior associate financial
analyst at the IBM Corporation from June 1993; and Walter K. Walsh has been
Compliance Officer of Gabelli & Company, Inc. since 1994, Compliance Officer at
Dime Securities, Inc. from August 1993 to September 1994, and prior to that a
staff member at the SEC for 24 years. Westwood has had other private advisory
accounts that have been invested in the smallcap and realty asset classes.
The Adviser provides advice and supervision with respect to the Funds'
compliance with applicable law, rules and regulations as well as the investment
restrictions set forth herein. Westwood has sole discretion to manage the
day-to-day portfolio activities of the Funds (with the exception of the Mighty
Mites Fund) within the parameters set by the Sub-Advisory Agreement and
contained herein. The Adviser has no authority with respect to individual
investment decisions for the Funds. The Investment Advisory Agreement provides
that the Adviser will supervise and manage each Fund's investment activities on
a discretionary basis and oversee the administration of each Fund's business and
affairs. In this connection the Adviser is responsible for maintaining certain
of the Funds' books and records and performing other administrative aspects of
the Funds' operations to the extent not performed by the Funds' custodians,
transfer agents and dividend disbursing agents. The Adviser is permitted to
subcontract at its own expense those administrative responsibilities to persons
it believes are qualified to perform such services. As compensation for its
services and related expenses, the Trust will pay the Adviser a fee computed
daily and payable monthly in an amount equal on an annualized basis to 1.0% for
the Equity Fund, 1.0% for the SmallCap Fund, 1.0% for the Mighty Mites Fund,
1.0% for the Realty Fund, .60% for the Intermediate Bond Fund and .75% for the
Balanced Fund of each Fund's daily average net asset value. The fees paid by the
Trust for the Equity Fund, the SmallCap Fund, the Mighty Mites Fund, the Realty
Fund, and the Balanced Fund are higher than the fees paid by most funds for such
services and related expenses. The Funds will also pay the Adviser or
Distributor separately for any costs and expenses incurred in connection with
distribution of the classes of each Fund's shares in accordance with the terms
of their respective Plans of Distribution adopted for such classes pursuant to
Rule 12b-1 under the 1940 Act.
The Adviser has retained at its own cost BISYS Fund Services, Inc.
("BISYS") (the "Sub-Administrator") to provide administrative services with
respect to the Funds. BISYS has its main office at 3435 Stelzer Road,
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Columbus, Ohio 43219. BISYS is a registered transfer agent and broker-dealer and
acts as administrator and general distribution agent for certain other
investment companies.
DISTRIBUTOR
Gabelli & Company, Inc. serves as the distributor (the "Distributor")
of the Funds and is an indirect subsidiary of Gabelli Funds, Inc. The business
address of Gabelli & Company, Inc. is One Corporate Center, Rye, New York
10580-1434.
The Funds' shareholders have approved a Plan of Distribution for the
Retail Class shares pursuant to Rule 12b-1 (the "Retail 12b-1 Plan"). The Retail
12b-1 Plan authorizes payments by the Funds in connection with the distribution
of the Funds' Retail Class shares at an annual rate of .25% of the Funds'
average daily net assets.
Payments may be made by the Funds under the Retail 12b-1 Plan for the
purpose of financing any activity primarily intended to result in the sale of
the Retail Class shares of the Funds as determined by the Board of Trustees. To
the extent any activity is one which the Funds may finance without a plan of
distribution, the Funds may also make payments to finance such activity outside
of the Retail 12b-1 Plan and not be subject to its limitations. On August 8,
1997, the Trustees of the Funds approved an amendment to the Plan such that
payments under the Plan are not solely dependent on distribution expenses
actually incurred by the Distributor.
PURCHASE OF SHARES
Retail Class Shares are no-load. The minimum initial investment is
$1,000. There is no minimum initial investment for accounts establishing an
Automatic Investment Plan. Custodial accounts for minor children are also
available. There is no minimum for subsequent investments. Shares of the Funds
are sold at the public offering price based on the net asset value per share
next determined after receipt of an order by the Funds' Distributor or transfer
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agent in proper form with accompanying check or bank wire payments arrangements
satisfactory to the Funds. Although most shareholders elect not to receive stock
certificates, certificates for whole shares only can be obtained on specific
written request to the Transfer Agent.
Shares of the Funds may be purchased through registered broker-dealers.
Certain broker-dealers may charge the investor a fee for their services.
Compensation to sales persons may vary depending upon which class of shares they
sell. Such fees may vary among broker-dealers, and such broker-dealers may
impose higher initial or subsequent investment requirements than those
established by the Funds. Services provided by broker-dealers may include
allowing the investor to establish a margin account and to borrow on the value
of such Fund's shares in that account.
Prospectuses, sales material and subscription order forms
("applications") may be obtained from the Distributor. The Funds and the
Distributor reserve the right in their sole discretion (1) to suspend the
offering of the Funds' shares and (2) to reject purchase orders when, in the
judgment of the Funds' management, such rejection is in the best interest of the
Funds. The calculation of net asset value per share is performed at 4:00 p.m.
eastern time for each Fund on each day that the NYSE is open for business. Net
asset value per share is computed by dividing the value of a Fund's net assets
(i.e., the value of its assets less its liabilities) by the total number of
shares outstanding. All expenses of the Funds are accrued daily and taken into
account for the purpose of determining net asset value. In determining net asset
value, securities listed on an exchange are valued on the basis of the last sale
price prior to the time the valuation is made. If there has been no sale since
the immediately previous valuation, then the mean price between bid and asked
price is used. Quotations are taken for the exchange where the security is
primarily traded. Portfolio securities which are primarily traded on foreign
exchanges may be valued with the assistance of a pricing service and are
generally valued at the preceding closing values of such securities on their
respective exchanges, except that when an occurrence subsequent to the time a
foreign security is valued is likely to have changed such value, then the fair
value of those securities will be determined by consideration of other factors
by or under the direction of the Board of Trustees. Over-the-counter securities
are valued on the basis of the mean price between bid and asked at the close of
business on each business day. Securities for which market quotations are not
readily available are valued at fair value as determined in good faith by or at
the direction of the Board of Trustees. Notwithstanding the above, bonds and
other fixed-income securities are valued by using market quotations and may be
valued on the basis of prices provided by a pricing service approved by the
Board of Trustees. All assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars at the mean between the bid and
asked prices of such currencies against U.S. dollars as last quoted by any major
bank.
With respect to written options contracts, the premium received is
recorded as an asset and equivalent liability, and thereafter the liability is
adjusted to the market value of the option determined in accordance with the
preceding paragraph. The premium paid for an option purchased by a Fund is
recorded as an asset and subsequently adjusted to market value. See
"Determination of Net Asset Value" in the Additional Statement .
MAIL
To make an initial purchase by mail, send a completed application with
a check for the amount of the investment payable to "The Gabelli Westwood
Funds," to: THE GABELLI WESTWOOD FUNDS, P.O. BOX 8308, BOSTON, MA 02266-8308.
You may also personally deliver a check made payable to "The Gabelli Westwood
Funds" along with a completed application to: THE GABELLI WESTWOOD FUNDS, THE
BFDS BUILDING, 7TH FLOOR, TWO HERITAGE DRIVE, NORTH QUINCY, MA 02171.
Subsequent purchases do not require a completed application and can be
made by (1) mailing a check to the same address noted above or by (2) bank wire,
as indicated below. The exact name and number of the shareholder's account
should be clearly indicated.
Checks will be accepted if drawn in U.S. currency on a domestic bank
for less than $100,000. U.S. dollar checks drawn against a non-U.S. bank may be
subject to collection delays and will be accepted only upon actual receipt of
funds by the Transfer Agent. Bank collection fees may apply. Bank or certified
checks for investments of
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$100,000 or more will be required unless the investor elects to invest by bank
wire as described below. Third party checks are not accepted.
BANK WIRE
To initially purchase shares of the Funds using the wire system for
transmittal of money among banks, an investor should first telephone the Funds
at 1-800-GABELLI to obtain a new account number. The investor should instruct a
Federal Reserve System member bank to wire funds to:
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State Street Bank and Trust Company
ABA #011-0000-28 REF DDA #99046187
Attn: Shareholder Services
Re: The Gabelli Westwood Funds
A/C #_________________________
Account of (Registered Owner)
225 Franklin Street, Boston, MA 02110
For initial purchases by wire, the investor should promptly complete
and mail the application to the address shown above for mail purchases. There
may be a charge by your bank for transmitting the money by bank wire but State
Street Bank and Trust Company does not charge investors in the Funds for the
receipt of wire transfers. If you are planning to wire funds, it is suggested
that you instruct your bank early in the day so the wire transfer can be
accomplished the same day.
TELEPHONE INVESTMENT PLAN
You may purchase additional shares of the Funds by telephone through
the Automated Clearinghouse (ACH) system as long as your bank is a member of the
ACH system and you have a completed, approved Investment Plan application on
file with our Transfer Agent. The funding for your purchase will be
automatically deducted from the ACH eligible account you designate on the
application. Your investment will normally be credited to your Gabelli Westwood
Fund account on the first business day following your telephone request. Your
request must be received no later than 4:00 p.m. eastern time. There is a
minimum of $100 for each telephone investment. Any subsequent changes in banking
information must be submitted in writing and accompanied by a sample voided
check. To initiate an ACH purchase, please call 1-800-GABELLI. Fund shares
purchased through the Telephone or Automatic Investment Plan will not be
available for redemption for up to fifteen (15) days following the purchase
date.
AUTOMATIC INVESTMENT PLAN
The Funds offer an automatic monthly investment plan, details of which
can be obtained from the Distributor. There is no minimum initial investment for
accounts establishing an automatic investment plan.
OTHER INVESTORS
No minimum initial investment is required for officers, directors or
full-time employees of the Funds, other investment companies managed by the
Sub-Adviser, the Adviser, the Administrator, the Distributor or their
affiliates, including members of the "immediate family" of such individuals and
retirement plans and trusts for their benefit. The term "immediate family"
refers to spouses, children and grandchildren (adopted or natural), parents,
grandparents, siblings, a spouse's siblings, a sibling's spouse and a sibling's
children.
REDEMPTION OF SHARES
Upon receipt by the Distributor or the Transfer Agent of a redemption
request in proper form, shares of the Funds will be redeemed at their next
determined net asset value. Redemption requests received after the time as of
which each Fund's net asset value is determined on a particular day will be
redeemed at the next determined net asset value of such Fund on the next day
that net asset value is determined. Checks for redemption proceeds will normally
be mailed to the shareholder's address of record within seven days, but will not
be mailed until all checks in payment for the purchase of the shares to be
redeemed have been honored, which may take up to 15 days. The proceeds of a
redemption may be more or less than the amount invested and, therefore, a
redemption may result in gain or loss for income tax purposes. Redemption
requests may be made by letter to the Transfer Agent, specifying the name of the
Fund, the dollar amount or number of shares to be redeemed, and the account
number. The letter must be signed in exactly the same way the account is
registered (if there is more than one owner of the shares, all must sign) and,
if any certificates for the shares to be redeemed are outstanding, presentation
of such certificates properly endorsed is also required. Signatures on a
redemption request and/or certificates must be guaranteed by an
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"eligible guarantor institution" as such term is defined in Rule 17Ad-15 under
the Securities and Exchange Act of 1934, which includes certain banks, brokers,
dealers, credit unions, securities exchanges and associations, clearing agencies
and savings associations (signature guarantees by notaries public are not
acceptable). Shareholders may also redeem a Fund's shares through certain
registered broker-dealers, who have made arrangements with the Funds permitting
them to redeem shares by telephone or facsimile transmission and who may charge
shareholders a fee for this service if they have not received any payments under
the Distribution Plan.
Further documentation, such as copies of corporate resolutions and
instruments of authority, are normally requested from corporations,
administrators, executors, personal representatives, trustees or custodians to
evidence the authority of the person or entity making the redemption request.
If the Board of Trustees should determine that it would be detrimental
to the remaining shareholders of the Funds to make payment wholly or partly in
cash, the Funds may pay the redemption price in whole or in part by a
distribution in kind of securities from the portfolio of the Funds, in lieu of
cash, in conformity with applicable rules of the SEC. Under such circumstances,
shareholders of the Funds receiving distributions in kind of securities will
incur brokerage commissions when they dispose of the securities.
The Funds may suspend the right of redemption or postpone the date of
payment for more than seven days during any period when (1) trading on the NYSE
is restricted or the Exchange is closed, other than customary weekend and
holiday closings; (2) the SEC has by order permitted such suspension; or (3) an
emergency, as defined by rules of the SEC, exists making disposal of portfolio
investments or determination of the value of the net assets of the Funds not
reasonably practicable.
To minimize expenses, the Funds reserve the right to redeem, upon not
less than 30 days notice, all shares of the Funds in an account (other than an
IRA) which as a result of shareholder redemption has a value below $500.
However, a shareholder will be allowed to make additional investments prior to
the date fixed for redemption to avoid liquidation of the account.
TELEPHONE REDEMPTION BY CHECK
The Funds accept telephone requests for redemption of unissued shares,
subject to a $25,000 limitation. By calling 1-800-GABELLI, you may request that
a check be mailed to the address of record on the account, provided that the
address has not changed within thirty (30) days prior to your request. The check
will be made payable to the person in whose name the account is registered and
will normally be mailed within seven (7) days.
The Fund and its transfer agent will not be liable for following
telephone instructions reasonably believed to be genuine. In this regard, the
Fund and its transfer agent require personal identification information before
accepting a telephone redemption. If the Fund or its transfer agent fail to use
reasonable procedures, the Fund might be liable for losses due to fraudulent
instructions. A shareholder may redeem shares by telephone unless he elects in
the subscription order form not to have such ability.
Requests for telephone redemption must be received between 9:00 a.m.
and 4:00 p.m. eastern time. If your telephone call is received after this time
or on a day when the NYSE is not open, the request will be entered the following
business day. Shares are redeemed at the net asset value next determined
following your request. Fund shares purchased by check or through the automatic
purchase plan will not be available for redemption for up to fifteen (15) days
following the purchase. Shares held in certificate form must be returned to the
Transfer Agent for redemption of shares. Telephone redemption is not available
for IRAs. The proceeds of a telephone redemption may be directed to an existing
account in another of the Funds, provided the account is registered in the
redeeming shareholder's name. See "Exchange of Fund Shares".
BY BANK WIRE
The Funds accept telephone requests for wire redemption in excess of
$1,000 (but subject to a $25,000 limitation) to a predesignated bank either on
the application or in a subsequent written authorization with the
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signature guaranteed. The Funds accept signature guaranteed written requests for
redemption by bank wire without limitation. The proceeds are normally wired on
the following business day. Your bank must be either a member of the Federal
Reserve System or have a correspondent bank which is a member. Any change to the
banking information made at a later date must be submitted in writing with a
signature guarantee.
SYSTEMATIC WITHDRAWAL PLAN
The Funds offer a systematic withdrawal program for shareholders
whereby they can authorize an automatic redemption on a monthly, quarterly or
annual basis. Details can be obtained from the Distributor.
EXCHANGE OF FUNDS SHARES
The Funds offer two convenient ways to exchange shares in a class of
one fund for shares in a corresponding class of another fund managed by the
Adviser or an affiliate. Before engaging in an exchange transaction, a
shareholder should read carefully the portions of this Prospectus or the other
Prospectus describing the fund into which the exchange will occur. A shareholder
may not exchange shares of a class of one Fund for shares of a corresponding
class of another fund if either are not legally qualified or registered for sale
in the state of the shareholder's residence. The minimum amount for an initial
exchange is $1,000. No minimum is required in subsequent exchanges. The Trust
may terminate or amend the terms of the exchange privilege at any time upon 60
days' written notice to shareholders.
A new account opened by exchange must be established with the same
name(s), address and social security number as the existing account. All
exchanges will be made based on the net asset value next determined following
receipt of the request by a Fund in good order, plus any applicable sales load.
An exchange is taxable as a sale of a security on which a gain or loss
may be recognized. Shareholders should receive written confirmation of the
exchange within a few days of the completion of the transaction.
In the case of transactions subject to a sales charge, the sales charge
will be assessed on an exchange of shares, equal to the excess of the sales load
applicable to the shares to be acquired, over the amount of any sales load
previously paid to the Distributor on the shares to be exchanged. No service fee
is imposed. See "Dividends, Distributions and Taxes" for an explanation of
circumstances in which sales load paid to acquire shares of the Funds may not be
taken into account in determining gain or loss on the disposition of those
shares.
EXCHANGE BY MAIL
To exchange Fund shares by mail, simply send a letter of instruction to
the Distributor. The letter of instruction must include: (i) your account
number; (ii) the names of the Funds from which and into which you wish to
exchange your investment; (iii) the dollar or share amount you wish to exchange;
and (iv) the signatures of all registered owners or authorized parties. All
signatures must be guaranteed by a member of a national securities exchange or
by a commercial bank or trust company. Corporations, trusts, partnerships or
other legal entities will be required to furnish other documentation. Please
call the Funds for more information.
EXCHANGE BY TELEPHONE
To exchange Fund shares by telephone or if you have any questions,
simply call the Funds toll free at 1-800-GABELLI. You should be prepared to give
the telephone representative the following information: (i) your account number,
social security number and account registration; (ii) the names of the Funds
from which and into which you wish to exchange your investment; and (iii) the
dollar or share amount you wish to exchange. The conversation may be recorded to
protect you and the Funds. Telephone exchanges are available only if the
shareholder so indicates by checking the "yes" box on the Purchase Application.
RETIREMENT PLANS
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The Funds have available a form of "Traditional" Individual Retirement
Account ("IRA") and a "Roth" IRA for investment in Fund shares which may be
obtained from the Distributor. The minimum investment required to open an IRA
for investment in shares of the Funds is $1,000 for an individual, except that
both the individual and his or her spouse may establish separate IRAs if their
combined investment is $1,250. There is no minimum for additional investment in
an IRA account. Investors who are self-employed may purchase shares of the Funds
through tax-deductible contributions to retirement plans for self-employed
persons, known as Keogh or HR 10 plans. The Funds do not currently act as
Sponsor for such plans. Fund shares may also be a suitable investment for other
types of qualified pension or profit-sharing plans which are employer-sponsored,
including deferred compensation or salary reduction plans known as "401(k)
Plans" which give participants the right to defer portions of their compensation
for investment on a tax-deferred basis until distributions are made from the
plans. The minimum initial investment for an individual under such plans is
$1,000 and there is no minimum for additional investments.
Under the Internal Revenue Code of 1986 (the "Code"), individuals may
make wholly or partly tax deductible traditional IRA contributions of up to
$2,000 annually (married individuals filing joint returns may each contribute
$2,000 ($4,000 in the aggregate), even where one spouse is not working, if
certain other conditions are met), depending on whether they are active
participants in an employer-sponsored retirement plan and on their income level.
Dividends and distributions held in the account are not taxed until withdrawn in
accordance with the provisions of the Code.
Beginning January 1, 1998, investors satisfying statutory income level
requirements may make non-deductible contributions of up to $2,000 annually to a
Roth IRA, distributions from which are not subject to tax if a statutory five
year holding period requirement is satisfied. New for 1998, the Fund also makes
available Education IRAs. Education IRAs permit eligible individuals to
contribute up to $500 per year per beneficiary under 18 years old. Distributions
from an education IRA are generally excluded from income when used for qualified
higher education expenses. Consult your tax advisor.
Investors should be aware that they may be subject to additional tax
penalties on contributions or withdrawals from IRAs or other retirement plans
which are not permitted by the applicable provisions of the Code. Persons
desiring information concerning investments through IRA accounts or other
retirement plans should write or telephone the Distributor.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund has elected to be treated as and intends to qualify annually
as a regulated investment company pursuant to the provisions of Subchapter M of
the Code. The Funds did so qualify for the previous taxable year. By so
qualifying, each Fund generally will not be subject to Federal income tax to the
extent that it distributes its investment company taxable income and net capital
gains in the manner required under the Code. In addition, the Code subjects
regulated investment companies, such as the Funds, to a non-deductible 4% excise
tax in each calendar year to the extent that such investment companies do not
distribute substantially all of their taxable investment income and capital
gain, generally determined on a calendar year basis and the one year period
ending October 31 of each calendar year, respectively.
Each Fund intends to distribute to its shareholders substantially all
of its investment company taxable income (which includes, among other items,
dividends and interest and the excess, if any, of net short-term capital gains
(generally including any net option premium income) over net long-term capital
losses). Investment company taxable income will be distributed annually by the
Equity Fund, the Mighty Mites Fund and the SmallCap Fund and quarterly by the
Realty Fund and the Balanced Fund. The Intermediate Bond Fund will declare
distributions of such income daily and pay those dividends monthly. Each Fund
intends to distribute, at least annually, substantially all net capital gains
(the excess of net long-term capital gains over net short-term capital losses).
Shareholders will be advised as to the amount of the capital gains distribution,
which are generally taxable at a maximum rate of 20% for non-corporate
shareholders (25% in the case of certain capital gains distributions from
REITs). In determining amounts of capital gains to be distributed, any capital
loss carryovers
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from prior years will be applied against capital gains to reduce the amount of
distributions paid. In addition, any losses incurred in the taxable year
subsequent to October 31 will be deferred to the next taxable year and used to
reduce subsequent year distributions (see "Dividends, Distributions and Taxes"
in the Additional Statement). You may choose whether to receive dividends and
distributions in cash or to reinvest in additional shares of the class in which
you are invested at the next determined net asset value without a sales load,
but you will be subject to tax in the manner described herein even if you choose
to have your dividends and distributions reinvested in additional shares.
Dividends from net investment income or distributions of net realized
short-term securities gains to shareholders generally are taxable as ordinary
income whether received in cash or reinvested in additional shares.
Distributions of net capital gains to shareholders are taxable as capital gains
whether received in cash or reinvested in additional shares. Shareholders will
be notified after the end of year as to the percentage of long-term capital
gains to be treated as 28% rate gain.
Special tax rules may apply to a Fund's acquisition of futures
contracts, forward contracts, and options on futures contracts. Such rules may,
among other things, affect whether gains and losses from such transactions are
considered to be short-term or long-term, may have the effect of deferring
losses and/or accelerating the recognition of gains or losses.
It is anticipated that a portion of the ordinary income dividends paid
by the Equity Fund, the SmallCap Fund, the Mighty Mites Fund and the Balanced
Fund will qualify for the dividends-received deduction available to
corporations. Shareholders will be notified at the end of the year as to the
amount of the dividends that qualify for the dividends-received deduction.
Under certain circumstances, the sales charge incurred in acquiring
shares of a Fund may not be taken into account in determining the gain or loss
on the disposition of those shares. This rule applies where shares of a Fund are
exchanged within 90 days after the date they were purchased and new shares of a
Fund are acquired without a sales charge or at a reduced sales charge. In that
case, the gain or loss recognized on the exchange will be determined by
excluding from the tax basis of the shares exchanged all or a portion of the
sales charge incurred in acquiring those shares. This exclusion applies to the
extent that the otherwise applicable sales load with respect to the newly
acquired shares is reduced as a result of having incurred a sales load
initially. The portion of the sales load affected by this rule will be treated
as a sales load paid for the new shares.
The Funds may be required to withhold for Federal income tax ("backup
withholding") 31% of the distributions and the proceeds of redemptions payable
to shareholders who fail to provide a correct taxpayer identification number or
to make required certifications, or where a Fund or shareholder has been
notified by the Internal Revenue Service that the shareholder is subject to
backup withholding. Corporate shareholders and certain other shareholders
specified in the Code are exempt from backup withholding.
Those Funds which may invest in securities of foreign issuers may be
subject to withholding and other similar income taxes imposed by a foreign
country.
Notice as to the tax status of your dividends and distributions is
mailed to you annually. You also will receive periodic summaries of your
account. Dividends and distributions may be subject to state and local taxes.
Dividends paid or credited to accounts maintained by non-resident shareholders
may also be subject to U.S. non-resident withholding taxes. You should consult
your tax adviser regarding specific questions as to Federal, state and local
income and withholding taxes.
PERFORMANCE INFORMATION
A Fund may, from time to time, include its yield, if applicable, and
total return in advertisements or reports to shareholders or prospective
investors. The methods used to calculate the yield and total return of the Funds
are mandated by the SEC.
Quotations of "yield" for each Fund will be based on the investment
income per share during a particular 30-day (or one month) period (including
dividends and interest), less expenses accrued during the period ("net
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investment income"), and will be computed by dividing net investment income by
the maximum public offering price per share on the last day of the period.
A Fund's average annual total return is expressed in terms of the
average annual compounded rate of return of a hypothetical investment in the
Fund over periods of one, five and ten years (up to the life of the Fund or for
shorter time periods depending upon the length of time during which the Fund has
operated), reflect the deduction of a proportional share of Fund expenses (on an
annual basis), and assume that all dividends and distributions are reinvested
when paid.
Performance information for a Fund may be compared to various unmanaged
indices, such as the Standard & Poor's Composite Stock Price Index, the Dow
Jones Industrial Average, the Russell 2000 Index, Lehman Brothers
Corporate/Government Bond Index, National Association of REIT Index, indices
prepared by Lipper Analytical Services, Morningstar ratings and other entities
or organizations which track the performance of investment companies.
Performance will vary and past results are not necessarily
representative of future results. You should remember that performance is a
function of portfolio management in selecting the type and quality of portfolio
securities and is affected by operating expenses. Performance information, such
as that described above, may not provide a basis for comparison with other
investments or other investment companies using a different method of
calculating performance.
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GENERAL INFORMATION
The Funds are series portfolios of The Gabelli Westwood Funds, a
Massachusetts business trust (the "Trust") organized pursuant to an Agreement
and Declaration of Trust (the "Trust Agreement"), as amended and restated on
June 12, 1986. On November 18, 1997, the Board of Trustees approved the change
in the name of the Trust from The Westwood Funds to The Gabelli Westwood Funds.
The Trust is authorized to issue an unlimited number of shares of beneficial
interest, par value $.001 per share. Each share has one vote and, when issued,
is fully paid and non-assessable. The Board of Trustees may, in the future,
authorize the issuance of other series of shares of beneficial interest
representing shares of other investment portfolios which may consist of separate
classes as in the case of the Funds. Each additional portfolio within the Trust
is separate for investment and accounting purposes and is represented by a
separate series of shares. Each portfolio will be treated as a separate entity
for Federal income tax purposes.
Each Fund is comprised of two classes of shares -- the "Retail Class"
and the "Service Class" (the SmallCap Fund, the Mighty Mites Fund and Realty
Fund will currently offer only Retail Class shares). The classes have identical
rights with respect to the series portfolio of which they are a part; however,
there are certain matters affecting one class but not another, such as the
existence of a load and the amount of permissible payments under a distribution
plan, which may be considered to create a preference. On all such matters,
shareholders vote as a class, and not by series. Service Class shares are sold
to investors who purchase their shares through an entity that has signed a
Dealer Agreement with the Distributor for such shares. Retail Class shares are
sold to all other investors by dealers for certain retirement plans, through
other special programs and to those who contact the Fund directly or purchase
shares through an entity that has signed an agreement to offer the Retail Class
shares (e.g., Charles Schwab & Co., Inc. or Fidelity Brokerage Services).
Service Class shares have higher 12b-1 fees than the Retail Class shares and
unlike Retail Class shares are subject to a sales load. These differences in
fees and charges may affect performance. Investors may inquire about classes of
shares not offered by this prospectus by calling 1-800-GABELLI.
Shareholders have the right to vote on the election of Trustees and on
any and all matters which, by law or the provisions of the Trust's Declaration
of Trust, they may be entitled to vote. All shares of the Trust have equal
voting rights and will be voted in the aggregate, and not by class or series,
except where voting by class or series is required by law or where the matter
involved affects only one class.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Trust Agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee on behalf of the Trust. The Trust Agreement provides for
indemnification from the Trust's property for all losses and expenses of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of shareholders incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations, a possibility which management believes is remote. Upon
payment of any liability incurred by the Trust, the shareholder paying such
liability will be entitled to reimbursement from the general assets of the
Trust. The Trustees intend to conduct the operations of the Trust in such a way
so as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust. As described under "Management of the Funds" in the
Additional Statement, the Funds ordinarily will not hold shareholder meetings;
however, the Trustees are required to call a meeting for the purpose of
considering the removal of persons serving as Trustee if requested in writing to
do so by the holders of not less than 10% of the outstanding shares of the
Trust. Under the Trust Agreement, shareholders of record of not less than
two-thirds of the outstanding shares of the Trust may remove a Trustee either by
declaration in writing or by vote cast in person or by proxy at a meeting called
for such purpose. In connection with the calling of such shareholder meetings,
shareholders will be provided with communication assistance.
Like other funds and business organizations around the world, the Trust
could be adversely affected if the computer systems used by the Adviser and the
Trust's other service providers do not properly process and calculate
date-related information for the year 2000 and beyond. The Trust has been
informed that the Adviser and the Trust's other service providers (i.e.,
Administrator, Transfer Agent, Fund Accounting Agent, Distributor and Custodian)
have developed and are implementing plans to minimize the risk associated with
the Year 2000 problem. These plans include the following activities:
inventorying of software systems, determining inventory items that may not
function properly after December 31, 1999,
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reprogramming or replacing such systems and retesting for Year 2000 readiness.
In addition, the service providers are obtaining assurances from their vendors
and suppliers in the same manner. Non-compliant Year 2000 systems upon which the
Trust is dependent may result in errors and account maintenance failures. The
Trust has no reason to believe that (1) the Year 2000 plans of the Adviser and
the Trust's other service providers for services critical to the Trust's
operations will not be completed by December 31, 1999,and (2) the costs
currently associated with the implementation of their plans will have material
adverse impact on the business, operations or financial condition of the Trust
or its service providers.
In addition, the Year 2000 problem may adversely affect the companies
in which the Trust invests. For example, these companies may incur substantial
costs to correct the problem and may suffer losses caused by data processing
errors.
Since the ultimate costs or consequences of incomplete or untimely
resolution of the Year 2000 problem by the Trust's service providers are unknown
to the Trust at this time, there may be costs or consequences having a material
adverse impact on the Trust, its service providers and/or your account records.
The Trust and the Adviser will continue to monitor developments relating to this
issue.
State Street Bank and Trust Company and its affiliate, Boston Financial
Data Services, maintain a record of share ownership and send to shareholders
confirmations and statements of account.
Shareholder inquiries may be made by writing to The Gabelli Westwood
Funds at One Corporate Center, Rye, New York 10580-1434, calling 1-800-GABELLI
or through the Internet http://www.gabelli.com/westwood, or email:
[email protected].
Upon request, Gabelli & Company, Inc. will provide, without a charge, a
paper copy of this Prospectus to investors or their representatives who received
this Prospectus in an electronic format.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, THE ADDITIONAL STATEMENT, AND IN THE FUNDS' OFFICIAL SALES
LITERATURE IN CONNECTION WITH THE OFFER OF FUND SHARES, AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUNDS, ITS INVESTMENT ADVISER, DISTRIBUTOR, OR ANY AFFILIATE
THEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR
TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT LAWFULLY BE MADE.
36
<PAGE> 39
THE GABELLI WESTWOOD FUNDS
One Corporate Center
Rye, New York 10580-1434
http://www.gabelli.com/westwood
GENERAL AND ACCOUNT INFORMATION:
1-(800) GABELLI
1-(800) 422-3554
Fax 1-(914) 921-5118
INVESTMENT ADVISER
Gabelli Advisers, Inc.
One Corporate Center
Rye, New York 10580-1434
INVESTMENT SUB-ADVISER
Westwood Management Corporation
300 Crescent Court
Suite 1300
Dallas, TX 75201
DISTRIBUTOR
Gabelli & Company, Inc.
One Corporate Center
Rye, New York 10580-1434
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
37
<PAGE> 40
TABLE OF CONTENTS
PAGE
----
Fee Table...................................
Financial Highlights........................
Description of the Funds and Risk
Considerations............................
Management of the Funds.....................
Purchase of Shares..........................
Redemption of Shares........................
Exchange of Funds Shares....................
Retirement Plans............................
Dividends, Distributions and Taxes..........
Performance Information.....................
General Information.........................
38
<PAGE> 41
THE
GABELLI
WESTWOOD
FUNDS
EQUITY FUND
BALANCED FUND
SMALLCAP EQUITY FUND
MIGHTY MITES(SM) FUND
REALTY FUND
INTERMEDIATE BOND FUND
RETAIL CLASS
PROSPECTUS
-----------------
DECEMBER 21, 1998
-----------------
39
<PAGE> 42
THE GABELLI WESTWOOD FUNDS
==========================
One Corporate Center
Rye, New York 10580-1434
Telephone: 1-800-GABELLI (1-800-422-3554)
http://www/gabelli.com/westwood
SERVICE CLASS PROSPECTUS -- DECEMBER 21, 1998
The Gabelli Westwood Funds (the "Trust") is an open-end, diversified,
management investment company, known as a mutual fund, which currently consists
of six separate investment portfolios that offer two separate classes of shares.
This Prospectus provides information about "Service Class" shares for three of
the portfolios. The portfolios are referred to as the Gabelli Westwood Equity
Fund, the Gabelli Westwood Balanced Fund, and the Gabelli Westwood Intermediate
Bond Fund (collectively, the "Funds"). Service Class shares are offered
exclusively to investors who have purchased their shares through an entity that
has signed a Dealer Agreement with Gabelli & Company, Inc. (the "Distributor")
to offer such shares. Retail Class shares are offered to all other investors and
certain dealers offering shares to certain retirement plans and through other
special programs. (See "General Information"). Each Fund has a separate
investment objective, as set forth below. There is no assurance that any of
these investment objectives will be achieved.
GABELLI WESTWOOD EQUITY FUND (the "Equity Fund") seeks as its primary goal
to provide investors with capital appreciation; income is a secondary, but
nonetheless an important goal.
GABELLI WESTWOOD BALANCED FUND (the "Balanced Fund") seeks to realize both
capital appreciation and current income resulting in a high total investment
return consistent with prudent investment risk and a balanced investment
approach.
GABELLI WESTWOOD INTERMEDIATE BOND FUND (the "Intermediate Bond Fund")
seeks to maximize total return, while maintaining a level of current income
consistent with the maintenance of principal and liquidity.
This Prospectus sets forth concisely information about the Funds that an
investor should know before investing. It should be read and retained for future
reference.
The Statement of Additional Information ("Additional Statement"), dated
December 21, 1998, which may be revised from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission (the "SEC") and is available for reference, along with other
materials on the SEC Internet Web Site (http://www.sec.gov) and is incorporated
herein by reference. For a free copy, write or call The Gabelli Westwood Funds
at the address or telephone number shown above. Purchase orders and redemption
requests for the Service Class shares may be directed to the Gabelli Westwood
Funds through broker/dealers that have signed a Dealer Agreement with Gabelli &
Company, Inc.
Shares of the Funds are not deposits or obligations of any bank, and are
not endorsed or guaranteed by any bank, and are not insured or guaranteed by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency. The net asset value per share of the Funds will fluctuate. An investment
in the Funds involve investment risks, including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
<PAGE> 43
SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 44
Gabelli Advisers Inc. (formerly Teton Advisers LLC) (the "Adviser"), a
Delaware corporation organized by Gabelli Funds, Inc. ("Gabelli") and Westwood
Management Corporation ("Westwood"), is adviser to the Funds pursuant to an
investment advisory agreement with the Trust (the "Investment Advisory
Agreement"). The Adviser has entered into a sub-advisory agreement with Westwood
and the Trust whereby Westwood (the "Sub-Adviser") serves as sub-adviser to the
Funds (the "Sub-Advisory Agreement"). Prior to serving as Sub-Adviser, Westwood
acted as adviser to the Funds from their inception through October 6, 1994. The
Adviser oversees the administration of each Fund's business and affairs and in
this connection is responsible for maintaining certain of the Funds' books and
records and providing other administrative services. (See "Management of the
Fund.") On November 18, 1997, the Trustees approved the change in name to The
Gabelli Westwood Funds.
FEE TABLE -- SERVICE CLASS
Each Fund is authorized to issue two separate classes of shares. Service
Class shares will be offered exclusively to investors who have purchased their
shares through an entity that has signed a Dealer Agreement with the Distributor
to offer such shares. Retail Class shares will be offered to all other investors
for certain retirement plans and special programs offered through
broker-dealers. Retail Class shares and Service Class shares are identical in
all respects, except that Service Class shares bear a sales load and higher
expenses incurred in the distribution and marketing of such shares ("12b-1
Fees"). These charges and fees reflect the additional services available through
broker/dealers, such as investment advice, acquiring securities on margin and
borrowing against the portfolio. Retail Class shares bear no sales load and
lower 12b-1 fees. The table below sets forth certain information regarding
annual operating expenses incurred by the Service Class, including the amounts
of these fees.
<TABLE>
<CAPTION> INTERMEDIATE
EQUITY BALANCED BOND
FUND FUND FUND(a)
---- ---- ------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases (as a percentage
of offering price)......................................... 4.00% 4.00% 4.00%
Annual Fund Operating Expenses: (as a percentage of
average daily net assets)
Management Fees............................................ 1.00% 0.75% 0.60%
12b-1 Fees................................................. 0.50% 0.50% 0.35%
Other Expenses............................................. 0.24% 0.20% 0.15%
---- ---- ----
Total Fund Operating Expenses.................................. 1.74% 1.45% 1.10%
- ---------
(a) On November 8, 1994 all shares of the Service Class were redeemed and there have been no further
shares issued in this class since that date.
</TABLE>
Example:
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Fund.................................. $57 $93 $131 $231
</TABLE>
<PAGE> 45
<TABLE>
<S> <C> <C> <C> <C>
Balanced Fund................................ $54 $84 $116 $200
Intermediate Bond Fund....................... $51 $74 -- --
</TABLE>
The amounts listed in the example should not be considered as
representative of past or future expenses and actual expenses may be greater or
less than those indicated. The expense ratios used above are based on results of
the fiscal year ended September 30. Moreover, while the example assumes a 5%
annual return, a Fund's actual performance will vary and may result in an
actual return greater or less than 5%. The purpose of the foregoing table is to
assist you in understanding the various costs and expenses that investors will
bear, directly or indirectly, the payment of which will reduce investors' return
on an annual basis. (See "Management of the Funds".) The information set forth
above with respect to the Intermediate Bond Fund is based on estimated
projections of average net asset levels. The information with respect to the
Equity and Balanced Funds, is based on actual expenses incurred for the fiscal
year ended September 30, 1998.
Management's Discussion and Analysis of the Funds' performance during the fiscal
year ended September 30, 1998 is included in the Funds' Annual Report to
Shareholders dated September 30, 1998. The Funds' Annual Report to Shareholders
may be obtained upon request and without charge by writing or calling the Fund
at the address or telephone number listed on the Prospectus cover.
<PAGE> 46
<PAGE> 47
FINANCIAL HIGHLIGHTS
The following information for each of the five most recent years or periods
through September 30, 1998 has been audited by PricewaterhouseCoopers LLP, the
Funds' independent accountants, whose report on the Financial Statements appears
in the Fund's Additional Statement dated December 21, 1998. The Additional
Statement is available, without charge, upon request. There are no financial
statements for the Intermediate Bond Fund for the fiscal periods September 30,
1996, 1997, or 1998 because there were no shares outstanding during these fiscal
periods.
Selected data for a share of beneficial interest outstanding
throughout each year:
Year ended September 30
<TABLE>
<CAPTION>
EQUITY FUND
-----------
1998 1997 1996 1995 1994(C)
---- ---- ---- ---- -------
OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.57 $7.69 $6.57 $5.48 $5.53
----- ----- ----- ----- -----
Net investment income 0.08 0.06 0.06 0.04 0.06
Net realized and unrealized
gain (loss) on investments (0.25) 2.71 1.58 1.29 (0.11)
------ ------ ------ ------ ------
Total from Investment Operations (0.17) 2.77 1.64 1.33 (0.05)
------ ------ ------ ------ ------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (0.06) (0.06) - (0.04) -
Net realized gain on investments (0.37) (0.83) (0.52) (0.20) -
----- ----- ----- ----- ------
Total Distributions (0.43) (0.89) (0.52) (0.24) -
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 8.97 $ 9.57 $ 7.69 $ 6.57 $ 5.48
====== ====== ====== ====== ======
Total Return (a) (1.8%) 39.31% 26.33% 25.54% (0.90%)
RATIOS TO AVERAGE NET ASSET AND
SUPPLEMENTAL DATA:
Net Assets, End of Period (in $2,468 $3,338 $1,221 $ 68 $ 254
000s)
Ratio of net investment income
to average net assets 0.46% 0.85% 0.92% 0.64% 1.64%(e)
Expenses net of waivers/ 1.72% 1.78% 1.74% 1.85% 1.04%(e)
reimbursements(b)
Expenses before waivers 1.72% 1.84%(d) 2.19%(d) 2.63%(d) 2.29%(d)(e)
reimbursements
Portfolio Turnover Rate 77% 61% 106% 107% 137%
- --------------------------------------------------------------------------------
(a) Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends and does not reflect any applicable
sales charges.
(b) 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 1.70% for 1998 and 1.75% for the
prior years.
(c) Prior to January 28, 1994, no shares of the Service Class were issued.
(d) During the period, certain fees were voluntarily reduced and/or reimbursed.
If such fee reductions and/or reimbursements had not occurred, the ratio
would have been as shown.
(e) Annualized.
</TABLE>
<PAGE> 48
Selected data for a share of beneficial interest outstanding
throughout each year:
Year ended September 30
<TABLE>
<CAPTION>
BALANCED FUND
-------------
1998 1997 1996 1995 1994 1993(c)
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net Asset Value, Beginning of Period $ 11.46 $ 9.69 $ 8.45 $ 7.10 $ 10.88 $ 10.24
------- ------- ------- ------ ------- -------
Net investment income 0.26 0.24 0.20 0.17 0.15 0.19
Net realized and unrealized gain
(loss) on investments 0.02 2.33 1.37 1.35 0.36 0.52
------- ------- ------- ------ ------- -------
Total from Investment Operations 0.28 2.57 1.57 1.52 0.51 0.71
------- ------- ------- ------ ------- -------
Distributions to shareholders:
Net investment income (0.22) (0.22) (0.20) (0.17) (0.11) (0.07)
Net realized gain on investments (0.56) (0.58) (0.13) - (4.18) -
------- ------- ------- ------ ------- -------
Total Distributions (0.78) (0.80) (0.33) (0.17) (4.29) (0.07)
------- ------- ------- ------ ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.96 $ 11.46 $ 9.69 $ 8.45 $ 7.10 $ 10.88
======= ======= ======= ====== ======= =======
Total Return (a) 2.6% 27.93% 18.85% 21.67% 4.67% 6.96%
RATIOS TO AVERAGE NET ASSET AND
SUPPLEMENTAL DATA:
Net Assets, End of Period (in 000s) $14,585 $14,444 $11,216 $7,212 $10,810 $ 114
Ratio of net investment income to
average net assets 2.16% 2.37% 2.34% 2.26% 2.15% 1.76%(e)
Expenses net of 1.45% 1.53% 1.57% 1.62% 1.17% 2.07%(e)
waivers/reimbursements(b)
Expenses before waivers 1.45% 1.61%(d) 1.96%(d) 2.24%(d) 2.11%(d) 3.14%(d)(e)
reimbursements
Portfolio Turnover Rate 77% 110% 111% 133% 168% 192%
</TABLE>
- --------------------------------------------------------------------------------
(a) Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends and does not reflect any applicable
sales charges.
(b) 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 1.42% for 1998 and 1.50% for the
prior years.
(c) Prior to April 6, 1993, no shares of the Service Class were issued.
(d) During the period, certain fees were voluntarily reduced and/or reimbursed.
If such fee reductions and/or reimbursements had not occurred, the ratio
would have been as shown.
(e) Annualized.
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND
----------------------
1995(d) 1994(e)
------- -------
<S> <C> <C>
OPERATING PERFORMANCE:
Net Asset Value, Beginning of Period $ 9.48 $10.51
------ ------
Net investment income 0.05 0.41
Net realized and unrealized gain (loss) on investments (0.14) (1.03)
------ ------
Total from Investment Operations (0.09) (0.62)
------ ------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (0.05) (0.41)
Net realized gain on investments - -
- -
Total Distributions (0.05) (0.41)
------ ------
NET ASSET VALUE, END OF PERIOD $ 9.34 $ 9.48
====== ======
Total Return (a) (1.0%) (6.8%)
RATIOS TO AVERAGE NET ASSET AND SUPPLEMENTAL DATA:
Net Assets, End of Period (in 000s) $ 0 $ 76
Ratio of net investment income to average net assets 4.85% 6.05%(f)
Expenses net of waivers/ reimbursements (b) 1.45% 1.34%(f)
Expenses before waivers reimbursements (c) 4.07% 2.37%(f)
Portfolio Turnover Rate 70% 203%
</TABLE>
<PAGE> 49
- --------------------------------------------------------------------------------
(a) Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends.
(b) 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 1.00% for each period.
(c) During the period, certain fees were voluntarily reduced and/or reimbursed.
If such fee reductions and/or reimbursements had not occurred, the ratio
would have been as shown.
(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) Prior to January 28, 1994, no shares of the Service Class were issued.
(f) Annualized.
<PAGE> 50
DESCRIPTION OF THE FUNDS AND RISK CONSIDERATIONS
INVESTMENT OBJECTIVES
Each Fund's investment objectives, as previously set forth on the cover
page of this Prospectus, are fundamental policies which cannot be changed
without approval by the holders of a majority (as defined in the Investment
Company Act of 1940) of each Fund's outstanding voting shares. There can be no
assurance that a Fund's investment objectives will be achieved.
MANAGEMENT POLICIES
EQUITY FUND -- The Equity Fund attempts to achieve its goals by investing
primarily (i.e., in normal circumstances), at least 65% of its total assets in
common stocks, some of which may pay dividends, or securities convertible into
common stocks (see "Convertible Securities" below for a complete description).
The Equity Fund invests in securities issued by seasoned companies (generally
with market capitalizations in excess of $500,000,000 and continuous operating
histories of at least three years) believed to have proven records and
above-average historical earnings growth when compared to published indexes,
such as those published by the Department of Commerce, and in smaller companies
(generally with market capitalizations greater than $100,000,000 but less than
$500,000,000) believed to have outstanding potential for capital appreciation,
in both cases in industries which the Adviser has identified as appropriate in
light of the then current status of the economic and business cycles. These
securities may have above-average price/earnings ratios or less than average
current yields, when compared to published indexes, such as the Standard &
Poor's 500 Composite Stock Price Index. Price/earnings ratio is a comparison of
a security's market price to its earnings per share, usually expressed as a
simple numeral, and current yield expresses the income on an amount invested.
The Equity Fund may invest in preferred stocks and the common stock issued by
real estate investment trusts (see "Real Estate Investment Trusts" below for
more complete information). The Equity Fund also may invest, in normal
circumstances, up to 35% of its total assets in U.S. dollar - and foreign
currency-denominated debt securities of domestic and foreign issuers, which are
rated at least "BBB" by Standard & Poor's Corporation ("S&P") or "Baa" by
Moody's Investors Service, Inc. ("Moody's") (except with respect to investments
in commercial paper which will consist only of direct obligations that at the
time of purchase are rated in the highest rating category by Moody's or S&P) or,
if unrated, are determined to be of comparable quality by the Adviser, or in
index options when it believes they hold less risk or greater potential for
capital appreciation than equity securities. Such investments are made without
regard to the remaining maturities of such securities. The Equity Fund may
invest up to 10% of its total assets in debt securities (other than commercial
paper) that are rated or, if unrated, determined to be below investment grade.
(Investment grade debt securities are those which are rated at least "BBB" by
S&P or "Baa" by Moody's). These investments generally carry a high degree of
risk and are sometimes referred to as "high yield, high risk" securities by the
investment community (see "Lower Rated Securities" below for more complete
information). The Equity Fund will not invest in below investment grade
securities which are rated below `C' by S&P or Moody's.
Debt securities rated "BBB" by S&P or "Baa" by Moody's are considered
medium grade obligations. Securities rated "Baa" by Moody's lack outstanding
investment characteristics and in fact have speculative characteristics as well,
while those rated "BBB" by S&P are regarded as having an adequate capacity to
pay principal and interest. Securities rated in these categories are generally
more sensitive to economic changes than higher rated securities. See the
"Appendix" in the Additional Statement for more details on the ratings of
Moody's and S&P.
The Equity Fund may invest in U.S. Government securities, certificates of
deposit, bankers' acceptances and other short-term debt instruments or high
quality corporate bonds, and repurchase agreements in respect of the foregoing.
Common stocks, debt securities in periods of declining interest rates, and
index options provide opportunities for capital growth. Dividend paying common
stocks, covered call options written by the Equity Fund and debt securities are
expected to provide income for the Equity Fund. The securities purchasable for
temporary defensive purposes provide income, but little opportunity for capital
<PAGE> 51
growth.
The majority of the Equity Fund's investments are in securities listed on
the NYSE or other national securities exchanges. The Equity Fund also may invest
in unlisted securities; but these generally will be securities that have an
established over-the-counter market, although the depth and liquidity of that
market may vary from time to time and from security to security. Generally,
these securities are issued by smaller companies than those whose securities are
listed on national securities exchanges. The market prices of equity securities
of smaller companies may tend to be more volatile than the market prices of
equity securities generally.
The Equity Fund may invest up to 25% of its total assets in the securities
of foreign issuers, either directly, or in the form of American Depository
Receipts ("ADRs") or other similar arrangements, such as European Depository
Receipts ("EDRs"). ADRs are receipts typically issued by a United States bank or
trust company which evidence ownership of underlying securities issued by a
foreign corporation. Generally, ADRs in registered form are designed for use in
United States securities markets. EDRs are similar to ADRs and are issued and
traded in Europe.
It is a fundamental policy of the Equity Fund that it may invest (together
with all other securities which are not readily marketable -- see "Certain
Fundamental Policies" below and "Investment Restrictions" in the Additional
Statement) up to 10% of the value of its net assets in securities that have not
been registered under the Securities Act of 1933, as amended, and therefore are
subject to restrictions on resale, provided such investments are consistent with
the Equity Fund's goals. When purchasing unregistered securities, the Equity
Fund will endeavor to obtain the right to registration at the expense of the
issuer. Generally, there will be a lapse of time between the Equity Fund's
decision to publicly offer any such security and the registration of the
security permitting such offer. During any such period, the price of the
securities will be subject to market fluctuations.
The Equity Fund may invest up to 2% of its net assets in warrants, except
that this limitation does not apply to warrants acquired in units or attached to
securities. A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specified amount of the issuer's securities
at a set price for a specified period of time.
The Equity Fund also may invest in securities of investment companies
subject to the provisions of the Investment Company Act of 1940. The return on
such investments will be reduced by the operating expenses, including investment
advisory and administration fees, of such companies. See "Investment Objectives
and Management Policies -- Investment Company Securities" in the Additional
Statement.
BALANCED FUND -- The Balanced Fund pursues its objective through a balanced
and diversified program of investing in equity securities and debt instruments.
With respect to its investments in equity securities, the Balanced Fund
invests between 30% to 70% of its assets in common stocks, some of which may pay
dividends, or securities convertible into common stocks. With respect to the
equity portion of its portfolio, the Balanced Fund invests in equity securities
using the same investment criteria as the Equity Fund.
The remaining 70% to 30% of the Balanced Fund's assets are invested in U.S.
dollar or foreign currency-denominated debt securities of domestic and foreign
issuers, including debt securities of corporate and government issuers,
commercial paper and mortgage and asset-backed securities, for the relative
stability of income and principal. With respect to these investments, at least
25% of the Balanced Fund's total assets will be invested in fixed income senior
securities. The debt securities in which the Balanced Fund invests are the same
types of securities used by the Intermediate Bond Fund.
As noted above, the Adviser may also select other equity securities in
addition to common stocks for investment by the Balanced Fund, such as preferred
stocks, real estate investment trusts ("REITs"), high grade securities
convertible into common stocks and warrants. The Balanced Fund may invest up to
25% of its total assets in the securities of foreign issuers, either directly,
or in the form of ADRs or EDRs, and up to 10% of the value of its net assets,
together with all other investments which are not readily marketable, in
securities which have not been registered under the Securities Act of 1933, as
amended, and which therefore are subject to restrictions on resale. (See the
information set forth above under "Management
<PAGE> 52
Policies -- Equity Fund" for more information on these types of investments.)
The Balanced Fund may also invest in warrants.
In addition, the Balanced Fund may invest up to 100% of its total assets in
U.S. Government securities, certificates of deposit, bankers' acceptances, time
deposits, repurchase agreements and other high quality debt instruments in order
to maintain a temporary "defensive" posture when, in the opinion of the Adviser,
it is advisable to do so.
INTERMEDIATE BOND FUND -- The Intermediate Bond Fund will pursue its
objective by investing, in normal circumstances, at least 65% of its total
assets in bonds of various types and with various maturities. Although it will
not be a fundamental policy of the Intermediate Bond Fund and there will be no
restrictions as to the maximum or minimum maturity of any individual security in
which the Fund may invest, the Intermediate Bond Fund will normally have a
dollar weighted average portfolio maturity of three to ten years. (See the
discussion below under "Description of Securities and Other Investment
Practices" for special information regarding the maturities of certain of the
Intermediate Bond Fund's permissible investments.)
To achieve its investment objective, the Intermediate Bond Fund invests
primarily in a diversified portfolio of investment grade, U.S. dollar or foreign
currency denominated bonds of domestic and foreign issuers. The Fund's portfolio
consists of bonds issued by both corporate and government entities. In pursuing
its investment objective, the Intermediate Bond Fund may also invest in other
types of investment grade debt securities, including debentures, notes,
convertible debt securities, municipal securities, mortgage-related securities
and other collateralized securities that are backed by a pool of assets, such as
loans or receivables which generate cash flow to cover the payments due on the
collateralized securities, as well as zero coupon and payment in kind
securities. The Intermediate Bond Fund's portfolio, consisting primarily of
investment grade debt securities, will include bonds rated "BBB" or better by
S&P or "Baa" or better by Moody's, commercial paper rated "A-2" or better by S&P
or "P-2" or better by Moody's, mortgage and asset-backed securities rated "AA"
or better by S&P or "Aa" or better by Moody's and other investment grade-rated
debt securities or those which are unrated but determined to be of comparable
quality by the Adviser. The Intermediate Bond Fund may invest in preferred
stock, REITs or other equity securities including securities of foreign issuers
although it does not expect to invest more than 25% of its assets in securities
of foreign issuers.
Although the lowest rated investment grade securities and those which are
unrated in the Intermediate Bond Fund's portfolio may produce a higher return,
they are subject to a greater degree of market fluctuation and credit risks than
the high quality securities in which the Fund may invest and may be regarded as
having speculative characteristics as well. The Intermediate Bond Fund may also
invest up to 10% of its total assets in debt securities that are rated or, if
unrated, determined to be below investment grade. These investments generally
carry a high degree of risk and are sometimes referred to as "high yield, high
risk" securities by the investment community (see "Lower Rated Securities" below
for more complete information).
In view of the expected maturity of the Intermediate Bond Fund's portfolio,
in normal market conditions, it is anticipated that the Fund may experience a
higher yield and less stable net asset value than a fund which invests primarily
in shorter-term securities. Conversely, it is also anticipated that the
Intermediate Bond Fund may experience a lower yield and more stable net asset
value than a fund which invests primarily in longer-term securities.
<PAGE> 53
The net asset value of the Intermediate Bond Fund will vary in response to
fluctuations in prevailing interest rates and changes in the value of its
portfolio securities. When interest rates decline, the value of securities
already held in the Intermediate Bond Fund's portfolio can be expected to rise.
Conversely, when interest rates rise, the value of existing portfolio security
holdings can be expected to decline. Although the lowest investment grade
securities and those which are unrated in the Intermediate Bond Fund's portfolio
may produce a higher return, they are subject to a greater degree of market
fluctuation and credit risks than the high quality securities in which the
Intermediate Bond Fund may invest. In addition, the Intermediate Bond Fund may
invest in zero coupon and payment in kind securities which may be subject to
greater fluctuations in value due to changes in interest rates than other debt
securities.
In normal circumstances, the Intermediate Bond Fund may invest up to 35% of
its total assets in short-term, money market instruments of at least comparable
quality to the Fund's longer-term investments, and in repurchase agreements.
However, as a temporary "defensive" measure during, or in anticipation of, a
declining market or rising interest rates, or for other reasons when, in the
opinion of the Fund's investment adviser, it is advisable to do so, the
Intermediate Bond Fund may invest up to 100% of its total assets in high quality
short-term investments.
DESCRIPTION OF SECURITIES AND OTHER INVESTMENT PRACTICES
CONVERTIBLE SECURITIES (ALL FUNDS) -- A convertible security is a
fixed-income security, such as a bond or preferred stock, which may be converted
at a stated price within a specified period of time into a specified number of
shares of common stock of the same or a different issuer. Convertible securities
are senior to common stock in a corporation's capital structure, but usually are
subordinated to non-convertible debt securities. While providing a fixed income
stream (generally higher in yield than the income derivable from a common stock
but lower than that afforded by a similar non-convertible debt security), a
convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation of the common
stock into which it is convertible.
In general, the market value of a convertible security is the higher of its
"investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e., the value of the underlying shares of common stock if
the security is converted). As a fixed-income security, the market value of a
convertible security generally increases when interest rates decline and
generally decreases when interest rates rise. However, the price of a
convertible security also is influenced by the market value of the security's
underlying common stock.
REAL ESTATE INVESTMENT TRUSTS (ALL FUNDS) -- The Funds may invest in the
securities of real estate investment trusts ("REITs"). A REIT is a pooled
investment vehicle that is organized as a corporation or business trust which
invests primarily in income producing real estate or real estate related loans
or interests. REITs are generally classified as equity REITs, mortgage REITs or
a combination of equity and mortgage REITs. Equity REITs invest the majority of
their assets directly in real property and derive income primarily from the
collection of rents. Equity REITs can realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive income from the collection of
interest payments. REITs involve risks similar to those associated with
investing in common stock (i.e., securities market risks) and risks associated
with investing in the real estate industry in general. REITs (especially
mortgage REITs) are subject to interest rate risks. Investors in REITs
indirectly bear a proportionate share of expenses incurred by the REITs. See
"Investment Objectives and Management Policies -- Real Estate Investment
Securities" in the Additional Statement for more details on REITs.
U.S. GOVERNMENT SECURITIES (ALL FUNDS) -- Securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities include U.S.
Treasury securities, which differ only in their interest rates, maturities and
times of issuance. Treasury Bills have initial maturities of one year or less;
Treasury Notes have initial maturities of one to ten years; and Treasury Bonds
generally have initial maturities of greater than ten years. Some obligations
issued or guaranteed by U.S. Government agencies and instrumentalities, for
example, Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, by the right of the issuer to borrow from
the U.S. Treasury; others, such as those issued by the Federal National Mortgage
Association, by discretionary authority of the U.S. Government to purchase
certain obligations of the agency or instrumentality; and others, such as those
issued by the
<PAGE> 54
Student Loan Marketing Association, only by credit of the agency or
instrumentality. While the U.S. Government provides financial support to such
U.S. Government-sponsored agencies or instrumentalities, no assurance can be
given that it will always do so since it is not so obligated by law. A Fund will
invest in such securities only when it is satisfied that the credit risk with
respect to the issuer is minimal.
REPURCHASE AGREEMENTS (ALL FUNDS) -- Repurchase agreements involve the
acquisition by a Fund of a security, subject to an obligation of the seller to
repurchase, and the Fund to resell, the security at a fixed price, usually not
more than one week after its purchase. The Funds' custodian will have custody
of, and will hold in a segregated account, securities acquired by the Fund under
a repurchase agreement. Repurchase agreements are considered by the staff of the
SEC to be loans by a Fund. In an attempt to reduce the risk of incurring a loss
on the repurchase agreement, a Fund will enter into repurchase agreements only
with domestic banks with total assets in excess of one billion dollars or
primary government securities dealers reporting to the Federal Reserve Bank of
New York, with respect to highest rated securities of the type in which a Fund
may invest. It will also require that the repurchase agreement be at all times
fully collateralized in an amount at least equal to the repurchase price
including accrued interest earned on the underlying securities, and that the
underlying securities be marked to market every business day to assure that the
repurchase agreement remains fully collateralized. Certain costs may be incurred
by a Fund in connection with the sale of the securities if the seller does not
repurchase them in accordance with the repurchase agreement. If bankruptcy
proceedings are commenced with respect to the seller of the securities,
realization on the securities by the Fund may be delayed or limited. A Fund will
consider on an ongoing basis the creditworthiness of the institutions with which
it enters into repurchase agreements.
BANK OBLIGATIONS (ALL FUNDS) -- Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time (in no event
longer than seven days) at a stated interest rate. Time deposits which may be
held by a Fund will not benefit from insurance from the Bank Insurance Fund or
the Savings Association Insurance Fund administered by the Federal Deposit
Insurance Corporation. Certificates of deposit are certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time. Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity.
COMMERCIAL PAPER (ALL FUNDS) -- Commercial paper includes short-term
unsecured promissory notes, variable rate demand notes and variable rate master
demand notes issued by domestic and foreign bank holding companies, corporations
and financial institutions (see "Variable and Floating Rate Demand and Master
Demand Notes" below for more details) as well as similar taxable and tax-exempt
instruments issued by government agencies and instrumentalities. Each Fund
establishes its own standards of creditworthiness for issuers of such
instruments.
OTHER MUTUAL FUNDS (ALL FUNDS) -- Each Fund may invest in shares of other
management investment companies, subject to the limitations of the 1940 Act and
subject to such investments being consistent with the overall objective and
policies of the Fund making such investment, provided that any such purchases
will be limited to short-term investments in shares of unaffiliated investment
companies. The purchase of securities of other mutual funds results is
duplication of expenses such that investors indirectly bear a proportionate
share of the expenses of such mutual funds including operating costs, and
investment advisory and administrative fees.
<PAGE> 55
CORPORATE DEBT SECURITIES (ALL FUNDS) -- A Fund's investments in corporate
debt may include U.S. dollar - or foreign currency-denominated corporate bonds,
debentures, notes and other similar corporate debt instruments of domestic and
foreign issuers, which meet the previously disclosed minimum ratings and
maturity criteria established for each Fund under the direction of the Board of
Trustees and the Adviser or, if unrated, are in the Adviser's opinion comparable
in quality to rated corporate debt securities in which each Fund may invest. The
rate of return or return of principal on some debt obligations in which the
Funds may invest may be linked or indexed to the level of exchange rates between
the U.S. dollar and a foreign currency or currencies.
VARIABLE AND FLOATING RATE DEMAND AND MASTER DEMAND NOTES (ALL FUNDS) -- A
Fund may, from time to time, buy variable or floating rate demand notes issued
by corporations, bank holding companies and financial institutions and similar
taxable and tax-exempt instruments issued by government agencies and
instrumentalities. These securities will typically have a maturity over one year
but carry with them the right of the holder to put the securities to a
remarketing agent or other entity at designated time intervals and on specified
notice. The obligation of the issuer of the put to repurchase the securities may
be backed up by a letter of credit or other obligation issued by a financial
institution. The purchase price is ordinarily par plus accrued and unpaid
interest. Generally, the remarketing agent will adjust the interest rate every
seven days (or at other specified intervals) in order to maintain the interest
rate of the prevailing rate for securities with a seven-day or other designated
maturity. A Fund's investment in demand instruments which provide that the Fund
will not receive the principal note amount within seven days' notice, in
combination with the Fund's other investments which are not readily marketable,
will be limited to an aggregate total of 10% of that Fund's net assets.
A Fund may also buy variable rate master demand notes. The terms of these
obligations permit a Fund to invest fluctuating amounts at varying rates of
interest pursuant to direct arrangements between the Fund, as lender, and the
borrower. These instruments permit weekly and, in some instances, daily changes
in the amounts borrowed. The Fund has the right to increase the amount under the
note at any time up to the full amount provided by the note agreement, or to
decrease the amount, and the borrower may repay up to the full amount of the
note without penalty. The notes may or may not be backed by bank letters of
credit. Because the notes are direct lending arrangements between a Fund and
borrower, it is not generally contemplated that they will be traded, and there
is no secondary market for them, although they are redeemable (and, thus,
immediately repayable by the borrower) at principal amount, plus accrued
interest, at any time. In connection with any such purchase and on an ongoing
basis, the Adviser will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and interest on
demand, including a situation in which all holders of such notes make demand
simultaneously. While master demand notes, as such, are not typically rated by
credit rating agencies, a Fund may, under its minimum rating standards, invest
in them only if, at the time of an investment, the issuer meets the criteria set
forth in this Prospectus for commercial paper obligations.
WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES (ALL FUNDS) -- New issues of
fixed-income securities usually are offered on a when-issued or delayed-delivery
basis, which means that delivery and payment for such securities ordinarily take
place within 45 days after the date of the commitment to purchase. The payment
obligation and the interest rate that will be received on such securities are
fixed at the time the Fund enters into the commitment. The Fund will make
commitments to purchase such securities only with the intention of actually
acquiring the securities, but the Fund may sell these securities before the
settlement date if it is deemed advisable. The Fund will not accrue income in
respect of a when-issued or delayed-delivery security prior to its stated
delivery date. No additional when-issued commitments will be made if more than
20% of a Fund's net assets would be so committed.
Securities purchased on a when-issued or delayed-delivery basis and certain
other securities held in a Fund's portfolio are subject to changes in value
(both generally changing in the same way, i.e., appreciating when interest rates
decline and depreciating when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Securities purchased on a
when-issued or delayed-delivery basis may expose a Fund to the risk that such
fluctuations will occur prior to their actual delivery. Purchasing securities on
a when-issued or delayed-delivery basis can involve an additional risk that the
yield available in the market when the delivery takes place actually may be
higher than that obtained in the transaction itself. A segregated account of a
Fund consisting of cash, cash equivalents or U.S. Government securities or other
liquid debt securities at least equal at all times to the amount of the
when-issued commitments will be established and maintained at the Fund's
custodian bank.
<PAGE> 56
FOREIGN SECURITIES (ALL FUNDS, EXCEPT AS SPECIFICALLY NOTED) -- A Fund may
invest directly in both sponsored and unsponsored U.S. dollar -or foreign
currency-denominated corporate debt securities, certificates of deposit and
bankers' acceptances issued by foreign banks, and obligations of foreign
governments or their subdivisions, agencies and instrumentalities, international
agencies and supranational entities, and the Equity Fund and the Balanced Fund
may invest directly in foreign equity securities and in securities represented
by EDRs or ADRs. ADRs are dollar-denominated receipts generally issued by
domestic banks, which represent the deposit with the bank of a security of a
foreign issuer, and which are publicly traded on exchanges or over-the-counter
in the United States. EDRs are receipts similar to ADRs and are issued and
traded in Europe.
Thus, investment in shares of the Funds should be made with an
understanding of the risks inherent in an investment in foreign securities
either directly or in the form of ADRs or EDRs, including risks associated with
government, economic, monetary and fiscal policies, possible foreign withholding
taxes, inflation and interest rates, economic expansion or contraction, and
global or regional political, economic or banking crises. Investment in
obligations of foreign issuers and in direct obligations of foreign nations
involves somewhat different investment risks from those affecting obligations of
United States domestic issuers. Foreign issuers are not necessarily subject to
uniform accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic issuers. In addition,
for the foreign issuers that are not subject to the reporting requirements of
the Securities Exchange Act of 1934, there may be less publicly available
information than is available from a domestic issuer. Dividends and interest
paid by foreign issuers may be subject to withholding and other foreign taxes,
which may decrease the net return on foreign investments as compared to
dividends and interest paid to the Funds by domestic companies. Additional risks
include future political and economic developments, the possibility that a
foreign jurisdiction might impose or charge withholding taxes on income payable
with respect to foreign securities, the possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits and the possible
adoption of foreign governmental restrictions such as exchange controls.
There are certain risks associated with investments in unsponsored ADR
programs. Because the non-U.S. company does not actively participate in the
creation of the ADR program, the underlying agreement for service and payment
will be between the depository and the shareholder. The company issuing the
stock underlying the ADRs pays nothing to establish the unsponsored facility, as
fees for ADR issuance and cancellation are paid by brokers. Investors directly
bear the expenses associated with certificate transfer, custody and dividend
payment.
In an unsponsored ADR program, there also may be several depositories with
no defined legal obligations to the non-U.S. company. The duplicate depositories
may lead to marketplace confusion because there would be no central source of
information to buyers, sellers and intermediaries. The efficiency of
centralization gained in a sponsored program can greatly reduce the delays in
delivery of dividends and annual reports.
In addition, with respect to all ADRs and EDRs, there is always the risk of
loss due to currency fluctuations.
The expected introduction of a single currency, the Euro, on January 1,
1999 for participating nations in the European Economic and Monetary Union
presents unique uncertainties, including whether the payment and operational
systems of banks and other financial institutions will be ready by the scheduled
launch date; the legal treatment of certain outstanding financial contracts
after January 1, 1999 that refer to existing currencies rather than the Euro;
the establishment of exchange rates for existing currencies and the Euro; and
the creation of suitable clearing and settlement payment systems for the new
currency. These or other factors, including political and economic risks, could
cause market disruptions before or after the introduction of the Euro, and could
adversely affect the value of securities held by the Fund.
ZERO COUPON AND PAYMENT IN KIND SECURITIES (THE BALANCED FUND AND THE
INTERMEDIATE BOND FUND) -- A Fund may invest in zero coupon bonds, deferred
interest bonds and bonds on which the interest is payable in kind ("PIK
securities"). Zero coupon and deferred interest bonds are debt obligations which
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds will accrue and compound over the period
until maturity or the first interest accrual date at a rate of interest
reflecting the market rate of the security at the time of issuance. While zero
coupon bonds do not require the periodic payment of interest, deferred interest
bonds provide for a period of delay before the regular payment of interest
begins.
<PAGE> 57
Although this period of delay is different for each deferred interest bond, a
typical period is approximately one-third of the bond's term to maturity. PIK
securities are debt obligations which provide that the issuer thereof may, at
its option, pay interest on such bonds in cash or in the form of additional debt
obligations. Such investments benefit the issuer by mitigating its need for cash
to meet debt service, but also require a higher rate of return to attract
investors who are willing to defer receipt of such cash. Such investments
experience greater volatility in market value due to changes in interest rates
than debt obligations which provide for regular payments of interest. A Fund
will accrue income on such investments based on an effective interest method,
which is distributable to shareholders and which, because no cash is received at
the time of accrual, may require the liquidation of other portfolio securities
to satisfy the Fund's distribution obligations. As a result, a Fund may have to
sell securities at a time when it may be disadvantageous to do so.
LOWER RATED SECURITIES (ALL FUNDS) -- Debt securities rated lower than
investment grade involve much greater risk of principal and income, and often
involve greater volatility of price, than securities in the higher rating
categories. They are also subject to greater credit risks (including, without
limitation, the possibility of default by or bankruptcy of the issuers of such
securities) than securities in higher rating categories. In this connection,
there have been recent instances of such defaults and bankruptcies which were
not foreseen by the financial and investment communities. The lower quality and
unrated obligations in which the Funds may invest will have speculative
characteristics in varying degrees. While such obligations may have some quality
and protective characteristics, these characteristics can be expected to be
offset or outweighed by large uncertainties or major risk exposures to adverse
conditions. The value of such obligations may be more susceptible to real and
perceived adverse economic or industry conditions than is the case of higher
rated securities. The Funds are dependent on the Adviser's judgment, analysis
and experience in the evaluation of high yield obligations. In evaluating the
creditworthiness of a particular issue, whether rated or unrated, the Adviser
will normally take into consideration, among other things, the issuer's
financial resources, its sensitivity to economic conditions and trends, the
operating history of the issuer, the ability of the issuer's management and
regulatory matters. The Adviser will attempt to reduce the risks of investing in
lower rated or unrated obligations through active portfolio management,
diversification, credit analysis and attention to current developments and
trends in the economy and the financial markets. The Funds will also take such
action as they consider appropriate in the event of anticipated financial
difficulties, default or bankruptcy of the issuers of any such obligation.
DERIVATIVES
The Funds may invest in derivative securities as described below, however,
none of the Funds have a present intention to utilize one or more of the various
practices such that five percent or more of a Fund's net assets will be at risk
with respect to derivative practices. The successful use by a Fund of
derivatives is subject to the Advisor's ability to predict correctly movements
in one or more underlying instruments, indexes, stocks, the market generally or
a particular industry. The use of derivatives requires different skills and
techniques than predicting changes in the price of individual stocks. There can
be no assurance of a Fund's successful use of derivatives if and when utilized.
See "Additional Statement" for more information on derivatives, including risk
considerations.
<PAGE> 58
CALL AND PUT OPTIONS ON SPECIFIC SECURITIES (THE EQUITY FUND AND THE
BALANCED FUND) -- A Fund may invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options in respect of specific
securities. A Fund may write covered call and put option contracts to the extent
of 10% of the value of its net assets at the time such option contracts are
written. A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying security at the exercise price at
any time during the option period. Conversely, a put option gives the purchaser
of the option the right to sell, and obligates the writer to buy, the underlying
security at the exercise price at any time during the option period.
STOCK INDEX OPTIONS (THE EQUITY FUND AND THE BALANCED FUND) -- A Fund may
purchase and write put and call options on stock indexes listed on national
securities exchanges as an investment vehicle for the purpose of realizing its
investment objectives or for the purpose of hedging its portfolio. A stock index
fluctuates with changes in the market values of the stocks included in the
index. Should a Fund seek to engage in transactions concerning put and call
options on stock indexes, options would be purchased or written with respect to
not more than 25% of the value of the Fund's net assets.
FUTURES TRANSACTIONS -- IN GENERAL (ALL FUNDS AS NOTED BELOW) -- The Funds
are not commodity pools. However, the Funds may engage in futures transactions,
including those relating to indexes, as described below.
A Fund's commodities transactions must constitute bona fide hedging or
other permissible transactions pursuant to regulations promulgated by the
Commodity Futures Trading Commission (the "CFTC"). In addition, a Fund may not
engage in such activities if the sum of the amount of initial margin deposits
and premiums paid for unexpired commodity options would exceed 5% of the fair
market value of a Fund's assets, after taking into account unrealized profits
and unrealized losses on such contracts it has entered into; provided, however,
that in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in calculating the 5%.
Initially, when purchasing or selling futures contracts, a Fund will be
required to deposit with its custodian in the broker's name an amount of cash or
cash equivalents equal to approximately 5% to 10% of the contract amount. This
amount is subject to change by the exchange or board of trade on which the
contract is traded and members of such exchange or board of trade may impose
their own higher requirements. This amount is known as "initial margin" and is
in the nature of a performance bond or good faith deposit on the contract which
is returned to a Fund upon termination of the futures position, assuming all
contractual obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker will be made daily as the price of
the index underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
"marking-to-market." At any time prior to the expiration of a futures contract,
a Fund may elect to close the position by taking an opposite position at the
then prevailing price, which will operate to terminate the Fund's existing
position in the contract.
Although a Fund will intend to purchase or sell futures contracts only if
there is an active market for such contracts, no assurance can be given that a
liquid market will exist for any particular contract at any particular time.
Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. Futures contract prices could move to the daily
limit for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and potentially subjecting a
Fund to substantial losses. If it is not possible or a Fund determines not to
close a futures position in anticipation of adverse price movements, the Fund
will be required to make daily cash payments of variation margin. In such
circumstances, an increase in the value of the portion of the portfolio being
hedged, if any, may offset partially or completely losses on the futures
contract. However, no assurance can be given that the price of the securities
being hedged will correlate with the price movements in a futures contract and
thus provide an offset to losses on the futures contract.
<PAGE> 59
In addition, due to the risk of an imperfect correlation between securities
in the Fund's portfolio that are the subject of a hedging transaction and the
futures contract used as a hedging device, it is possible that the hedge will
not be fully effective in that, for example, losses on the portfolio securities
may be in excess of gains on the futures contract or losses on the futures
contract may be in excess of gains on the portfolio securities that were the
subject of the hedge. In futures contracts based on indexes, the risk of
imperfect correlation increases as the composition of the Fund's portfolio
varies from the composition of the index. In an effort to compensate for the
imperfect correlation of movements in the price of the securities being hedged
and movements in the price of futures contracts, a Fund may buy or sell futures
contracts in a greater or lesser dollar amount than the dollar amount of the
securities being hedged if the historical volatility of the futures contract has
been less or greater than that of the securities. Such "over hedging" or "under
hedging" may adversely affect a Fund's net investment results if market
movements are not as accurately anticipated when the hedge is established.
STOCK INDEX FUTURES (THE EQUITY FUND AND THE BALANCED FUND) -- A Fund may
purchase and sell stock index futures contracts. A stock index future obligates
the seller to deliver (and the purchaser to take) an amount of cash equal to a
specific dollar amount times the difference between the value of a specific
stock index at the close of the last trading day of the contract and the price
at which the agreement is made. No physical delivery of the underlying stocks in
the index is made. A Fund will intend to purchase and sell futures contracts on
the stock index for which it can obtain the best price with consideration also
given to liquidity. A Fund may not purchase or sell stock index futures
contracts if, immediately thereafter, more than 25% of its net assets would be
hedged.
INTEREST RATE FUTURES (THE BALANCED FUND AND THE INTERMEDIATE BOND FUND) --
A Fund may purchase an interest rate futures contract in anticipation of a
decline in interest rates, and resulting increase in market price, in debt
securities the Fund intends to acquire. A Fund may sell an interest rate futures
contract in anticipation of an increase in interest rates, and resulting decline
in market price, in debt securities the Fund owns. An interest rate futures
contract is an agreement to purchase or sell an agreed amount of debt securities
at a set price for delivery on a future date. These transactions are subject to
similar risk factors as those described above with respect to stock index
futures. A Fund may not purchase or sell interest rate futures contracts if,
immediately thereafter more than 25% of its net assets would be hedged.
OPTIONS ON FUTURES (ALL FUNDS) -- A Fund may purchase and write call and
put options on futures contracts which are traded on a United States exchange or
board of trade. An option on a futures contract gives the purchaser the right,
in return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the option period. Upon exercise of
the option, the writer of the option is obligated to convey the appropriate
futures position to the holder of the option. If an option is exercised on the
last trading day before the expiration date of the option, a cash settlement
will be made in an amount equal to the difference between the closing price of
the futures contract and the exercise price of the option. The risks associated
with these transactions are similar to those described above with respect to
options on securities. A Fund may not purchase or write options on futures if,
immediately thereafter, more than 25% of its net assets would be hedged.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (ALL FUNDS) -- A Fund may enter
into forward foreign currency exchange contracts for hedging and non-hedging
purposes. A forward foreign currency exchange contract is a contract
individually negotiated and privately traded by currency traders and their
customers.
A forward contract involves an obligation to purchase or sell a specific
currency for an agreed price at a future date, which may be any fixed number of
days from the date of the contract. A Fund may engage in cross-hedging by using
forward contracts in one currency to hedge against fluctuations in the value of
securities denominated in a different currency. The purpose of entering into
forward currencies contracts for hedging purposes is to minimize the risk to a
Fund from adverse changes in the relationship between the U.S. dollar and
foreign currencies.
<PAGE> 60
MORTGAGE-RELATED SECURITIES (THE BALANCED FUND AND THE INTERMEDIATE BOND
FUND) -- Mortgage pass-through securities are securities representing interests
in "pools" of mortgages in which payments of both interest and principal on the
securities are made monthly, in effect "passing through" monthly payments made
by the individual borrowers on the residential mortgage loans which underlie the
securities (net of fees paid to the issuer or guarantor of the securities).
Early repayment of principal on mortgage pass-through securities (arising
from prepayments of principal due to sale of the underlying property,
refinancing, or foreclosure, net of fees and costs which may be incurred) may
expose a Fund to a lower rate of return upon reinvestment of principal. Also, if
a security subject to repayment has been purchased at a premium, in the event of
prepayment the value of the premium would be lost. Like other fixed-income
securities, when interest rates rise, the value of a mortgage-related security
generally will decline; and generally may also increase the volatility of the
mortgage-related security by effectively converting short-term debt instruments
into long-term debt instruments. However, when interest rates decline, the value
of mortgage-related securities with prepayment features may not increase as much
as other fixed-income securities. In recognition of this prepayment risk to
investors, the Public Securities Association (the "PSA") has standardized the
method of measuring the rate of mortgage loan principal prepayments. The PSA
formula, the Constant Prepayment Rate (the "CPR") or other similar models that
are standard in the industry will be used by a Fund in calculating maturity for
purposes of its investment in mortgage-related securities.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA")); or
guaranteed by agencies or instrumentalities of the U.S. Government (in the case
of securities guaranteed by the Federal National Mortgage Association ("FNMA")
or the Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported
only by the discretionary authority of the U.S. Government to purchase the
agency's obligations). Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers) may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance, and
letters of credit, which may be issued by governmental entities, private
insurers of the mortgage poolers.
Collateralized Mortgage Obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and prepaid principal on a CMO are paid,
in most cases, monthly. CMOs may be collateralized by whole mortgage loans but
are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured into multiple
classes, with each class bearing a different stated maturity and principal
payment schedule. To the extent a particular CMO is issued by an investment
company, a Fund's ability to invest in such CMOs will be limited. See
"Investment Restrictions" in the Additional Statement.
OTHER ASSET-BACKED SECURITIES (THE BALANCED FUND AND THE INTERMEDIATE BOND
FUND) -- Other asset-backed securities (unrelated to mortgage loans) have been
offered to investors, such as Certificates for Automobile Receivables
("CARS(SM)"). CARS(SM)represent undivided fractional interests in a trust
("trust") whose assets consist of a pool of motor vehicle retail installment
sales contracts and security interests in the vehicles securing the contracts.
Payments of principal and interest on CARS(SM)are "passed through" monthly to
certificate holders and are guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution unaffiliated
with the trustee or originator of the trust or by the existence of a
subordinated class of securities. Underlying sales contracts are subject to
prepayment, which may reduce the overall return to certificate holders. If the
letter of credit is exhausted, certificate holders may also experience delays in
payment or losses on CARS(SM)if the full amounts due on underlying sales
contracts are not realized by the trust because of unanticipated legal or
administrative costs of enforcing the contracts, or because of depreciation,
damage or loss of the vehicles securing the contracts, or other factors. For
asset-backed securities, the industry standard uses a principal prepayment
model, the ABS model, which is similar to the PSA described previously under
"Mortgage-Related Securities". Either the PSA model, the ABS model or other
similar models that are standard in the industry will be used by a Fund in
calculating maturity for purposes of its investment in asset-backed securities.
LENDING PORTFOLIO SECURITIES (ALL FUNDS) -- To earn additional income, a
Fund may lend securities from its portfolio to brokers, dealers or other
financial institutions needing to borrow securities to complete certain
<PAGE> 61
transactions. Such loans may not exceed 33 1/3% of a Fund's total assets. In
connection with such loans, a Fund will receive collateral which will be
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. A Fund can increase its income through
the investment of such collateral.
ILLIQUID SECURITIES (ALL FUNDS, EXCEPT AS NOTED IN "CERTAIN FUNDAMENTAL
POLICIES" BELOW)-- Each Fund may invest its net assets in securities as to which
a liquid trading market does not exist, provided such investments are consistent
with the Fund's investment objective. Such securities may include securities
that are not readily marketable, such as certain securities that are subject to
legal or contractual restrictions on resale, repurchase agreements providing for
settlement in more than seven days after notice, and certain privately
negotiated, non-exchange traded options and securities used to cover such
options. As to these securities, the Fund is subject to a risk that should the
Fund desire to sell them when a ready buyer is not available at a price the Fund
deems representative of their value, the value of the Fund's net assets could be
adversely affected. Illiquid securities do not include securities eligible for
resale pursuant to Rule 144A of the Securities Act of 1933, or other restricted
securities, which have been determined liquid by the Fund's Board of Trustees.
CERTAIN FUNDAMENTAL POLICIES (ALL FUNDS, EXCEPT AS NOTED BELOW) -- Each
Fund (i) may borrow money from banks, but only for temporary or emergency (not
leveraging) purposes, in an amount up to 5% of the value of its total assets
(including the amount borrowed) valued at the lesser of cost or market, less
liabilities (not including the amount borrowed) at the time the borrowing is
made; (ii) may pledge, hypothecate, mortgage or otherwise encumber its assets,
but only in an amount up to 10% of the value of its total assets to secure
borrowings for temporary or emergency purposes, or up to 20% in connection with
the purchase and sale of put and call options; (iii) may invest up to 5% of the
value of its total assets in the securities of any one issuer (This restriction
applies only with respect to 75% of the total assets of each); (iv) may invest
up to 25% of its total assets in any single industry; and (v) may invest up to
10% of its total assets in time deposits maturing from two business days through
seven calendar days. The Equity Fund may invest up to 10% of its net assets in
securities that have not been registered under the Securities Act of 1933, as
amended, and therefore are subject to restrictions on resale, in repurchase
agreements providing for settlement in more than seven days after notice and in
securities that are not readily marketable (including those options in respect
of specific securities that are not traded on a national securities exchange,
and the underlying security, which are not readily marketable). Subject to this
limitation, the Equity Fund may invest in securities eligible for resale
pursuant to Rule 144A of the Securities Act of 1933 which have been determined
to be liquid by the Fund's Board of Trustees based upon the trading markets for
the securities. Each of the other Funds may invest up to 10% of its net assets
in repurchase agreements providing for settlement in more than seven days after
notice and in securities that are not readily marketable. Included in this
limitation are "restricted" securities and any other assets for which an active
and substantial market does not exist at the time of purchase or subsequent
valuation. Restricted securities for purposes of this limitation do not include
investments by these Funds in securities eligible for resale pursuant to Rule
144A of the Securities Act of 1933 which have been determined to be liquid by
the Fund's Board of Trustees based upon the trading markets for the securities
(see "Investment Objectives and Management Policies --Rule 144A Securities" in
the Additional Statement for further details). This paragraph describes
fundamental policies that cannot be changed without approval by the holders of a
majority (as defined in the Investment Company Act of 1940) of each Fund's
outstanding voting shares. See "Investment Objectives and Management Policies --
Investment Restrictions" in the Additional Statement.
<PAGE> 62
OTHER INVESTMENT CONSIDERATIONS -- Investment decisions for each Fund are
made independently from those of other investment advisory accounts that may be
advised by the Adviser or Sub-Adviser. However, if such other investment
advisory accounts are prepared to invest in, or desire to dispose of, securities
of the type in which a Fund invests at the same time as the Fund, available
investments or opportunities for sales will be allocated equitably to each of
them. In some cases, this procedure may adversely affect the size of the
position obtained for or disposed of by a Fund or the price paid or received by
the Fund.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER AND ADMINISTRATOR
Gabelli Advisers, Inc. (formerly Teton Advisers LLC prior to November 7,
1997), located at One Corporate Center, Rye, New York 10580-1434, is adviser to
the Funds. The Adviser is a Delaware corporation. Gabelli and its affiliates own
a majority of the Adviser. Gabelli and Gabelli Advisers are registered
investment advisers. The Adviser has entered into a Sub-Advisory Agreement with
Westwood.
Under the Sub-Advisory Agreement, the Adviser pays Westwood out of its
advisory fees with respect to the Funds a fee computed daily and payable monthly
in an amount equal on an annualized basis to the greater of (i) $150,000 per
year on an aggregate basis for all the Funds or (ii) 35% of the net revenues to
the Adviser from the Funds. Westwood Management Corporation, formed in 1983 and
located at 300 Crescent Court, Suite 1300, Dallas, TX 75201, is a registered
investment adviser managing, as of September 30, 1998, an aggregate of
approximately $1.7 million in separate accounts, primarily corporate pension
funds. Susan M. Byrne, President of the Sub-Adviser since 1983, is responsible
for the day-to-day management of the Equity Fund's portfolio, along with Kellie
R. Stark, Vice President of the Sub-Advisor since 1992. Ms. Byrne and Ms.
Patricia Fraze, Executive Vice President of the Sub-Adviser since 1990, are
jointly responsible for the day-to-day management of the Balanced Fund's
portfolio. Westwood Management is a wholly owned subsidiary of Southwest
Securities Group, Inc., a Dallas based securities firm.
The Adviser is responsible for overseeing Westwood's activities. The
Investment Advisory Agreement provides that the Adviser will supervise and
manage each Fund's investment activities on a discretionary basis and oversee
the administration of each Fund's business and affairs. In this connection the
Adviser is responsible for maintaining certain of the Funds' books and records
and performing other administrative aspects of the Funds' operations to the
extent not performed by the Funds' custodians, transfer agents and dividend
disbursing agents. The Adviser is permitted to subcontract at its own expense
those administrative responsibilities to persons it believes are qualified to
perform such services with respect to the Funds. As compensation for its
services and related expenses, the Trust will pay the Adviser a fee computed
daily and payable monthly in an amount equal on an annualized basis to 1.0% for
the Equity Fund, .60% for the Intermediate Bond Fund and .75% for the Balanced
Fund of each Fund's daily average net asset value. The fees paid by the Trust
for the Equity Fund and the Balanced Fund are higher than the fees paid by most
funds for such services and related expenses. The Funds will also pay the
Adviser or Distributor separately for any costs and expenses incurred in
connection with distribution of the classes of each Fund's shares in accordance
with the terms of their respective Plans of Distribution adopted for such
classes pursuant to Rule 12b-1 under the 1940 Act.
The Adviser has retained at its own cost BISYS Fund Services, Inc.
("BISYS") (the "Sub-Administrator") to provide administrative services with
respect to the Funds. BISYS has its main office at 3435 Stelzer Rd., Columbus,
Ohio 43219. BISYS is a registered transfer agent and broker-dealer and acts as
administrator and general distribution agent for certain other investment
companies.
<PAGE> 63
DISTRIBUTOR
Gabelli & Company, Inc. serves as the distributor (the "Distributor") of
the Funds and is an indirect subsidiary of Gabelli Funds, Inc. The business
address of Gabelli & Company, Inc. is One Corporate Center, Rye, New York
10580-1434.
The Funds have entered into a Distribution Agreement with the Distributor
authorizing the Distributor to engage in distribution activities which include,
without limitation, advertising the Funds, compensating underwriters, dealers,
brokers, banks and other entities for sales of shares of the Funds and/or for
providing services to shareholders of the Funds relating to their investment in
the Funds. To the extent any of these payments is based on allocations by the
Distributor, the Funds may be considered to be participating in joint
distribution activities with other funds distributed by the Distributor. Various
federal and state laws prohibit national banks and some state-chartered
commercial banks from underwriting or dealing in the Funds' Shares. In the
unlikely event that a court were to find that these laws prevent such banks from
providing the services described above, the Funds would seek alternative
providers and expects that shareholders would not experience any disadvantage.
The Funds have adopted a Rule 12b-1 Distribution Plan and Agreement (the
"Plan") pursuant to which the Service Class of each Fund may pay the Distributor
on a monthly basis for costs and expenses of the Distribution in connection with
the distribution and marketing of Service Class shares. These costs and
expenses, which are subject to a maximum limit of .35% per annum of the average
daily net assets of the Intermediate Bond Fund and .50% per annum of the Service
Class of the Equity Fund and the Balanced Fund, include (i) advertising by
radio, television, newspapers, magazines, brochures, sales literature, direct
mail or any other form of advertising, (ii) expenses of sales employees or
agents of the Distributor, including salary, commissions, travel and related
expenses, (iii) payments to broker-dealers and financial institutions for
services in connection with the distribution of shares, including promotional
incentives and fees calculated with reference to the average daily net asset
value of shares held by shareholders who have a brokerage or other service
relationship with the broker-dealer or other institution receiving such fees,
(iv) costs of printing prospectuses, statements of additional information and
other materials to be given or sent to prospective investors, (v) such other
similar services as the Trustees determine to be reasonably calculated to result
in the sale of shares of the Funds, (vi) costs of shareholder servicing which
may be incurred by broker-dealers, banks or other financial institutions, and
(vii) other direct and indirect distribution-related expenses, including the
provision of services with respect to maintaining the assets of the Funds. Each
Fund's Service Class will pay all costs and expenses in connection with the
preparation, printing and distribution of its Prospectus to current shareholders
and the operation of its Plan, including related legal and accounting fees. No
Service Class will be liable for distribution expenditures made by the
Distributor in any given year in excess of the maximum amount payable under the
Plan for that Fund year.
PURCHASE OF SHARES
Purchase of Fund shares may be made through brokerage accounts maintained
through Gabelli & Company or through any other firm with whom the Fund enters
into an arrangement for the distribution of its shares on substantially
identical terms as those agreed upon with Gabelli & Company. Purchases may also
be made through any registered broker-dealer with whom Gabelli & Company enters
into a selling agreement ("Soliciting Broker-Dealers"). Payment for the shares
must be made directly to the firm through which the order was placed or to the
Fund's transfer agent. Gabelli & Company may enter into selling or selected
broker-dealer agreements with Soliciting Broker-Dealers pursuant to which
Gabelli & Company may reallow a portion of the sales charge to Soliciting
Broker-Dealers in accordance with the schedule set forth below. The reallowance
to Soliciting Broker-Dealers may be changed at any time by Gabelli & Company.
Service Class Shares of the Funds are offered with a maximum sales charge
of 4.00%. The minimum initial investment is $1,000. There is no minimum initial
investment for accounts establishing an Automatic Investment Plan. Custodial
accounts for minor children are also available. There is no minimum for
subsequent investments. Shares of the Funds are sold at the public offering
price based on the net asset value per share next determined after receipt of an
order by the Funds' Distributor or transfer agent in proper form with
accompanying check or bank wire payment arrangements satisfactory to the Funds.
Although most shareholders elect not to receive stock certificates, certificates
for whole shares can be obtained on specific written request to the Transfer
Agent.
<PAGE> 64
Shares of the Funds may be purchased through registered broker-dealers.
Certain broker-dealers may impose the respective sales charge or otherwise may
charge the investor a fee for their services. Compensation to sales persons may
vary depending upon which class of shares they sell. Such fees may vary among
broker-dealers, and such broker-dealers may impose higher initial or subsequent
investment requirements than those established by the Funds. Services provided
by broker-dealers may include allowing the investor to establish a margin
account and to borrow on the value of such Fund's shares in that account.
Prospectuses, sales material and subscription order forms ("applications")
may be obtained from your broker-dealer or the Distributor. The Funds and the
Distributor reserve the right in their sole discretion (1) to suspend the
offering of the Funds' shares and (2) to reject purchase orders when, in the
judgment of the Funds' management, such rejection is in the best interest of the
Funds. The calculation of net asset value per share is performed at 4:00 p.m.
eastern time on each day that the NYSE is open for business. Net asset value per
share is computed by dividing the value of a Fund's net assets (i.e., the value
of its assets less its liabilities) by the total number of shares outstanding.
All expenses of the Funds are accrued daily and taken into account for the
purpose of determining net asset value.
In determining net asset value, securities listed on an exchange are valued
on the basis of the last sale price prior to the time the valuation is made. If
there has been no sale since the immediately previous valuation, then the mean
price between bid and asked price is used. Quotations are taken from the
exchange where the security is primarily traded. Portfolio securities which are
primarily traded on foreign exchanges may be valued with the assistance of a
pricing service and are generally valued at the preceding closing values of such
securities on their respective exchanges, except that when an occurrence
subsequent to the time a foreign security is valued is likely to have changed
such value, then the fair value of those securities will be determined by
consideration of other factors by or under the direction of the Board of
Trustees. Over-the-counter securities are valued on the basis of the mean price
between bid and asked at the close of business on each business day. Securities
for which market quotations are not readily available are valued at fair value
as determined in good faith by or at the direction of the Board of Trustees.
Notwithstanding the above, bonds and other fixed-income securities are valued by
using market quotations and may be valued on the basis of prices provided by a
pricing service approved by the Board of Trustees. All assets and liabilities
initially expressed in foreign currencies will be converted into U.S. dollars at
the mean between the bid and asked prices of such currencies against U.S.
dollars as last quoted by any major bank.
With respect to written options contracts, the premium received is recorded
as an asset and equivalent liability, and thereafter the liability is adjusted
to the market value of the option determined in accordance with the preceding
paragraph. The premium paid for an option purchased by a Fund is recorded as an
asset and subsequently adjusted to market value. See "Determination of Net Asset
Value" in the Additional Statement.
<PAGE> 65
MAIL
To make an initial purchase by mail, contact your broker or send a
completed application for Service Class shares with a check for the amount of
the investment payable to: THE GABELLI WESTWOOD FUNDS, P.O. BOX 8308, BOSTON, MA
02266-8308.
Subsequent purchases do not require a completed application and can be made
by (1) mailing a check to the same address noted above or by (2) bank wire, as
indicated below. The exact name and number of the shareholder's account should
be clearly indicated.
BANK WIRE
To initially purchase shares of the Funds using the wire system for
transmittal of money among banks, contact your broker or telephone the Funds at
1-800-GABELLI to obtain a new account number. The investor should instruct a
Federal Reserve System member bank to wire funds to: STATE STREET BANK AND TRUST
COMPANY, ABA011-0000-28 REF DDA 99046187, ATTN: SHAREHOLDER SERVICES, RE: THE
GABELLI WESTWOOD FUNDS, A/C, ACCOUNT OF (REGISTERED OWNER), 225 FRANKLIN STREET,
BOSTON, MA 02110.
There may be a charge by your bank for transmitting the money by bank wire
but State Street Bank and Trust Company does not charge investors in the Funds
for the receipt of wire transfers. If you are planning to wire funds, it is
suggested that you instruct your bank early in the day so the wire transfer can
be accomplished the same day.
PERSONAL DELIVERY
Contact your broker or deliver a check made payable to "The Gabelli
Westwood Funds" along with a completed subscription order form to: THE GABELLI
WESTWOOD FUNDS, THE BFDS BUILDING, 7TH FLOOR, TWO HERITAGE DRIVE, NORTH QUINCY,
MA 02171.
TELEPHONE INVESTMENT PLAN
You may purchase additional shares of the Funds by telephone through your
broker or the Automated Clearinghouse (ACH) system as long as your bank is a
member of the ACH system and you have a completed, approved Investment Plan
application on file with our Transfer Agent. The funding for your purchase will
be automatically deducted from the ACH eligible account you designate on the
application. Your investment will normally be credited to your Gabelli Westwood
Fund account on the first business day following your telephone request. Your
request must be received no later than 4:00 p.m. eastern time. There is a
minimum of $100 for each telephone investment. Any subsequent changes in banking
information must be submitted in writing and accompanied by a sample voided
check. To initiate an ACH purchase, please call 1-800-GABELLI. Fund shares
purchased through the Telephone or Automatic Investment Plan will not be
available for redemption for up to fifteen (15) days following the purchase
date.
AUTOMATIC INVESTMENT PLAN
The Funds offer an automatic monthly investment plan, details of which can
be obtained from the Distributor. There is no minimum initial investment for
accounts establishing an automatic investment plan.
SYSTEMATIC WITHDRAWAL PLAN
The Funds offer a systematic withdrawal program for shareholders whereby
they can authorize an automatic redemption on a monthly, quarterly or annual
basis. Details can be obtained from your broker or the Distributor.
OTHER INVESTORS
No minimum initial investment is required for officers, directors or
full-time employees of the Funds, other investment companies managed by the
Adviser, the Sub-Adviser, the Administrator, the Distributor or their
affiliates, including members, of the "immediate family" of such individuals and
retirement plans and trusts for their benefit. The term "immediate family"
refers to spouses, children and grandchildren (adopted or natural), parents,
grandparents, siblings, a spouse's siblings, a sibling's spouse and a sibling's
children.
<PAGE> 66
SALES CHARGES
Service Class Shares of the Funds will be offered to accounts at a price
equal to their net asset value plus a sales charge, as described below, on a
continuous basis through entities that have entered into a Dealer Agreement with
the Distributor. Shares issued through the automatic reinvestment of income
dividends or capital gains are not subject to any sales charges. Each Fund would
receive the entire net asset value of its shares sold to investors through
reinvestment. The Distributor's commission is the sales charge shown below less
any applicable discount "reallowed" to selected brokers and agents. Normally,
the Distributor will reallow discounts to selected brokers and agents in the
amounts indicated in the table below. From time to time, however, the
Distributor may elect to reallow the entire sales charge to selected brokers or
agents for all sales with respect to which orders are placed with the
Distributor during a particular period. A selected broker who receives
reallowance equal to or in excess of such a sales charge may be deemed an
"Underwriter" under the Securities Act of 1933.
<PAGE> 67
<TABLE>
<CAPTION>
TOTAL SALES LOAD
------------------------------------------------------
DEALERS'
AS A % OF AS A % OF REALLOWANCE AS
AMOUNT OF TRANSACTION OFFERING PRICE AMOUNT INVESTED % OF OFFERING PRICE
- --------------------- -------------- --------------- -------------------
<S> <C> <C> <C>
Less than $100,000.......................... 4.0% 4.2% 3.5%
$100,000-$249,999........................... 3.0% 3.1% 2.5%
$250,000-$499,999........................... 2.0% 2.0% 1.75%
$500,000-$999,999........................... 1.0% 1.0% 0.75%
$1,000,000 and over......................... No Load No Load No Load
</TABLE>
REDUCED SALES CHARGES
A reduction of sales charges rates in the tables above may be obtained as
follows:
Right of Accumulation A "single purchaser" (as defined below) is entitled
to a reduced sales charge and will be credited with amounts currently and
previously paid to purchase shares (sold subject to a sales charge) of the
Funds. The Right of Accumulation is illustrated by the following example: if a
previous purchase currently valued in the amount of $95,000 had been made
subject to a sales charge and the shares are still held, a current purchase of
$6,000 will qualify for a 3.0% sales charge. The reduced sales charge is
applicable only to current purchases. The term "single purchaser" refers to (1)
an individual, (2) an individual and spouse purchasing shares of the Funds for
their own account or for trust or custodial accounts for their minor children,
or (3) a trustee or other fiduciary purchasing for any one trust, estate, or
fiduciary account (including a pension, profit sharing or other employee benefit
trust created pursuant to a plan qualified under Sections 401 or 403 of the
Internal Revenue Code (the "Code") but not for a group formed to acquire
shares). To be entitled to a reduced sales charge for shares already owned, the
investor must notify the Distributor or the Transfer Agent at the time of the
purchase that he wishes to take advantage of such entitlement, and give the
numbers of his accounts, and those accounts held in the name of his spouse or
for minor children, the age of any such child and the specific relationship of
each such person to the investor.
LETTER OF INTENT
By initially investing at least $1,000 and submitting a Letter of Intent to
the Distributor, a "single purchaser" may make purchases of shares of one of the
Funds during a 13-month period at the reduced sales charge rates applicable to
the aggregate amount of the intended purchases stated in the Letter. The Letter
may apply to purchases made up to 90 days before the date of the Letter.
OTHER CIRCUMSTANCES
No sales charge is imposed on shares of the Funds: (1) sold to persons
described under "Purchase of Shares --Other Investors" with respect to whom no
minimum investment is required; (2) issued in plans of reorganization, such as
mergers, asset acquisitions and exchange offers, to which the Trust is a party;
(3) sold to charities and endowments and other tax-exempt organizations
enumerated in Section 501(c)(3) of the Code; (4) sold through asset allocation
programs of an affiliate of the Adviser; (5) financial institutions purchasing
shares of the Fund for clients participating in a fee based asset allocation
program or wrap fee program which has been approved by the Distributor; or (6)
registered investment advisers or financial planners who place trades for their
own accounts or the accounts of their clients and who charge a management,
consulting, or other fee for their services; and clients of such investment
advisers or financial planers who place trades for their own accounts if the
accounts are linked to the master account of such investment adviser or
financial planer on books and records of a broker or agent. Investors who
qualify under the categories described above should contact their brokerage firm
or Gabelli & Company, Inc.
<PAGE> 68
REDEMPTION OF SHARES
Redemption requests may be made through a brokerage firm with which the
shareholder maintains a brokerage account. A shareholder desiring to redeem Fund
shares represented by certificates must also present the certificates to a
brokerage firm endorsed for transfer (or accompanied by an endorsed stock
power), signed exactly as the shares are registered. Redemption requests
involving shares represented by certificates will not be deemed received until
the certificates are received by the Fund's transfer agent in proper form.
Redemption requests made through Gabelli & Company with respect to
uncertificated shares must be in writing addressed to the Fund's transfer agent
at the address and in accordance with the signature guarantee procedures
specified below under "Redemption by Mail" in order to be deemed in proper form
or, if a brokerage account is maintained by a shareholder with Gabelli &
Company, in writing, by telephone or in person. Redemption requests made through
brokerage firms other than Gabelli & Company need to be made in accordance with
that brokerage firm's redemption procedures.
Upon receipt by the Distributor or the Transfer Agent of a redemption
request in proper form, shares of the Funds will be redeemed at their next
determined net asset value. Redemption requests received after the time as of
which each Fund's net asset value is determined on a particular day will be
redeemed at the next determined net asset value of such Fund on the next day
that net asset value is determined. Checks for redemption proceeds will normally
be mailed to the shareholder's address of record within seven days, but will not
be mailed until all checks in payment for the purchase of the shares to be
redeemed have been honored, which may take up to 15 days. The proceeds of a
redemption may be more or less than the amount invested and, therefore, a
redemption may result in gain or loss for income tax purposes. Redemption
requests may be made by letter to the Transfer Agent, specifying the name of the
Fund, the dollar amount or number of shares to be redeemed, and the account
number. The letter must be signed in exactly the same way the account is
registered (if there is more than one owner of the shares, all must sign) and,
if any certificates for the shares to be redeemed are outstanding, presentation
of such certificates properly endorsed is also required. Signatures on a
redemption request and/or certificates must be guaranteed by an "eligible
guarantor institution" as such term is defined in Rule 17Ad-15 under the
Securities and Exchange Act of 1934, which includes certain banks, brokers,
dealers, credit unions, securities exchanges and associations, clearing agencies
and savings associations (signature guarantees by notaries public are not
acceptable). Shareholders may also redeem a Fund's shares through certain
registered broker-dealers, who have made arrangements with the Funds permitting
them to redeem shares by telephone or facsimile transmission and who may charge
shareholders a fee for this service if they have not received any payments under
the Distribution Plan.
Further documentation, such as copies of corporate resolutions and
instruments of authority, are normally requested from corporations,
administrators, executors, personal representatives, trustees or custodians to
evidence the authority of the person or entity making the redemption request.
If the Board of Directors should determine that it would be detrimental to
the remaining shareholders of the Funds to make payment wholly or partly in
cash, the Funds may pay the redemption price in whole or in part by a
distribution in kind of securities from the portfolio of the Funds, in lieu of
cash, in conformity with applicable rules of the SEC. Under such circumstances,
shareholders of the Funds receiving distributions in kind of securities will
incur brokerage commissions when they dispose of the securities.
The Funds may suspend the right of redemption or postpone the date of
payment for more than seven days during any period when (1) trading on the NYSE
is restricted or the Exchange is closed, other than customary weekend and
holiday closings; (2) the SEC has by order permitted such suspension or (3) an
emergency, as defined by rules of the SEC, exists making disposal of portfolio
investments or determination of the value of the net assets of the Funds not
reasonably practicable.
To minimize expenses, the Funds reserve the right to redeem, upon not less
than 30 days' notice, all shares of the Funds in an account (other than an IRA)
which as a result of shareholder redemption has a value below $500. However, a
shareholder will be allowed to make additional investments prior to the date
fixed for redemption to avoid liquidation of the account.
<PAGE> 69
TELEPHONE REDEMPTION BY CHECK
The Funds accept telephone requests for redemption of unissued shares,
subject to a $25,000 limitation. By calling 1-800-GABELLI, you may request that
a check be mailed to the address of record on the account, provided that the
address has not changed within thirty (30) days prior to your request. The check
will be made payable to the person in whose name the account is registered and
will normally be mailed within seven (7) days.
The Fund and its transfer agent will not be liable for following telephone
instructions reasonably believed to be genuine. In this regard, the Fund and its
transfer agent require personal identification information before accepting a
telephone redemption. If the Fund or its transfer agent fail to use reasonable
procedures, the Fund might be liable for losses due to fraudulent instructions.
A shareholder may redeem shares by telephone unless he elects in the
subscription order form not to have such ability.
Requests for telephone redemption must be received between 9:00 a.m. and
4:00 p.m. eastern time. If your telephone call is received after this time or on
a day when the NYSE is not open, the request will be entered the following
business day. Shares are redeemed at the net asset value next determined
following your request. Fund shares purchased by check or through the automatic
purchase plan will not be available for redemption for up to fifteen (15) days
following the purchase. Shares held in certificate form must be returned to the
Transfer Agent for redemption of shares. Telephone redemption is not available
for IRAs. The proceeds of a telephone redemption may be directed to an existing
account in another of the Funds, provided the account is registered in the
redeeming shareholder's name. See "Exchange of Fund Shares."
BY BANK WIRE
The Funds accept telephone requests for wire redemption in excess of $1,000
(but subject to a $25,000 limitation) to a bank predesignated either on the
application or in a subsequent written authorization with the signature
guaranteed. The Funds accept signature guaranteed written requests for
redemption by bank wire without limitation. The proceeds are normally wired on
the following business day. Your bank must be either a member of the Federal
Reserve System or have a correspondent bank which is a member. Any change to the
banking information made at a later date must be submitted in writing with a
signature guarantee.
REINSTATEMENT PRIVILEGE
A shareholder in any Fund who has redeemed shares may reinvest, without a
sales charge, up to the full amount of such redemption at the net asset value
determined at the time of the reinvestment within 30 days of the original
redemption. This privilege must be affected within 30 days of the redemption and
may be exercised only once. The shareholder must reinvest in the same Fund,
class and account from which the shares were redeemed. A redemption is a taxable
transaction and gain or loss may be recognized for Federal income tax purposes
even if the reinstatement privilege is exercised. Any loss realized upon the
redemption will not be recognized as to the number of shares acquired by
reinstatement, except through an adjustment in the tax basis of the shares so
acquired. See "Dividends, Distribution and Taxes" for an explanation of
circumstance in which sales load paid to acquire shares of the Funds may be
taken into account in determining gain or loss on the disposition of those
shares.
<PAGE> 70
RETIREMENT PLANS
The Funds have available a form of traditional Individual Retirement
Account ("IRA") and a "Roth IRA" for investment in Fund shares which may be
obtained from the Distributor. The minimum investment required to open an IRA
for investment in shares of the Funds is $1,000 for an individual, except that
both the individual and his or her spouse may establish separate IRAs if their
combined investment is $1,250. There is no minimum for additional investment in
an IRA account. Investors who are self-employed may purchase shares of the Funds
through tax-deductible contributions to retirement plans for self-employed
persons, known as Keogh or H.R.-S.10 plans. The Funds do not currently act as
Sponsor for such plans. Fund shares may also be a suitable investment for other
types of qualified pension or profit-sharing plans which are employer-sponsored,
including deferred compensation or salary reduction plans known as "401(k)
Plans" which give participants the right to defer portions of their compensation
for investment on a tax-deferred basis until distributions are made from the
plans. The minimum initial investment for an individual under such plans is
$1,000 and there is no minimum for additional investments. Under the Internal
Revenue Code of 1986 (the "Code"), individuals may make wholly or partly tax
deductible IRA contributions of up to $2,000 annually (married individuals
filing joint returns may each contribute $2,000 ($4,000 in the aggregate), even
where one spouse is not working, if certain other conditions are met), depending
on whether they are active participants in an employer-sponsored retirement plan
and on their income level. However, dividends and distributions held in the
account are not taxed until withdrawn in accordance with the provisions of the
Code. Beginning January 1, 1998, investors may make non-deductible contributions
to a Roth IRA up to $2,000 annually. Consult your tax advisor.
Investors should be aware that they may be subject to additional tax
penalties on contributions or withdrawals from IRAs or other retirement plans
which are not permitted by the applicable provisions of the Code. Persons
desiring information concerning investments through IRA accounts or other
retirement plans should write or telephone the Distributor.
EXCHANGE OF FUNDS SHARES
The Funds offer two convenient ways to exchange shares in a class of one
Fund for shares in a corresponding class of another fund managed by the Adviser
or its affiliates. Before engaging in an exchange transaction, a shareholder
should read carefully the portions of this Prospectus or the other
Prospectus(es) describing the Fund into which the exchange will occur. A
shareholder may not exchange shares of a class of one Fund for shares of a
corresponding class of another fund if either are not legally qualified or
registered for sale in the state of the shareholder's residence. The minimum
amount for an initial exchange is $1,000. No minimum is required in subsequent
exchanges. The Trust may terminate or amend the terms of the exchange privilege
at any time upon 60 days' written notice to shareholders.
A new account opened by exchange must be established with the same name(s),
address and social security number as the existing account. All exchanges will
be made based on the net asset value next determined following receipt of the
request by a Fund in good order, plus any applicable sales load.
An exchange is taxable as a sale of a security on which a gain or loss may
be recognized. Shareholder should receive written confirmation of the exchange
within a few days of the completion of the transaction.
In the case of transactions subject to a sales charge, the sales charge
will be assessed on an exchange of shares, equal to the excess of the sales load
applicable to the shares to be acquired, over the amount of any sales load
previously paid to the Distributor on the shares to be exchanged. No service fee
is imposed. See "Dividends, Distributions and Taxes" for an explanation of
circumstances in which sales load paid to acquire shares of the Funds may not be
taken into account in determining gain or loss on the disposition of those
shares.
<PAGE> 71
EXCHANGE BY MAIL
To exchange Fund shares by mail, simply send a letter of instruction to
your broker or the Distributor. The letter of instruction must include: (i) your
account number; (ii) the names of the Funds from and into which you wish to
exchange your investment; (iii) the dollar or share amount you wish to exchange;
and (iv) the signatures of all registered owners or authorized parties. All
signatures must be guaranteed by a member of a national securities exchange or
by a commercial bank or trust company. Corporations, trusts, partnerships or
other legal entities will be required to furnish other documentation. Please
call your broker or the Funds for more information.
EXCHANGE BY TELEPHONE
To exchange Fund shares by telephone or if you have any questions, simply
call your broker or the Funds toll free at 1-800-GABELLI. You should be prepared
to give the telephone representative the following information: (i) your account
number, social security number and account registration; (ii) the names of the
Funds from and into which you wish to exchange your investment, and (iii) the
dollar or share amount you wish to exchange. The conversation may be recorded to
protect you and the Funds. Telephone exchanges are available only if the
shareholder so indicates by checking the "yes" box on the Purchase Application.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund intends to qualify annually and to elect to be treated as a
regulated investment company pursuant to the provisions of Subchapter M of the
Code. The Funds did so qualify for the previous taxable year. By so qualifying
and electing, each Fund generally will not be subject to Federal income tax to
the extent that it distributes its investment company taxable income and net
capital gains in the manner required under the Code. In addition, the Code
subjects regulated investment companies, such as the Funds, to a non-deductible
4% excise tax each calendar year to the extent that such investment companies do
not distribute substantially all of their taxable investment income and capital
gain, generally determined on a calendar year basis and the one year period
ending October 31 of each calendar year, respectively.
Each Fund intends to distribute to its shareholders substantially all of
its investment company taxable income (which includes, among other items,
dividends and interest and the excess, if any, of net short-term capital gains
(generally including any net option premium income) over net long-term capital
losses). Investment company taxable income will be distributed annually by the
Equity Fund and quarterly by the Balanced Fund. The Intermediate Bond Fund will
declare distributions of such income daily and pay those dividends monthly. Each
Fund intends to distribute, at least annually, substantially all net capital
gains (the excess of net long-term capital gains over net short-term capital
losses). Shareholders will be advised as to the amount of the capital gains
distribution, which are generally taxable at a maximum rate of 20% for
noncorporate shareholders (25% in the case of certain capital gains
distributions from REITs). In determining amounts of capital gains to be
distributed, any capital loss carryovers from prior years will be applied
against capital gains to reduce the amount of distributions paid. In addition,
any losses incurred in the taxable year subsequent to October 31, will be
deferred to the next taxable year and used to reduce subsequent year
distributions (see "Dividends, Distributions and Taxes" in the Additional
Statement). You may choose whether to receive dividends and distributions in
cash or to reinvest in additional shares of the class in which you are invested
at the next determined net asset value without a sales load, but you will be
subject to tax in the manner described herein even if you choose to have your
dividends distributions reinvested in additional shares.
Dividends from net investment income or distributions of net realized
short-term securities gains to shareholders generally are taxable as ordinary
income whether received in cash or reinvested in additional shares.
Distributions from net realized long-term gains (i.e. net capital gains) to
shareholders are taxable as long-term capital gains whether received in cash or
reinvested in additional shares.
<PAGE> 72
Special tax rules may apply to a Fund's acquisition of futures contracts,
forward contracts, and options on futures contracts. Such rules may, among other
things, affect whether gains and losses from such transactions are considered to
be short-term or long-term, may have the effect of deferring losses and/or
accelerating the recognition of gains or losses, and, for purposes of qualifying
as a regulated investment company, may limit the extent to which a Fund may be
able to engage in such transactions.
It is anticipated that a portion of the dividends paid by the Equity Fund
and the Balanced Fund will qualify for the dividends-received deduction
available to corporations. The dividends paid by the Intermediate Bond Fund are
not expected to so qualify. Shareholders will be notified at the end of the year
as to the amount of the dividends that qualify for the dividends-received
deduction.
Under certain circumstances, the sales charge incurred in acquiring shares
of a Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of a Fund are
exchanged within 90 days after the date they were purchased and new shares of a
Fund are acquired without a sales charge or at a reduced sales charge. In that
case, the gain or loss recognized on the exchange will be determined by
excluding from the tax basis of the shares exchanged all or a portion of the
sales charge incurred in acquiring those shares. This exclusion applies to the
extent that the otherwise applicable sales load with respect to the newly
acquired shares is reduced as a result of having incurred a sales load
initially. The portion of the sales load affected by this rule will be treated
as a sales load paid for the new shares.
The Funds may be required to withhold for Federal income tax ("backup
withholding") 31% of the distributions and the proceeds of redemptions payable
to shareholders who fail to provide a correct taxpayer identification number or
to make required certifications, or where a Fund or shareholder has been
notified by the Internal Revenue Service that the shareholder is subject to
backup withholding. Corporate shareholders and certain other shareholders
specified in the Code are exempt from backup withholding.
Those Funds which may invest in securities of foreign issuers may be
subject to withholding and other similar income taxes imposed by a foreign
country.
Notice as to the tax status of your dividends and distributions is mailed
to you annually. You also will receive periodic summaries of your account.
Dividends and distributions may be subject to state and local taxes. Dividends
paid or credited to accounts maintained by non-resident shareholders may also be
subject to U.S. non-resident withholding taxes as discussed above. You should
consult your tax adviser regarding specific questions as to Federal, state and
local income and withholding taxes.
PERFORMANCE INFORMATION
A Fund may, from time to time, include its yield, if applicable, and total
return in advertisements or reports to shareholders or prospective investors.
The methods used to calculate the yield and total return of the Funds are
mandated by the SEC.
Quotations of "yield" for a Fund that is not a money market fund will be
based on the investment income per share during a particular 30-day (or one
month) period (including dividends and interest), less expenses accrued during
the period ("net investment income"), and will be computed by dividing net
investment income by the maximum public offering price per share on the last day
of the period.
A Fund's average annual total return is expressed in terms of the average
annual compounded rate of return on a hypothetical investment in the Fund over
periods of one, five and ten years (up to the life of the Fund or for shorter
time periods depending upon the length of time during which the Fund has
operated), reflect the deduction of a proportional share of Fund expenses (on an
annual basis), and assume that all dividends and distributions are reinvested
when paid. Total returns may be calculated either with or without the effect of
the 4.00% initial maximum sales load.
Performance information for a Fund may be compared to various unmanaged
indices, such as the Standard & Poor's Composite Stock Price Index, the Dow
Jones Industrial Average, Lehman Brothers Corporate/Government Bond Index,
indices prepared by Lipper Analytical Services, Morningstar ratings and other
entities or organizations
<PAGE> 73
which track the performance of investment companies.
Performance will vary and past results are not necessarily representative
of future results. You should remember that performance is a function of
portfolio management in selecting the type and quality of portfolio securities
and is affected by operating expenses. Performance information, such as that
described above, may not provide a basis for comparison with other investments
or other investment companies using a different method of calculating
performance.
GENERAL INFORMATION
The Funds are series portfolios of The Gabelli Westwood Funds, a
Massachusetts business trust (the "Trust") organized pursuant to an Agreement
and Declaration of Trust (the "Trust Agreement"), as amended and restated on
June 12, 1986. On November 17, 1998, the Board of Trustees approved the change
in the name of the Trust from The Westwood Funds to The Gabelli Westwood Funds.
The Trust is authorized to issue an unlimited number of shares of beneficial
interest, par value $.001 per share. Each share has one vote and, when issued,
is fully paid and non-assessable. The Board of Trustees may, in the future,
authorize the issuance of other series of shares of beneficial interest
representing shares of other investment portfolios which may consist of separate
classes as in the case of the Funds. Each additional portfolio within the Trust
is separate for investment and accounting purposes and is represented by a
separate series of shares. Each portfolio will be treated as a separate entity
for Federal income tax purposes.
Each Fund is comprised of two classes of shares -- the "Retail Class" and
the "Service Class." The classes have identical rights with respect to the
series portfolio of which they are a part; however, there are certain matters
affecting one class but not another, such as the existence of a load and the
amount of permissible payments under a distribution plan, which may be
considered to create a preference. On all such matters, shareholders vote as a
class, and not by series. Service Class shares are sold to investors who
purchase their shares through an entity that has signed a Dealer Agreement with
the Distributor. Retail Class shares are sold to all other investors, including
shares sold by dealers for certain retirement plans and to those who contact the
Fund directly or purchase shares through an entity that has signed an agreement
for other special programs (e.g., Charles Schwab & Co., Inc. or Fidelity
Brokerage Services). Investors may inquire about classes of shares not offered
by this prospectus by calling 1-800-GABELLI.
Shareholders have the right to vote on the election of Trustees and on any
and all matters which, by law or the provisions of the Trust's Declaration of
Trust, they may be entitled to vote. All shares of the Trust have equal voting
rights and will be voted in the aggregate, and not by class or series, except
where voting by class or series is required by law or where the matter involved
affects only one class.
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or a Trustee on
behalf of the Trust. The Trust Agreement provides for indemnification from the
Trust's property for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the risk of shareholders
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations,
a possibility which management believes is remote. Upon payment of any liability
incurred by the Trust, the shareholder paying such liability will be entitled to
reimbursement from the general assets of the Trust. The Trustees intend to
conduct the operations of the Trust in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Trust.
As described under "Management of the Funds" in the Additional Statement, the
Funds ordinarily will not hold shareholder meetings; however, the Trustees are
required to call a meeting for the purpose of considering the removal of persons
serving as Trustee if requested in writing to do so by the holders of not less
than 10% of the outstanding shares of the Trust. Under the Trust Agreement,
shareholders of record of not less than two-thirds of the outstanding shares of
the Trust may remove a Trustee either by declaration in writing or by vote cast
in person or by proxy at a meeting called for such purpose. In connection with
the calling of such shareholder meetings, shareholders will be provided with
communication assistance.
<PAGE> 74
Like other funds and business organizations around the world, the Trust
could be adversely affected if the computer systems used by the Adviser and the
Trust's other service providers do not properly process and calculate
date-related information for the year 2000 and beyond. The Trust has been
informed that the Adviser and the Trust's other service providers (i.e.,
Administrator, Transfer Agent, Fund Accounting Agent, Distributor and Custodian)
have developed and are implementing plans to minimize the risk associated with
the Year 2000 problem. These plans include the following activities:
inventorying of software systems, determining inventory items that may not
function properly after December 31, 1999, reprogramming or replacing such
systems and retesting for Year 2000 readiness. In addition, the service
providers are obtaining assurances from their vendors and suppliers in the same
manner. Non-compliant Year 2000 systems upon which the Trust is dependent may
result in errors and account maintenance failures. The Trust has no reason to
believe that (1) the Year 2000 plans of the Adviser and the Trust's other
service providers for services critical to the Trust's operations will not be
completed by December 31, 1999, and (2) the costs currently associated with the
implementation of their plans will have material adverse impact on the business,
operations or financial condition of the Trust or its service providers.
In addition, the Year 2000 problem may adversely affect the companies in
which the Trust invests. For example, these companies may incur substantial
costs to correct the problem and may suffer losses caused by data processing
errors.
Since the ultimate costs or consequences of incomplete or untimely
resolution of the Year 2000 problem by the Trust's service providers are unknown
to the Trust at this time, there may be costs or consequences having a material
adverse impact on the Trust, its service providers and /or your account records.
The Trust and the Adviser will continue to monitor developments relating to this
issue.
State Street Bank and Trust Company and its affiliate, Boston Financial
Data Services, maintain a record of share ownership and send to shareholders
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Gabelli Westwood Funds
at One Corporate Center, Rye, New York 10580-1434, by calling 1-800-GABELLI, or
through the internet at http//www.gabelli.com/westwood or e-mail:
[email protected].
<PAGE> 75
Upon request, Gabelli & Company, Inc. will provide without a charge, a
paper copy of this Prospectus to investors or their representatives who received
this Prospectus in an electronic format.
NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
THE ADDITIONAL STATEMENT, AND IN THE FUNDS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFER OF FUND SHARES, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS, ITS INVESTMENT ADVISER, DISTRIBUTOR OR ANY AFFILIATE THEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON
TO WHOM, SUCH OFFERING MAY NOT LAWFULLY BE MADE.
<PAGE> 76
THE GABELLI WESTWOOD FUNDS
One Corporate Center
Rye, New York 10580-1434
General And Account Information:
1-(800) GABELLI
1-(800) 422-3554
Fax 1-(914) 921-5118
http://www.gabelli.com/westwood
e-mail: info @ gabelli.com
INVESTMENT ADVISER
Gabelli Advisers, Inc.
One Corporate Center
Rye, New York 10580-1434
INVESTMENT SUB-ADVISER
Westwood Management Corporation
300 Crescent Court, Suite 1300
Dallas, TX 75201
DISTRIBUTOR
Gabelli & Company, Inc.
One Corporate Center
Rye, New York 10580-1434
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
LEGAL COUNSEL
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
<PAGE> 77
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table ..............................................................................
Financial Highlights ...................................................................
Description of the Funds and Risk Considerations........................................
Management of the Funds ................................................................
Purchase of Shares .....................................................................
Redemption of Shares ...................................................................
Retirement Plans .......................................................................
Exchange of Funds Shares ...............................................................
Dividends, Distributions and Taxes .....................................................
Performance Information ................................................................
General Information ....................................................................
</TABLE>
<PAGE> 78
THE
GABELLI
WESTWOOD
FUNDS
Equity Fund
Balanced Fund
Intermediate Bond Fund
SERVICE CLASS
PROSPECTUS
-----------------
DECEMBER 21, 1998
-----------------
<PAGE> 79
THE GABELLI WESTWOOD FUNDS
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
December 21, 1998
The Gabelli Westwood Funds (the "Trust") is an open-end, diversified,
management investment company, known as a mutual fund, which currently consists
of six separate investment portfolios referred to as the Gabelli Westwood Equity
Fund (the "Equity Fund"), the Gabelli Westwood SmallCap Equity Fund (the
"SmallCap Fund"), the Gabelli Westwood Mighty Mites(SM) Fund (the "Mighty Mites
Fund"), the Gabelli Westwood Realty Fund (the "Realty Fund"), the Gabelli
Westwood Intermediate Bond Fund (the "Intermediate Bond Fund") and the Gabelli
Westwood Balanced Fund (the "Balanced Fund") (collectively, the "Funds"). Each
Fund is authorized to issue two separate classes of shares, referred to as the
"Service Class" and the "Retail Class". The SmallCap Fund, Mighty Mites Fund and
Realty Fund are currently offering only Retail Class shares.
This Statement of Additional Information ("Additional Statement")
provides information about both classes of shares. It is not a prospectus, but
supplements, and should be read in conjunction with the Funds' current
Prospectus, dated December 21, 1998, as it may be revised from time to time. To
obtain a copy of the Funds' Prospectus, please write to the Funds at One
Corporate Center, Rye, New York 10580, call (800) GABELLI (1-800-422-3554) or
via Internet http://www.gabelli.com/westwood.
Gabelli Advisers, Inc. (formerly Teton Advisers LLC) (the "Adviser")
serves as the Funds' investment adviser and administrator. Westwood Management
Corporation (the "Sub-Adviser") serves as sub-adviser to the Funds, with the
exception of the Mighty Mites Fund for which the Adviser is responsible for the
management of such Fund's portfolio.
Gabelli & Company, Inc. serves as the Funds' distributor (the
"Distributor").
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information and History B-2
Investment Objectives and Management Policies B-2
Management of the Funds B-18
Investment Advisory and Other Services B-24
Purchase and Redemption of Shares B-29
Determination of Net Asset Value B-29
Shareholder Services B-29
Dividends, Distributions and Taxes B-30
Performance Information B-34
Information About the Funds B-37
Custodian, Transfer and Dividend Disbursing Agent, Counsel and Independent Accountants B-38
Appendix B-39
Financial Statements B-41
</TABLE>
<PAGE> 80
GENERAL INFORMATION AND HISTORY
The Adviser, which was organized in 1994, is a registered investment
adviser and is a subsidiary of Gabelli Funds, Inc., which was organized in 1980
and is currently a registered investment adviser to thirteen other management
investment companies with aggregate assets under management of $6 billion as of
September 30, 1998. The Adviser is a Delaware corporation and was formally
known as Teton Advisers LLC. The business address of Gabelli Advisers, Inc. is
One Corporate Center, Rye, New York 10580-1434. GAMCO Investors, Inc.
("GAMCO"), a wholly-owned subsidiary of Gabelli Funds, Inc., acts as investment
adviser for individuals, pension and profit sharing trusts, institutions and
endowments. As of September 30, 1998 GAMCO had aggregate assets in excess of
$6.7 billion under management. Gabelli Fixed Income LLC is an affiliated
investment adviser to The Treasurer's Fund, Inc. and separate accounts for
individuals and institutions with aggregate assets in excess of $1.2 billion.
On August 20, 1991, the Board of Trustees approved the change in the
name of the Trust from "The Westwood Fund" to "The Westwood Funds" and the name
of the Trust's initial series of shares from "The Westwood Fund" to "Westwood
Equity Fund". In addition, at the same time the Board authorized the designation
of three new series of shares of the Trust, "Westwood Intermediate Bond Fund",
"Westwood Cash Management Fund," and "Westwood Balanced Fund". The Board
authorized the designation of the "Westwood SmallCap Equity Fund" and "Westwood
Realty Fund" series shares of the Trust on February 25, 1997. On November 18,
1997, the Board of Trustees approved the change in the name of the Trust from
"The Westwood Funds" to "The Gabelli Westwood Funds" and names of each series to
include the name "Gabelli" before the name "Westwood" (i.e., "Gabelli Westwood
SmallCap Equity Fund"). On November 18, 1997, the Board of Trustees then
authorized the designation of the "Gabelli Westwood Mighty Mites Fund" series of
shares of the Trust.
The Trust operates a multi-class structure pursuant to Rule 18f-3 of
the Investment Company Act of 1940 and the Board of Trustees has authorized
pursuant thereto the designation of two separate classes of shares in each Fund
referred to as "Retail Class" and "Service Class" shares.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTION IN THE FUNDS' PROSPECTUS ENTITLED "DESCRIPTION OF THE FUNDS AND
RISK CONSIDERATIONS".
The Funds will not (i) invest in real estate limited partnerships
(except the Realty Fund which may also invest in publicly traded master limited
partnerships), (ii) engage in the short-selling of securities, (iii) engage in
arbitrage, or (iv) as a fundamental policy, issue senior securities (collateral
arrangements with regard to initial and variation margin on futures and options
transactions shall not be considered the issuance of a senior security), except
as permitted by Investment Restriction No. 7 set forth under "Investment
Restrictions" below. However, the Mighty Mites Fund may engage in short-selling
of securities or in arbitrage.
CERTIFICATES OF DEPOSIT (ALL FUNDS). Domestic commercial banks organized under
Federal law are supervised and examined by the Comptroller of the Currency and
are required to be members of the Federal Reserve System and to have their
deposits insured by the Federal Deposit Insurance Corporation (the "FDIC").
Domestic banks organized under state law are supervised and examined by state
banking authorities but are members of the Federal Reserve System only if they
elect to join. In addition, state banks whose certificates of deposit (CDs) may
be purchased by the Funds are insured by the FDIC (although such insurance may
not be of material benefit to a Fund, depending upon the principal amount of the
CDs of each bank held by the Fund) and are subject to Federal examination and to
a substantial body of Federal law and regulation. As a result of Federal or
state laws and regulations, domestic banks, among other
<PAGE> 81
things, generally are required to maintain specified levels of reserves, limited
in the amounts which they can loan to a single borrower and subject to other
regulations designed to promote financial soundness.
The Funds may purchase CDs issued by banks, savings and loan
associations and similar institutions with less than one billion dollars in
assets, which have deposits insured by the Bank Insurance Fund or the Savings
Association Insurance Fund administered by the FDIC, provided a Fund purchases
any such CD in a principal amount of no more than $100,000, which amount would
be fully insured by the FDIC. Interest payments on such a CD are not insured by
the FDIC. A Fund would not own more than one such CD per issuer.
INVESTMENT COMPANY SECURITIES (ALL FUNDS). Each Fund may purchase securities of
investment companies in the open market where no commission except the ordinary
broker's commission is paid, which purchases are limited to a maximum of (i) 3%
of the total voting stock of any one closed-end investment company, (ii) 5% of
the Fund's net assets with respect to any one closed-end investment company and
(iii) 10% of the Fund's net assets in the aggregate, or may receive such
securities as part of a merger or consolidation.
REAL ESTATE INVESTMENT SECURITIES ("REITS") (ALL FUNDS). The Funds may invest in
REITs and real estate operating companies, as well as other types of real estate
securities such as publicly traded common stock, preferred stock, limited
partnerships (including real estate master limited partnerships), rights or
warrants to purchase common stock or convertible securities of corporations
engaged in real estate development or companies whose financial prospects are
deemed by the Adviser to be real estate oriented and consistent with the Fund's
investment objectives. Investing in REITs involves certain unique risks in
addition to those risks associated with investing in the real estate industry in
general. Although the Funds will not invest directly in real estate, the Funds
may invest in securities of issuers primarily engaged in or related to the real
estate industry. Therefore, an investment in REITs or other real estate
securities is subject to certain risks associated with the direct ownership of
real estate and with the real estate industry in general. These risks include,
among others: possible declines in the value of real estate; risks related to
general and local economic conditions; possible lack of availability of mortgage
funds; overbuilding; extended vacancies of properties; increases in competition,
property taxes and operating expenses; changes in zoning laws; costs resulting
from the clean-up of, and liability to third parties for damages resulting from,
environmental problems; casualty or condemnation losses; uninsured damages from
floods, earthquakes or other natural disasters; limitations on and variations in
rents; and changes in interest rates. To the extent that assets underlying the
REITs' investments are concentrated geographically, by property type or in
certain other respects, the REITs may be subject to certain of the foregoing
risks to a greater extent. Equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of any credit extended. REITs are dependent upon
management skills, are not diversified, and are subject to heavy cash flow
dependency, default by borrowers and self-liquidation. REITs are also subject to
the possibilities of failing to qualify for tax-free pass-throughs of income
under the U.S. Internal Revenue Code and failing to maintain their exemptions
from registration under the 1940 Act.
REITs (especially mortgage REITs) are also subject to interest rate
risks. When interest rates decline, the value of a REIT's investment in fixed
rate obligations can be expected to rise. Conversely, when interest rates rise,
the value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investment in such loans will gradually
align themselves to reflect changes in market interest rates, causing the value
of such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
Investing in REITs involves risks similar to those associated with
investing in small capitalization companies. REITs may have limited financial
resources, may trade less frequently and in a limited volume and may be subject
to more abrupt or erratic price movements than larger company securities.
CALL AND PUT OPTIONS ON SECURITIES (THE EQUITY FUND, BALANCED FUND, SMALLCAP
FUND, MIGHTY MITES FUND AND REALTY FUND). A Fund may engage in options
transactions, such as purchasing call and put options on securities and writing
covered call and put options on securities. The principal reason for writing
covered call options
<PAGE> 82
is to realize, through the receipt of premiums, a greater return than would be
realized on a Fund's portfolio securities alone. In return for a premium, the
writer of a covered call option forfeits the right to any appreciation in the
value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the call writer retains the risk of a decline in the price of the underlying
security. Similarly, the principal reason for writing covered put options is to
realize income in the form of premiums. The writer of a covered put option
accepts the risk of a decline in the price of the underlying security. The size
of the premiums that a Fund may receive may be adversely affected as new or
existing institutions, including other investment companies, engage in or
increase their option-writing activities.
Options written ordinarily will have expiration dates between one and
nine months from the date written. The exercise price of the options may be
below, equal to or above the market values of the underlying securities at the
times the options are written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-money" and "out-of-the money,"
respectively. A Fund may write (a) in-the-money call options when the Adviser
expects that the price of the underlying security will remain stable or decline
moderately during the option period, (b) at-the-money call options when the
Adviser expects that the price of the underlying security will remain stable or
advance moderately during the option period and (c) out-of-the-money call
options when the Adviser expects that the premiums received from writing the
call option plus the appreciation in market price of the underlying security up
to the exercise price will be greater than the appreciation in the price of the
underlying security alone. In these circumstances, if the market price of the
underlying security declines and the security is sold at this lower price, the
amount of any realized loss will be offset wholly or in part by the premium
received. Out-of-the-money, at-the-money and in-the-money put options (the
reverse of call options as to the relation of exercise price to market price)
may be utilized in the same market environments that such call options are used
in equivalent transactions.
So long as a Fund's obligation as the writer of an option continues,
the Fund may be assigned an exercise notice by the broker-dealer through which
the option was sold, requiring the Fund to deliver, in the case of a call, the
underlying security against payment of the exercise price. This obligation
terminates when the option expires or the Fund effects a closing purchase
transaction. A Fund can no longer effect a closing purchase transaction with
respect to an option once it has been assigned an exercise notice. To secure its
obligation to deliver the underlying security when it writes a call option, or
to pay for the underlying security when it writes a put option, a Fund will be
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the Options Clearing Corporation (the "Clearing
Corporation") and of the national securities exchange on which the option is
written.
An options position may be closed out only where there exists a
secondary market for an option of the same series on a recognized national
securities exchange or in the over-the-counter market. As a result, and because
of current trading conditions, the Funds expect to purchase only call or put
options issued by the Clearing Corporation. The Funds expect to write options on
national securities exchanges and in the over-the-counter market.
While it may choose to do otherwise, a Fund generally purchases or
writes only those options for which the Adviser believes there is an active
secondary market so as to facilitate closing transactions. There is no assurance
that sufficient trading interest to create a liquid secondary market on a
securities exchange will exist for any particular option or at any particular
time, and for some options no such secondary market may exist. A liquid
secondary market in an option may cease to exist for a variety of reasons. In
the past, for example, higher than anticipated trading activity or order flow,
or other unforeseen events, at times have rendered certain of the facilities of
the Clearing Corporation and the national securities exchanges inadequate and
resulted in the institution of special procedures, such as trading rotations,
restrictions on certain types of orders or trading halts or suspensions in one
or more options. There can be no assurance that similar events, or events that
may otherwise interfere with the timely execution of customers' orders, will not
recur. In such event, it might not be possible to effect closing transactions in
particular options. If as a covered call option writer a Fund is unable to
effect a closing purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it delivers the
underlying security upon exercise.
<PAGE> 83
A covered call option written by the Fund, which is a call option with
respect to which the Fund owns the underlying security, exposes the Fund during
the term of the option to possible loss of opportunity to realize appreciation
in the market price of the underlying security or to possible continued holding
of a security which might otherwise have been sold to protect against
depreciation in the market price of the security. A covered put option sold by a
Fund exposes the Fund during the term of the option to a decline in price of the
underlying security. A put option sold by a Fund is covered when, among other
things, cash, cash equivalents or U.S. Government securities or other liquid
debt securities are placed in a segregated account to fulfill the obligation
undertaken.
A Fund treats options in respect of specific securities that are not
traded on a national securities exchange, and the underlying security, as not
readily marketable and, therefore, subject to the limitations under "Certain
Fundamental Policies" below.
STOCK INDEX OPTIONS (THE EQUITY FUND, THE BALANCED FUND, THE SMALLCAP FUND, THE
MIGHTY MITES FUND AND THE REALTY FUND). A Fund may purchase and write put and
call options on stock indexes listed on national securities exchanges in order
to realize its investment objectives or for the purpose of hedging its
portfolio. A stock index fluctuates with changes in the market values of the
stocks included in the index. Some stock index options are based on a broad
market index such as the NYSE Composite Index, or a narrower market index such
as the Standard & Poor's 100. Indexes are also based on an industry or market
segment such as the American Stock Exchange Oil and Gas Index or the Computer
and Business Equipment Index.
Options on stock indexes are similar to options on stock except that
(a) the expiration cycles of stock index options are monthly, while those of
stock options are currently quarterly, and (b) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (i) the amount, if any, by
which the fixed exercise price of the option exceeds (in the case of a put) or
is less than (in the case of a call) the closing value of the underlying index
on the date of exercise, multiplied by (ii) a fixed "index multiplier." Receipt
of this cash amount will depend upon the difference between the closing level of
the stock index upon which the option is based and the exercise price of the
option. The amount of cash received will be equal to such difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple. The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. The writer may
offset its position in stock index options prior to expiration by entering into
a closing transaction on an exchange or it may let the option expire
unexercised. The effectiveness of purchasing or writing stock index options will
depend upon the extent to which price movements in a Fund's portfolio correlate
with price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund will realize a gain or loss from the
purchase or writing of options on an index depends upon movements in the level
of stock prices in the stock market generally or, in the case of certain
indexes, in an industry or market segment, rather than movements in the price of
a particular stock. Accordingly, successful use by a Fund of options on stock
indexes is subject to the Adviser's ability to predict correctly movements in
the direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks.
A Fund engages in stock index option transactions only when determined
by the Adviser to be consistent with the Fund's investment objectives. There can
be no assurance that the use of these portfolio strategies will be successful.
When a Fund writes an option on a stock index, the Fund will place in a
segregated account with its custodian, cash or U.S. Government securities in an
amount at least equal to the market value of the underlying stock index and will
maintain the account while the option is open or the Fund will otherwise cover
the transaction. Although a Fund intends to purchase or write only those stock
index options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market will exist for any particular option
at any specific time. In such event, it may not be possible to effect closing
transactions with respect to certain stock index options, with the result that a
Fund would have to exercise those options which it has purchased in order to
realize any profit. With respect to stock index options written by a Fund, the
inability to enter into a closing transaction may result in material losses to
the Fund. For
<PAGE> 84
example, because a Fund must maintain a covered position with respect to any
call option it writes, the Fund may not sell the underlying securities used as
cover during the period it is obligated under an option. This requirement may
impair the Fund's ability to sell a portfolio security or make an investment at
a time when such a sale or investment might be advantageous.
FUTURES TRANSACTIONS -- IN GENERAL (ALL FUNDS). In connection with its futures
transactions, a Fund will establish and maintain at its custodian bank or
qualified futures commission merchant a segregated account consisting of cash or
other high quality liquid securities as determined by the Board of Trustees in
an amount generally equal to the market value of the underlying commodity less
any amount deposited as margin. The segregation of such assets will not have the
effect of limiting a Fund's ability to otherwise invest those assets.
Initially, when purchasing or selling futures contracts, a Fund will be
required to deposit with its custodian in the broker's name an amount of cash or
cash equivalents equal to approximately 5% to 10% of the contract amount. This
amount is subject to change by the exchange or board of trade on which the
contract is traded and members of such exchange or board of trade may impose
their own higher requirements. This amount is known as "initial margin" and is
in the nature of a performance bond or good faith deposit on the contract which
is returned to a Fund upon termination of the futures position, assuming all
contractual obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker will be made daily as the price of
the index underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
"marking-to-market." At any time prior to the expiration of a futures contract,
a Fund may elect to close the position by taking an opposite position at the
then prevailing price, which will operate to terminate the Fund's existing
position in the contract.
Although a Fund will intend to purchase or sell futures contracts only
if there is an active market for such contracts, no assurance can be given that
a liquid market will exist for any particular contract at any particular time.
Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. Futures contract prices could move to the daily
limit for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and potentially subjecting a
Fund to substantial losses. If it is not possible or a Fund determines not to
close a futures position in anticipation of adverse price movements, the Fund
will be required to make daily cash payments of variation margin. In such
circumstances, an increase in the value of the portion of the portfolio being
hedged, if any, may offset partially or completely losses on the futures
contract. However, no assurance can be given that the price of the securities
being hedged will correlate with the price movements in a futures contract and
thus provide an offset to losses on the futures contract.
In addition, due to the risk of an imperfect correlation between
securities in the Fund's portfolio that are the subject of a hedging transaction
and the futures contract used as a hedging device, it is possible that the hedge
will not be fully effective in that, for example, losses on the portfolio
securities may be in excess of gains on the futures contract or losses on the
futures contract may be in excess of gains on the portfolio securities that were
the subject of the hedge. In futures contracts based on indexes, the risk of
imperfect correlation increases as the composition of the Fund's portfolio
varies from the composition of the index. In an effort to compensate for the
imperfect correlation of movements in the price of the securities being hedged
and movements in the price of futures contracts, a Fund may buy or sell futures
contracts in a greater or lesser dollar amount than the dollar amount of the
securities being hedged if the historical volatility of the futures contract has
been less or greater than that of the securities. Such "over hedging" or "under
hedging" may adversely affect a Fund's net investment results if market
movements are not as accurately anticipated when the hedge is established.
INTEREST RATE FUTURES CONTRACTS (THE BALANCED FUND AND THE INTERMEDIATE BOND
FUND). These Funds may purchase and sell interest rate futures contracts as a
hedge against changes in interest rates. A futures contract is an agreement
between two parties to buy and sell a security for a set price on a future date.
Futures contracts are traded on designated "contracts markets" which, through
their clearing corporations, guarantee
<PAGE> 85
performance of the contracts. Currently, there are futures contracts based on
securities such as long-term U.S. Treasury bonds, U.S. Treasury notes, GNMA
Certificates and three-month U.S. Treasury bills.
Generally, if market interest rates increase, the value of outstanding
debt securities declines (and vice versa). Entering into a futures contract for
the sale of securities has an effect similar to the actual sale of securities,
although the sale of the futures contract might be accomplished more easily and
quickly. For example, if a Fund holds long-term U.S. Government securities and
the Adviser anticipates a rise in long-term interest rates, it could, in lieu of
disposing of its portfolio securities, enter into futures contracts for the sale
of similar long-term securities. If rates increased and the value of the Fund's
portfolio securities declined, the value of the Fund's futures contracts would
increase, thereby protecting the Fund by preventing net asset value from
declining as much as it otherwise would have. Similarly, entering into futures
contracts for the purchase of securities has an effect similar to actual
purchase of the underlying securities, but permits the continued holding of
securities other than the underlying securities. For example, if the Adviser
expects long-term interest rates to decline, the Fund might enter into futures
contracts for the purchase of long-term securities, so that it could gain rapid
market exposure that may offset anticipated increases in the cost of securities
it intends to purchase, while continuing to hold higher yielding short-term
securities or waiting for the long-term market to stabilize.
STOCK INDEX FUTURES CONTRACTS (THE EQUITY FUND, THE BALANCED FUND, THE SMALLCAP
FUND, THE MIGHTY MITES FUND AND THE REALTY FUND). These Funds may enter into
stock index futures contracts in order to protect the value of their common
stock investments. A stock index futures contract is an agreement in which one
party agrees to deliver to the other an amount of cash equal to a specific
dollar amount times the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. As the aggregate market value of the stocks in the index
changes, the value of the index also will change. In the event that the index
level rises above the level at which the stock index futures contract was sold,
the seller of the stock index futures contract will realize a loss determined by
the difference between the two index levels at the time of expiration of the
stock index futures contract, and the purchaser will realize a gain in that
amount. In the event the index level falls below the level at which the stock
index futures contract was sold, the seller of the stock index futures contract
will realize a loss determined by the difference between the two index levels at
the time of expiration of the stock index futures contract, and the purchaser
will realize a gain in that amount. In the event the index level falls below the
level at which the stock index futures contract was sold, the seller will
recognize a gain determined by the difference between the two index levels at
the expiration of the stock index futures contract, and the purchaser will
realize a loss. Stock index futures contracts expire on a fixed date, currently
one to seven months from the date of the contract, and are settled upon
expiration of the contract.
The Funds intend to utilize stock index futures contracts only for the
purpose of attempting to protect the value of their common stock portfolios in
the event of a decline in stock prices and, therefore, usually will be sellers
of stock index futures contracts. This risk management strategy is an
alternative to selling securities in a portfolio and investing in money market
instruments. Also, stock index futures contracts may be purchased to protect a
Fund against an increase in prices of stocks which the Fund intends to purchase.
If a Fund is unable to invest its cash (or cash equivalents) in stock in an
orderly fashion, the Fund could purchase a stock index futures contract which
may be used to offset any increase in the price of the stock. However, it is
possible that the market may decline instead, resulting in a loss on the stock
index futures contract. If a Fund then concludes not to invest in stock at that
time, or if the price of the securities to be purchased remains constant or
increases, the Fund will realize a loss on the stock index futures contract that
is not offset by a reduction in the price of securities purchased. The Funds
also may buy or sell stock index futures contracts to close out existing futures
positions.
A Fund will intend to purchase and sell futures contracts on the stock
index for which it can obtain the best price with consideration also given to
liquidity. While incidental to its securities activities, a Fund may use stock
index futures as a substitute for a comparable market position in the underlying
securities.
<PAGE> 86
There can be no assurance of a Fund's successful use of stock index
futures as a hedging device. In addition to the possibility that there may be an
imperfect correlation, or no correlation at all, between movements in the stock
index futures and portion of the portfolio being hedged, the price of stock
index futures may not correlate perfectly with the movement in the stock index
because of certain market distortions. First, all participants in the futures
market are subject to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through offsetting transactions which would distort the normal
relationship between the index and futures markets. Secondly, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than the margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market also may cause
temporary price distortions. Because of the possibility of price distortions in
the futures market and the imperfect correlation between movements in the stock
index and movements in the price of stock index futures, a correct forecast of
general market trends by the Adviser still may not result in a successful
hedging transaction.
Successful use of stock index futures by a Fund also is subject to the
Adviser's ability to predict correctly movements in the direction of the market.
For example, if a Fund has hedged against the possibility of a decline in the
market adversely affecting stocks held in its portfolio and stock prices
increase instead, a Fund will lose part or all of the benefit of the increased
value of its stocks which it has hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if a Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. A Fund may have to sell
securities at a time when it may be disadvantageous to do so.
OPTIONS ON FUTURES (ALL FUNDS). The Funds may purchase and write call and put
options on futures contracts which are traded on a United States or foreign
exchange or board of trade. An option on a futures contract gives the purchaser
the right, in return for the premium paid, to assume a position in a future
contract at a specified exercise price at any time during the option period.
Upon exercise of the option, the writer of the option is obligated to convey the
appropriate futures position to the holder of the option. If an option is
exercised on the last trading day before the expiration date of the option, a
cash settlement will be made in an amount equal to the difference between the
closing price of the futures contract and the exercise price of the option.
The Funds may use options on futures contracts solely for bona fide
hedging or other appropriate risk management purposes. If a Fund purchases a
call (put) option on a futures contract, it benefits from any increase
(decrease) in the value of the futures contract, but is subject to the risk of
decrease (increase) in value of the futures contract. The benefits received are
reduced by the amount of the premium and transaction costs paid by a Fund for
the option. If market conditions do not favor the exercise of the option, a
Fund's loss is limited to the amount of such premium and transaction costs paid
by the Fund for the option.
If a Fund writes a call (put) option on a futures contract, the Fund
receives a premium but assumes the risk of a rise (decline) in value in the
underlying futures contract. If the option is not exercised, a Fund gains the
amount of the premium, which may partially offset unfavorable changes due to
interest rate or currency exchange rate fluctuations in the value of securities
held or to be acquired for the Fund's portfolio. If the option is exercised, a
Fund will incur a loss, which will be reduced by the amount of the premium it
receives. However, depending on the degree of correlation between changes in the
value of its portfolio securities (or the currency in which they are
denominated) and changes in the value of futures positions, a Fund's losses from
writing options on futures may be partially offset by favorable changes in the
value of portfolio securities or in the cost of securities to be acquired.
The holder or writer of an option on futures contracts may terminate
its position by selling or purchasing an offsetting option of the same series.
There is no guarantee that such closing transactions can be effected. A Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (ALL FUNDS). The Funds may enter
into forward foreign currency exchange contracts. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
<PAGE> 87
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.
At the maturity of a forward contract, a Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing purchase transaction involving the purchase or sale of an
offsetting contract. Closing purchase transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract.
The Funds may enter into forward foreign currency exchange contracts in
several circumstances. First, when a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when a Fund
anticipates the receipt in a foreign currency of dividend or interest payments
on such a security which it holds, the Fund may desire to "lock in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such dividend or
interest payment, as the case may be. By entering into a forward contract for
the purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying transactions, a Fund will attempt to protect
itself against an adverse change in the relationship between the U.S. dollar and
the subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
Additionally, when management of the Fund believes that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and date it matures. The precise projection of
short-term currency market movements is not possible, and short-term hedging
provides a means of fixing the dollar value of only a portion of the Fund's
foreign assets.
The Funds will not enter into forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate a Fund to deliver an amount of foreign currency in excess of the value
of the Fund's portfolio securities or other assets denominated in that currency.
The Funds' custodian will place cash or liquid high grade debt securities into a
segregated account of a Fund in an amount equal to the value of the Fund's total
assets committed to the consummation of forward foreign currency exchange
contracts requiring the Fund to purchase foreign currencies or forward contracts
entered into for non-hedging purposes. If the value of the securities placed in
the segregated account declines, additional cash or securities will be placed in
the account on a daily basis so that the value of the account will equal the
amount of a Fund's commitments with respect to such contracts.
The Funds generally will not enter into a forward contract with a term
of greater than one year. Using forward contracts to protect the value of a
Fund's portfolio securities against a decline in the value of a currency does
not eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which a Fund can achieve at some future point in
time.
While the Funds will enter into forward contracts to reduce currency
exchange rate risks, transactions in such contracts involve certain other risks.
Thus, while a Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for a Fund than if it
had not engaged in any such transactions. Moreover, there may be imperfect
correlation between a Fund's portfolio holdings of securities denominated in a
particular currency and forward contracts entered into by the Fund. Such
imperfect correlation may prevent a Fund from achieving a complete hedge or may
expose the Fund to risk of foreign exchange loss.
<PAGE> 88
SHORT SALES AGAINST THE BOX (MIGHTY MITES FUND). The Mighty Mites Fund may sell
securities "short against the box." While a short sale is the sale of a security
that the Mighty Mites Fund does not own, it is "Against the box" if at all times
when the short position is open the Mighty Mites Fund owns an equal amount of
securities or securities convertible into, or exchangeable without further
consideration for, securities of the same issue as the securities sold short. In
a short sale, the Fund does not immediately deliver the securities sold or
receive the proceeds from the sale.
The Mighty Mites Fund may make a short sale in order to hedge against
market risks when it believes that the price of a security may decline, causing
a decline in the value of a security owned by the Mighty Mites Fund or security
convertible into, or exchangeable for, the security, or when the Mighty Mites
Fund does not want to sell the security it owns, because among other reasons, it
wishes to defer recognition of gain or loss for U.S. federal income tax
purposes. The Mighty Mites Fund may close out a short position by purchasing and
delivering an equal amount of securities sold short, rather than by delivering
securities already held by the Mighty Mites Fund, because the Mighty Mites Fund
may want to continue to receive interest and dividend payments on securities in
its portfolio that are convertible into the securities sold short.
LENDING PORTFOLIO SECURITIES (ALL FUNDS). To a limited extent, each Fund may
lend its portfolio securities to brokers, dealers and other financial
institutions, provided it receives cash collateral which at all times is
maintained in an amount equal to at least 100% of the current market value of
the securities loaned. By lending its portfolio securities, a Fund can increase
its income through the investment of the cash collateral. For the purposes of
this policy, the Funds consider collateral consisting of U.S. Government
securities or irrevocable letters of credit issued by banks whose securities
meet the standards for investment by the Funds to be the equivalent of cash.
Such loans may not exceed 33-1/3% of a Fund's total assets. From time to time,
a Fund may return to the borrower and/or a third party which is unaffiliated
with the Fund, and which is acting as a "placing broker," a part of the interest
earned from the investment of collateral received for securities loaned.
The SEC currently requires that the following conditions must be met
whenever a Fund's portfolio securities are loaned: (1) the Fund must receive at
least 100% cash collateral from the borrower; (2) the borrower must increase
such collateral whenever the market value of the securities rises above the
level of such collateral; (3) the Fund must be able to terminate the loan at any
time; (4) the Fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (5) the Fund may pay only reasonable custodian fees in
connection with the loan; and (6) while voting rights on the loaned securities
may pass to the borrower, the Funds' Trustees must terminate the loan and regain
the right to vote the securities if a material event adversely affecting the
investment occurs. These conditions may be subject to future modification.
Such loans will be terminable at any time upon specified notice. A Fund
might experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Fund.
RULE 144A SECURITIES (ALL FUNDS). The Funds have adopted fundamental policies
with respect to investments in illiquid securities (see Investment Restrictions
Nos. 10 and 11 below). Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), securities that are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven days. Securities
that have not been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased directly from the
issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven
<PAGE> 89
days. A mutual fund might also have to register such restricted securities in
order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Each Fund may invest up to 5% (except for the SmallCap Fund, Mighty
Mites _ Fund and Realty Fund which may invest up to 15%) of its net assets in
restricted securities issued under Section 4(2) of the Securities Act, which
exempts from registration "transactions by an issuer not involving any public
offering". Section 4(2) instruments are restricted in the sense that they can
only be resold through the issuing dealer and only to institutional inventors;
they cannot be resold to the general public without registration. Restricted
securities issued under Section 4(2) of the Securities Act will be treated as
illiquid and subject to each Fund's investment restriction on illiquid
securities.
The Commission has adopted Rule 144A, which allows a broader
institutional trading market for securities otherwise subject to restriction on
resale to the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act applicable to resales of certain
securities to qualified institutional buyers. The Adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
will expand further as a result of this new regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the National Association of Securities Dealers, Inc. (the "NASD").
Consequently, it is the intent of the Funds to invest, pursuant to procedures
established by the Board of Trustees and subject to applicable investment
restrictions, in securities eligible for resale under Rule 144A which are
determined to be liquid based upon the trading markets for the securities.
The Adviser will monitor the liquidity of restricted securities in a
Fund's portfolio under the supervision of the Trustees. In reaching liquidity
decisions, the Adviser will consider, inter alia, the following factors: (1) the
frequency of trades and quotes for the security over the course of six months or
as determined in the discretion of the Adviser; (2) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers over the course of six months or as determined in the discretion of
the Adviser; (3) dealer undertakings to make a market in the security; (4) the
nature of the security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer); and (5) other factors, if any, which the Adviser
deems relevant. The Adviser will also monitor the purchase of Rule 144A
securities which the trustees consider to be illiquid to assure that the total
of all such Rule 144A securities held by a Fund (except for the SmallCap Fund,
Mighty Mites _ Fund and Realty Fund, which may invest up to 15%) does not exceed
5% of the Fund's average daily net assets.
INVESTMENT RESTRICTIONS. The Funds have adopted the following restrictions as
fundamental policies. These restrictions cannot be changed without approval by
the holders of a majority (as defined in the Investment Company Act of 1940 (the
"Act")) of each Fund's outstanding voting shares. Each Fund, except as otherwise
indicated, may not:
1. Purchase the securities of any issuer if such purchase would cause
more than 5% of the value of its total assets to be invested in securities of
such issuer. This restriction applies only with respect to 75% of each Fund's
total assets.
2. Purchase the securities of any issuer if such purchase would cause
the Fund to hold more than 10% of the outstanding voting securities of such
issuer. This restriction applies only with respect to 75% of each Fund's total
assets.
<PAGE> 90
3. Each Fund, other than the Mighty Mites Fund, may not purchase
securities of any company having less than three years' continuous operations
(including operations of any predecessors) if such purchase would cause the
value of a Fund's investments in all such companies to exceed 5% of the value of
its total assets.
4. Purchase or retain the securities of any issuer if the officers or
Trustees of the Funds or the officers or Directors of the Adviser who
individually own beneficially more than 1/2 of 1% of the securities of such
issuer together own beneficially more than 5% of the securities of such issuer.
5. Purchase, hold or deal in commodities or commodity contracts, but
the Funds may engage in transactions involving futures contracts and related
options, including the futures and related options transactions as described in
the Prospectus and Additional Statement.
6. Purchase, hold or deal in real estate, or oil and gas interests, but
the Funds may purchase and sell securities that are secured by real estate and
may purchase and sell securities issued by companies that invest or deal in real
estate.
7. Borrow money or pledge, mortgage or hypothecate its assets, except
as described in the Funds' Prospectus and the Additional Statement and in
connection with entering into futures contracts, but the deposit of assets in
escrow in connection with the writing of covered call options and the purchase
of securities on a when-issued or delayed-delivery basis and collateral
arrangements with respect to initial or variation margins for futures contracts
will not be deemed to be pledges of a Fund's assets.
8. Lend any funds or other assets except through the purchase of a
portion of an issue of publicly distributed bonds, debentures or other debt
securities, or the purchase of bankers' acceptances and commercial paper of
corporations. However, each Fund may lend its portfolio securities in an amount
not to exceed 33-1/3% of the value of its total assets. Any loans of portfolio
securities will be made according to guidelines established by the SEC and the
Funds' Trustees.
9. Act as an underwriter of securities of other issuers.
10. The Equity Fund may not enter into repurchase agreements providing
for settlement in more than seven days after notice, or purchase securities
which are not readily marketable, including certain securities which are subject
to legal or contractual restrictions on resale, if, in the aggregate, more than
10% of the value of the Fund's net assets would be so invested. This restriction
applies to those options in respect of specific securities that are not traded
on a national securities exchange, and the underlying security, which are not
readily marketable.
11. Each Fund, other than the Equity Fund, may not enter into
repurchase agreements providing for settlement in more than seven days after
notice, or purchase securities which are not readily marketable, if, in the
aggregate, more than 10% (15% for the SmallCap, Mighty Mites _ and Realty Funds)
of the value of a Fund's net assets would be so invested. Included in this
category are "restricted" securities and any other assets for which an active
and substantial market does not exist at the time of purchase or subsequent
valuation. Restricted securities for purposes of this limitation do not include
securities eligible for resale pursuant to Rule 144A of the Securities Act of
1933 which have been determined to be liquid by the Fund's Board of Trustees
based upon the trading markets for the securities.
12. Enter into time deposits maturing in more than seven days and time
deposits maturing from two business days through seven calendar days will not
exceed 10% of a Fund's total assets.
13. Invest in the securities of a company for the purpose of exercising
management or control, but each Fund will vote the securities it owns in its
portfolio as a shareholder in accordance with its views.
<PAGE> 91
14. Purchase securities on margin, but the Funds may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of securities and the Funds may make margin payments in connection with
transactions in options and futures.
15. Purchase or sell put and call options, or combinations thereof,
except as set forth in the Prospectus and Additional Statement.
16. Invest more than 25% of its assets in investments in any particular
industry or industries, provided that, when a Fund has adopted a temporary
defensive posture, there shall be no limitation on the purchase of obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and repurchase agreements in respect of the foregoing.
17. The Equity Fund shall not purchase warrants in excess of 2% of net
assets. (For purposes of this restriction, such warrants shall be valued at the
lower of cost or market, except that warrants acquired by the Equity Fund in
units or attached to securities shall not be included within this 2%
restriction.) The Balanced Fund shall not invest more than 5% of its net assets
in warrants, no more than 2% of which may be invested in warrants which are not
listed on the New York or American Stock Exchanges.
18. Issue senior securities.
The limitations set forth above in Restriction No. 1 do not apply with
respect to securities issued by the U.S. Government, its agencies or
instrumentalities.
If a percentage restriction is adhered to at the time of investment, a
later increase in percentage resulting from a change in values or assets will
not constitute a violation of such restriction.
MANAGEMENT OF THE FUNDS
Trustees and officers of the Funds, together with information as to
their principal business occupations during at least the last five years, are
shown below. Each Trustee who is deemed to be an "interested person" of the
Funds, as defined in the Act, is indicated by an asterisk.
TRUSTEES AND OFFICERS OF THE FUNDS
ANTHONY J. COLAVITA, (63) TRUSTEE.
President and Attorney at Law in the law firm of Anthony J. Colavita,
P.C. since 1961; Director or Trustee of 12 other Gabelli funds. His address is
One Corporate Center, Rye, New York 10580.
JAMES P. CONN, (60) TRUSTEE.
Managing Director/Chief Investment Officer, Financial Security
Assurance, since 1992. Director of Meditrust Corp., First Republic Bank,
<PAGE> 92
Director or Trustee of 4 other Gabelli funds. His address is One Corporate
Center, Rye, New York 10580.
WERNER ROEDER, M.D., (58) TRUSTEE.
Director of Surgery, Lawrence Hospital and practicing private
physician. Director of 6 other Gabelli funds. His address is One Corporate
Center, Rye, New York 10580.
KARL OTTO POHL*, (69) TRUSTEE.
Partner of Sal Oppenheim Jr. & Cie (private investment bank); Currently
Board Member of IBM World Trade Europe/Middle East/Africa Corp.; Bertelsmann AG;
Zurich Versicherungs-Gesellschaft (insurance); the International Council for JP
Morgan & Co.; Supervisory Board Member of Royal Dutch (petroleum company)
ROBECo/o Group; Advisory Director of Unilever N.V. and Unilever Deutschland;
Former President of the Deutsche Bundesbank and Chairman of its Central Bank
Council from 1980 through 1991.; Director/Trustee of all the funds in the
Gabelli family of funds. His address is One Corporate Center, Rye, New York
10580.
SUSAN M. BYRNE*, (52) TRUSTEE.
President and CEO of Westwood Management Corporation since 1983. Her
address is 300 Crescent Court, Suite 1300, Dallas, TX 75201.
All of the Funds' Trustees were elected at a meeting of shareholders
held on September 30, 1994 except Mr. Pohl, who was elected by the Board of
Trustees on August 8, 1997 to begin serving on the Board on October 6, 1997.
Ordinarily, there will be no further meetings of shareholders for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Under the Act, shareholders of record of not less than two-thirds of
the Fund's outstanding shares may remove a Trustee through a declaration in
writing or by vote casting person or by proxy at a meeting called for that
purpose. In accordance with the Act and the Trust's Agreement and Declaration of
Trust, the Trustees are required to call a meeting of shareholders for the
purpose of voting upon the question of removal of any such Trustee when
requested in writing to do so by the shareholders of record of not less than 10%
of the Trust's outstanding shares.
The Trust does not pay any remuneration to its officers and Trustees
other than fees and expenses to Trustees who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser, Sub-Adviser or the Distributor, which totaled for all such Trustees
$15,966 for the fiscal year ended September 30, 1998. Each Trustee other than
Susan Byrne is paid an annual fee of $2,500 and $500 for each meeting attended.
<PAGE> 93
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total Compensation
Aggregate from the Fund and
Name of Person, Compensation Fund Complex
Position From the Fund Paid to Trustees*
- -------- ------------- -----------------
<S> <C> <C>
Susan M. Byrne $ 0 $ 0
President
Anthony J. Colavita $3,870 $81,500 (13)
Trustee
Karl Otto Pohl $3,966 $98,466 (15)
Trustee
Werner Roeder, M.D. $3,870 $25,000 (7)
Trustee
James P. Conn $3,870 $46,000 (5)
Trustee
</TABLE>
- -----------
* Represents the total compensation paid to such persons during the year
ended December 31, 1998. The parenthetical number represents the
number of investment companies (including the Fund) from which such
person received compensation that are considered part of the same fund
complex as the Fund, because, among other things, they have a common
investment adviser.
EXECUTIVE OFFICERS OF THE FUNDS NOT LISTED ABOVE
BRUCE N. ALPERT, (46) VICE PRESIDENT AND TREASURER.
Director and President of the Adviser. Vice President and Chief
Operating Officer of the Investment Advisory Division of Gabelli Funds, Inc.
since 1988, an officer of all funds advised by Gabelli Funds, Inc. and its
affiliates. His address is One Corporate Center, Rye, New York 10580.
PATRICIA R. FRAZE, (54) VICE PRESIDENT.
Senior Vice President of the Sub-Adviser, fixed income analyst and
portfolio manager since April 1990. Her address is 855 Third Avenue, New York,
NY 10022.
15
<PAGE> 94
LYNDA J. CALKIN, (47) VICE PRESIDENT.
Senior Vice President of the Sub-Adviser, small cap portfolio manager
since 1993. Previously, Vice President and Portfolio Manager for Hourglass
Capital Management Inc.
JAMES E. MCKEE, (34) SECRETARY.
Secretary of the Adviser since 1995. Vice President and General Counsel
of Gabelli Funds, Inc.; Secretary of all Funds advised by Gabelli Funds, Inc.
since August 1995. Vice President and General Counsel of GAMCO Investors Inc.
since 1993. Formerly Branch Chief of the U.S. SEC in New York from 1992 through
1993. Staff attorney with the SEC in New York from 1989 through 1992. His
address is One Corporate Center, Rye, New York 10580.
As of November 13, 1998, the Officers and Trustees of the Funds, as a
group, owned 1.0% of the Gabelli Westwood Intermediate Bond Fund, 7.2% of the
Gabelli Westwood Realty Fund, and 1.5% of the Gabelli Westwood SmallCap Equity
Fund. In the case of Funds other than the aforementioned funds, the Officers and
Trustees of the Funds, as a group, owned less than 1% of each class of such
Funds.
The following persons were known by the Funds to own of record 5% or
more of the outstanding voting securities of any Fund on November 2, 1998:
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
OF HOLDER OF RECORD OF FUND
------------------- -------
<S> <C> <C>
EQUITY FUND
RETAIL CLASS
Charles Schwab & Co., Inc. 31.75% *
Special Custody Account
FBO Ben of Custs
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
The Bank of Tokyo Trust Co. TTEE 11.97% *
FBO The Komatsu Dresser Co. Sav. Plan
Pension & Investment
Attn: Melissa Kruppa
1251 Avenue of Americas
New York NY 10020
SERVICE CLASS
Southwest Securities Inc, FBO 10.51%
Kenneth Reiser & Caroline P. Reiser JTWROS
P.O. Box 509002
Dallas, TX 75280-9002
</TABLE>
16
<PAGE> 95
<TABLE>
<S> <C> <C>
Billy M. Willis 5.16%
1118 Victoria
Nacogdoches, TX 75961-3056
BALANCED FUND
Charles Schwab & Co., Inc. 43.70% *
Special Custody Acct
FBO Ben of Custs
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
</TABLE>
17
<PAGE> 96
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
OF HOLDER OF RECORD OF FUND
------------------- -------
<S> <C> <C>
SMALLCAP EQUITY FUND
RETAIL CLASS
Wendel & Co. 55.85% *
A/C659115
c/o Bank of New York
Attn: Ellen Whalen
1 Wall Street
New York, NY 10286
MIGHTY MITES FUND
Gabelli Funds, Inc. 41.10%
Attn.: John Fodera
One Corporate Center
Rye, NY 10580-1442
Charles Schwab & Co. Inc. 5.09%
Reinvest Acct.
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
REALTY FUND
RETAIL CLASS
Charles Schwab & Co., Inc. 8.27%
Special Custody Account
FBO Ben of Custs
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
TCTCO 15.23%
200 Crescent Ct. Ste 1300
Dallas, TX 75201-7838
INTERMEDIATE BOND FUND
RETAIL CLASS
TCTCO 22.12%
200 Crescent Ct. Suite 1300
Dallas, TX 75201-7838
Southwest Securities, Inc. FBO 23.22% *
Guarantee & Trust Co. Trial Management Agreement
P.O. Box 509 002
Dallas, TX 75250
</TABLE>
18
<PAGE> 97
<TABLE>
<S> <C>
Westwood Trust 13.57%
Corporate Account
200 Crescent Ct. Suite 1300
Dallas, TX 75201-7838
</TABLE>
* Beneficial ownership is disclaimed.
Beneficial ownership of shares representing 25% or more of the
outstanding shares of each class of the Funds may be deemed to have control, as
that term is defined in the 1940 Act.
19
<PAGE> 98
INVESTMENT ADVISORY AND OTHER SERVICES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTION IN THE FUNDS' PROSPECTUS ENTITLED "MANAGEMENT OF THE FUNDS."
INVESTMENT ADVISORY AGREEMENTS. The Adviser retains Westwood Management
Corporation ("Westwood" or the "Sub-Adviser") to furnish investment advice and
manage the Funds' assets (the "Sub-Advised Funds"), with the exception of the
Mighty Mites Fund for which the Adviser is responsible for the management of
such Fund's portfolio.
Each Advisory and Sub-Advisory Agreement is subject to annual approval
by (i) the Board of Trustees or (ii) vote of a majority (as defined in the Act)
of the outstanding voting securities of each applicable Fund, provided that in
either event the continuance also is approved by a majority of the Trustees who
are not "interested persons" (as defined in the Act) of the applicable Funds or
the Adviser, by vote cast in person at a meeting called for the purpose of
voting on such approval. Each Advisory Agreement is terminable without penalty,
on 60 days' notice, by the applicable Funds' Board of Trustees or by vote of the
holders of a majority of each applicable Fund's shares, or by the Adviser, upon
not less than 60 days' notice with respect to the Investment Advisory Agreement
for each applicable Fund. Each Advisory Agreement will terminate automatically
in the event of its assignment (as defined in the Act).
The Sub-Adviser manages each applicable Fund's portfolio of investments
in accordance with the stated policies of each applicable Fund, subject to the
approval of the Board of Trustees. The Sub-Adviser is responsible for investment
decisions, and provides each applicable Fund with Investment Officers who are
authorized by the Board of Trustees to execute purchases and sales of
securities. The applicable Funds' Investment Officers are Susan M. Byrne, Lynda
Calkin, and Patricia N. Fraze. All purchases and sales are reported for the
Trustees' review at the meeting subsequent to such transactions.
The fees paid to the Adviser are allocated between the classes of
shares based upon the amount of assets in each such class. As compensation for
its services under the Advisory Agreement, the Adviser is paid a monthly
advisory fee.
As compensation for its advisory and administrative services under the
Advisory Agreement for the SmallCap Fund, the Realty Fund, the Equity Fund, the
Mighty Mites Fund, the Intermediate Bond Fund and the Balanced Fund, Gabelli
Advisers is paid a monthly fee based upon the average daily net asset value of
each Fund, at the following annual rates: 1.0%, 1.0%, 1.0%, 1.0%, .60% and .75%,
respectively. Under the Sub-Advisory Agreement the Adviser pays Westwood out of
its advisory fees with respect to the Funds, with the exception of the Mighty
Mites Fund, a fee computed daily and payable monthly in an amount equal on an
annualized basis to the greater of (i) $150,000 per year on an aggregate basis
for the Funds or (ii) 35% of the net revenues to the Adviser from the Funds.
ADVISORY FEES
EARNED AND WAIVED BY GABELLI ADVISERS, INC.
FOR THE YEAR ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ----------------------------- ----------------------------
EARNED WAIVED EARNED WAIVED EARNED WAIVED
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Equity Fund $1,759,265 N/A $700,389 $38,601 $214,970 $82,555
Balanced Fund $905,501 N/A $419,264 $43,972 $178,593 $93,020
SmallCap Equity Fund $119,031 N/A $24,918 $14,207 N/A N/A
Mighty Mites Fund $12,543 N/A N/A N/A N/A N/A
Realty Fund $20,515 N/A N/A N/A N/A N/A
Intermediate Bond Fund $39,002 N/A $33,052 $32,389 $31,128 $31,128
</TABLE>
20
<PAGE> 99
The Adviser is responsible for overseeing Westwood's activities as
Sub-Adviser for the Sub-Advised Funds. Westwood assumes general supervision over
placing orders on behalf of the Sub-Advised Funds for the purchase or sale of
portfolio securities and the Adviser performs this function for the Mighty Mites
Fund. Allocation of brokerage transactions, including their frequency, is made
in the best judgment of Westwood (the Adviser in the case of the Mighty Mites _
Fund) and in a manner deemed fair and reasonable to shareholders. The primary
consideration is prompt execution of orders at the most favorable net price.
Subject to this consideration, the brokers selected will include those that
supplement Westwood's (the Adviser's in the case of the Mighty Mites _ Fund)
research facilities with statistical data, investment information, economic
facts and opinions. Information so received is in addition to and not in lieu of
services required to be performed by Westwood (the Adviser in the case of the
Mighty Mites _ Fund) and the fee for Westwood (the Adviser in the case of the
Mighty Mites Fund) is not reduced as a consequence of the receipt of such
supplemental information. Such information may be useful to Westwood (the
Adviser in the case of the Mighty Mites Fund) in serving both the Funds and
other accounts it manages and, conversely, supplemental information obtained by
the placement of business of other clients may be useful to Westwood (the
Adviser in the case of the Mighty Mites Fund) in carrying out its obligations to
the Funds, although not all of these services are necessarily useful and of
value in managing the Funds. Brokers also are selected because of their ability
to handle special executions such as are involved in large block trades or broad
distributions, provided the primary consideration is met. While Westwood (the
Adviser in the case of the Mighty Mites Fund) generally seeks reasonably
competitive spreads or commissions, the Funds will not necessarily be paying the
lowest spread or commissions available.
As permitted by section 28(e) of the Securities Exchange Act of 1934
(the "1934 Act"), Westwood (the Adviser in the case of the Mighty Mites Fund)
may cause the Funds to pay a broker-dealer which provides "brokerage and
research services" (as defined in the 1934 Act) to Westwood (the Adviser in the
case of the Mighty Mites Fund) an amount of undisclosed commission for effecting
a securities transaction for the Funds in excess of the commission which another
broker-dealer would have charged for effecting that transaction. Westwood may
also effect transactions through a broker affiliated with the Adviser and
Southwest Securities Group, Inc. subject to compliance with the 1940 Act.
Neither the Funds, the Adviser, nor the Sub-Adviser has any agreement
or legally binding understanding with any broker or dealer regarding any
specific amount of brokerage commissions which will be paid in recognition of
such services. However, in determining the amount of portfolio commissions
directed to such brokers or dealers, the Adviser does consider the level of
services provided. Based on such determinations, the Adviser has allocated
brokerage commission of $1,772 on portfolio transactions in the principal amount
of $506,125 during fiscal year ended September 30, 1998, to various
broker-dealers that have provided research services to the Adviser. The average
commission on these transactions was $.05 per share.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Trustees may determine,
Westwood (the Adviser in the case of the Mighty Mites Fund) may consider sales
of shares of the Funds as a factor in the selection of broker-dealers to execute
portfolio transactions for the Funds.
Portfolio turnover may vary from year to year, as well as within a
year. For the fiscal years ended September 30, 1998 and September 30, 1997, the
turnover rates were 77% and 61% in the case of the Equity Fund, 232% and 628% in
the case of the Intermediate Bond Fund, 77% and 110% in the case of the Balanced
Fund, 200%
21
<PAGE> 100
and 146% in the case of the SmallCap Equity Fund, 18% and 0% in the case of the
Mighty Mites Fund and 142% and 0% in the case of the Realty Fund; however, in
periods in which extraordinary market conditions prevail, the Adviser will not
be deterred from changing investment strategy as rapidly as needed, in which
case higher turnover rates can be anticipated. High turnover rates are likely to
result in comparatively greater brokerage expenses. The overall reasonableness
of brokerage commissions paid is evaluated by the Adviser based upon its
knowledge of available information as to the general level of commissions paid
by other institutional investors for comparable services.
BROKERAGE COMMISSIONS PAID*
FOR THE YEAR ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Equity Fund $451,706 $154,989 $48,678
Balanced Fund $221,346 $69,311 $36,359
SmallCap Equity Fund $53,080 $21,208 N/A
Mighty Mites Fund $4,771 N/A N/A
Realty Fund $8,067 N/A N/A
Intermediate Bond Fund $750 $0 $0
</TABLE>
* None of these amounts were paid to affiliates except for the Mighty
Mites Fund, which paid $554 to affiliates, which is 11.61% of total commissions
paid, or 9.80% of the aggregate dollar amount of transactions involving
commissions paid to affiliates.
The Adviser is responsible for overseeing the administration of each
Fund's business and affairs, including the maintenance of certain of the Funds'
books and records and the performance of other administrative aspects of the
Funds' operations to the extent not performed by the Funds' custodians, transfer
agents and dividend disbursing agents. The Adviser is permitted to subcontract
at its own expense the administrative responsibilities to persons it believes
are qualified to perform such services and has retained BISYS Fund Services,
Inc. ("BISYS") to provide administrative services with respect to the Funds.
Pursuant to the Sub-Administration Contracts, BISYS provides management and
administrative services necessary for the operation of the Funds, including,
among other things, (i) preparation of shareholder reports and communications,
(ii) regulatory compliance, such as reports to and filings with the SEC and
state securities commissions and (iii) general supervision of the operation of
the Funds, including coordination of the services performed by the Funds'
Adviser and Sub-Adviser, transfer agent, custodians, independent accountants,
legal counsel and others. In addition, Gabelli Advisers, Inc. furnishes office
space and facilities required for conducting the business of the Funds and pays
the compensation of the Funds' officers, employees and Trustees affiliated with
Gabelli Funds, Inc.
DISTRIBUTION OF FUND SHARES. The Funds have retained Gabelli & Company, Inc. to
serve as principal underwriter and distributor (the "Distributor") for the
shares of the Funds pursuant to Distribution Contracts (the "Distribution
Contracts"). The Distribution Contracts provide that the Distributor will use
its best efforts to maintain a broad distribution of the Funds' shares among
bona fide investors and may enter into selling group agreements with responsible
dealers and dealer managers as well as to sell the Funds' shares to individual
investors. The Distributor is not obligated to sell any specific amount of
shares.
22
<PAGE> 101
For the fiscal year ended September 30, 1998, the purchasers of fund
shares paid $51,000 and $110,823 in sales charges for sales of Service Class
shares of the Equity Fund and the Balanced Fund, respectively. Of those amounts,
$6,633 and $14,617 were retained by the Distributor.
For the fiscal year ended September 30, 1997, the purchasers of fund
shares paid $33,750 and $207,478 in sales charges for sales of Service Class
shares of the Equity Fund and the Balanced Fund, respectively. Of those amounts,
$4,500 and $12,518 were retained by the Distributor.
The Funds have adopted on behalf of the Service Class shares of each
Fund a Rule 12b-1 Distribution Plan and Agreement (the "Service Class Plan") and
on behalf of the Retail Class shares of each Fund, a Plan of Distribution
Pursuant to Rule 12b-1 (the "Retail Class Plan") pursuant to which each Class of
shares of the Funds makes payments to the Distributor on a monthly basis in
amounts described in the Prospectus in connection with distribution of shares of
such class, respectively. The Board of Trustees has concluded that there is a
reasonable likelihood that the Retail Class Plan and Service Class Plan will
benefit these classes and their shareholders, respectively.
Each Plan provides that it may not be amended to increase materially
the payment made by each Class pursuant to such Plan without shareholder
approval and that other material amendments of such Plan must be approved by the
Board of Trustees, and by the Trustees who are neither "interested persons" (as
defined in the Act) of the Funds nor have any direct or indirect financial
interest in the operation of the Plan or in any related agreement (the
"non-interested Trustees"), by a vote cast in person at a meeting called for the
purpose of considering such amendments. The selection and nomination of the
Funds' Trustees have been committed to the discretion of the non-interested
Trustees. The Service Class Plan was approved by Service Class shareholders on
January 15, 1991, and the Retail Class Plan was approved by Retail Class
shareholders on September 30, 1994. On August 8, 1997, the Board of Trustees,
including a majority of the non-interested Trustees, amended the Retail Class
Plan to authorize payments by the Funds to the Distributor of a fee in
connection with the distribution and servicing of its Retail Class shares at an
annual rate of .25% of the Funds' average daily net assets, whether or not the
Distributor spent all of such amount. Each Plan is subject to annual approval by
the Board of Trustees and by the non-interested Trustees, by a vote cast in
person at a meeting called for the purpose of voting on the applicable Plan.
Each Plan is terminable with respect to the applicable Class at any time by a
vote of a majority of the non-interested Trustees or by a vote of the holders of
a majority of the shares of such class. Payments will be accrued daily and paid
monthly or at such other intervals as the Board may determine and may be paid in
advance of actual billing.
Payments may be made by the Funds under the Retail Class Plan for the
purpose of financing any activity primarily intended to result in the sale of
the Retail Class shares of the Funds as determined by the Board of Trustees.
Such activities typically include advertising, compensation for sales and sales
marketing activities of the distributor and other banks, broker-dealers and
service providers, shareholder account servicing, production and dissemination
of prospectus and sales and marketing materials, and capital or other expenses
of associated equipment, rent, salaries, bonuses, interest and other overhead.
To the extent any activity is one which the Funds may finance without a plan of
distribution, the Funds may also make payments to finance such activity outside
of the Retail Class Plan and not be subject to its limitations.
The Retail Class Plan of the Funds has been implemented by written
agreements between the Funds and/or the Distributor and each person (including
the Distributor) to which payments may be made. Administration of the Retail
Class and Service Class Plan is regulated by Rule 12b-1 under the 1940 Act,
which includes requirements that the Board of Trustees receive and review at
least quarterly reports concerning the nature and qualification of expenses for
which payments are made and that the Board of Trustees approve all agreements
implementing the Retail Class and Service Class Plans and other requirements of
Rule 12b-1.
The Board of Trustees has approved implementation of the Retail 12b-1
Plan through the Advisory Agreements which provide for separate payments
pursuant to a plan of distribution, and by having the Funds enter into a
Distribution Agreement with the Distributor authorizing reimbursement of
expenses (including overhead) incurred by the Distributor and its affiliates up
to the .25% rate authorized by the Retail 12b-1 Plan. Distribution activities
include, without limitation, advertising the Funds; compensating underwriters,
dealers, brokers, banks and other selling entities and sales and marketing
personnel of any of them for sales of shares of the Funds, whether in a lump sum
or on a continuous, periodic, contingent, deferred or other basis; compensating
underwriters, dealers, brokers, banks and other servicing entities and servicing
personnel of any of them (including Westwood and its personnel) for providing
23
<PAGE> 102
services to shareholders of the Funds relating to their investment in the Funds,
including assistance in connection with inquiries relating to shareholder
accounts; the production and dissemination of prospectuses (including statements
of additional information) of the Funds and the preparation, production and
dissemination of sales, marketing and shareholder servicing materials; ordinary
or capital expenses, such as equipment, rent, fixtures, salaries, bonuses,
reporting and recordkeeping and third party consultancy or similar direct and
indirect expenses relating to any activity for which payment is authorized by
the Board of Trustees; and the financing of any activity for which payment is
authorized by the Board of Trustees. To the extent any of these payments is
based on allocations by the Distributor, the Funds may be considered to be
participating in joint distribution activities with other funds distributed by
the Distributor. Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing in the Funds'
Shares. In the unlikely event that a court were to find that these laws prevent
such banks from providing the services described above, the Funds would seek
alternative providers and expect that shareholders would not experience any
disadvantage.
For the year ended September 30, 1998, the Funds, with respect to the
Service Class, incurred distribution costs and expenses of $13,716 for the
Equity Fund and $82,646 for the Balanced Fund. There were no Service Class
shares outstanding during the year ended September 30, 1998 for the Intermediate
Bond Fund. For the year ended September 30, 1998, with respect to the Retail
Class, distribution costs and expenses of $432,956, $16,251, $260,511, $3,136,
$5,128 and $29,758 were incurred for the Equity Fund, Intermediate Bond Fund,
Balanced Fund, Mighty Mites Fund, Realty Fund and SmallCap Equity Fund,
respectively. During the fiscal year ended September 30, 1998, the Distributor
paid total distribution expenses under the Retail Class and Service Class Plans
of $1,054,400. Of this amount $54,900 was spent on advertising, $131,600 was
spent on printing, postage and stationery, $109,500 on overhead support
expenses, $243,100 on salaries of personnel of the Distributor and $117,000 on
servicing fees.
EXPENSES AND EXPENSE INFORMATION. On October 11, 1996 the "National Securities
Market Improvement Act of 1996" vested in the SEC exclusive authority for the
registration or qualification of investment company offerings, thus preempting
any state law expense limitation requirement, effective October 11, 1996.
Notwithstanding, Gabelli Advisers, Inc. reimbursed the Equity Fund, SmallCap
Fund, Intermediate Bond Fund, Mighty Mites Fund, Realty Fund and Balanced Fund
in the amounts of $0, $46,468, $65,358, $30,816, $46,272 and $0 for the period
ended September 30, 1998 for expenses in excess of its voluntary limitation of
expenses.
PURCHASE AND REDEMPTION OF SHARES
Cancellation of purchase orders for Fund shares (as, for example, when
checks submitted to purchase shares are returned unpaid) cause a loss to be
incurred when the net asset value of the Fund shares on the date of cancellation
is less than on the original date of purchase. The investor is responsible for
such loss, and each Fund may reimburse itself or the Distributor for such loss
by automatically redeeming shares from any account registered in that
shareholder's name, or by seeking other redress. If a Fund is unable to recover
any loss to itself, it is the position of the SEC that the Distributor will be
immediately obligated to make such Fund whole.
DETERMINATION OF NET ASSET VALUE
The Funds value their portfolio securities in accordance with the
procedures described in the Prospectus.
NYSE CLOSINGS. The holidays (as observed) on which the NYSE is closed, and
therefore days upon which shareholders cannot redeem shares, currently are: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
SHAREHOLDER SERVICES
24
<PAGE> 103
CORPORATE PENSION/PROFIT-SHARING AND PERSONAL RETIREMENT PLANS. The Funds make
available to corporations a 401(k) Salary Reduction Plan. In addition, the Funds
make available IRAs, including IRAs set up under a Simplified Employee Pension
Plan ("SEP-IRAs") and IRA "Rollover Accounts." New for 1998, the Funds also make
available education IRAs. Education IRAs permit eligible individuals to
contribute up to $500 per year per beneficiary under 18 years old. Distributions
from an education IRA are generally excluded from income when used for qualified
higher education expenses. Also new for 1998 is the Roth IRA. Unlike a
traditional IRA, contributions to a Roth IRA are not deductible. However,
distributions are generally excluded from income provided they occur at least
five years after the creation of the IRA and are either after the individual
reaches age 59-1/2, because of death or disability, or for first time home
buyers' expenses. Plan support services are also available. For details contact
the Distributor by calling toll free 1-800-GABELLI (1-800-422-3554). The Funds
have the right to terminate any of these plans at any time giving proper notice
to existing accounts.
Investors who wish to purchase Fund shares in conjunction with an IRA,
including a SEP-IRA, Roth IRA or education IRA may request from the Distributor
forms for adoption of such plans. The Funds can also be used as vehicles for
existing pension and profit-sharing plans.
A fee may be charged by the entity acting as custodian for 401(k) Plans
or IRAs, payment of which could require the liquidation of shares.
SHARES MAY BE PURCHASED IN CONNECTION WITH THESE PLANS ONLY BY DIRECT REMITTANCE
TO THE ENTITY WHICH ACTS AS CUSTODIAN. PURCHASES FOR THESE PLANS MAY NOT BE MADE
IN ADVANCE OF RECEIPT OF FUNDS.
The minimum initial investment for corporate plans, Salary Reduction
Plans, 403(b)(7) Plans, and SEP-IRAs, with more than one participant, is $1,000,
with no minimum on subsequent purchases. The minimum initial investment for
Distributor-sponsored IRAs, SEP-IRAs and Roth or education IRAs with only one
participant is normally $750, with no minimum on subsequent purchases.
The investor should read the Prototype Retirement Plan and the relevant
form of custodial agreement for further details as to eligibility, service fees
and tax implications, and should consult a tax advisor.
DIVIDENDS, DISTRIBUTIONS AND TAXES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION WITH THE
SECTION IN THE FUNDS' PROSPECTUS ENTITLED "DIVIDENDS, DISTRIBUTIONS AND TAXES."
The Funds intend to continue to qualify to be treated as regulated
investment companies under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). To qualify as a regulated investment company, a Fund must
distribute to shareholders at least 90% of its investment company taxable income
(which includes, among other items, dividends, taxable interest and the excess
of net short-term capital gains over net long-term capital losses), and meet
certain diversification of assets, source of income, and other requirements of
the Code. By meeting these requirements, a Fund generally will not be subject to
Federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses) designated by the Fund as capital gain dividends and distributed to
shareholders. If the Funds do not meet all of these Code requirements, they will
be taxed as ordinary corporations and their distributions will generally be
taxed to shareholders as ordinary income. In determining the amount of net
capital gains to be distributed, any capital loss carryover from prior years
will be applied against capital gains to reduce the amount of distributions
paid. In addition, any losses incurred in the taxable year subsequent to October
31, will be deferred to the next taxable year and used to reduce distributions
in the subsequent year.
Amounts, other than tax-exempt interest, not distributed on a timely
basis in accordance with a calendar year distribution requirement may be subject
to a nondeductible 4% excise tax. To prevent imposition of the excise tax, each
Fund must distribute for the calendar year an amount equal to the sum of (1) at
least 98% of its ordinary income (excluding any capital gains or losses) for the
calendar year, (2) at least 98% of the excess of its capital gains over capital
losses (adjusted for certain ordinary losses) for the one-year period ending
October 31 of such year, and (3) all ordinary income and capital gain net income
(adjusted for certain ordinary losses) for previous years that were not
distributed during such years. A distribution will be treated as paid on
December 31 of a calendar year if it is declared by a Fund
25
<PAGE> 104
during October, November or December of that year to shareholders of record on a
date in such a month and paid by the Fund during January of the following year.
Such distributions will be taxable to shareholders in the calendar year in which
the distributions are declared, rather than the calendar year in which the
distributions are received.
The Funds may invest in stocks of foreign companies that are classified
under the Code as passive foreign investment companies ("PFICs"). In general, a
foreign company is classified as a PFIC under the Code if at least one-half of
its assets constitutes investment-type assets or 75% or more of its gross income
is investment-type income. Under the PFIC rules, distribution of accumulated
earnings or gain from the sale of stock of the PFIC (referred to as an "excess
distribution") received with respect to PFIC stock is treated as having been
realized ratably over the period during which the Fund held the PFIC stock.
A Fund itself will be subject to tax on the portion, if any, of the
excess distribution that is allocated to the Fund's holding period in prior
taxable years (and an interest factor will be added to the tax, as if the tax
had actually been payable in such prior taxable years) even though the Fund
distributes the corresponding income to stockholders. All excess distributions
are taxable as ordinary income.
A Fund may be able to elect alternative tax treatment with respect to
PFIC stock it holds. One election that is currently available, provided the
appropriate information is received from the PFIC, requires a Fund to generally
include in its gross income its share of the earnings of a PFIC on a current
basis, regardless of whether any distributions are received from the PFIC. If
this election is made, the special rules, discussed above, relating to the
taxation of excess distributions, would not apply. In addition, other elections
may become available that would affect the tax treatment of PFIC stock held by a
Fund. Each Fund's intention to qualify annually as a regulated investment
company may limit its elections with respect to PFIC stock.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income and loss with respect to PFIC stock, as well as subject a
Fund itself to tax on certain income from PFIC stock, the amount that must be
distributed to stockholders by a Fund that holds PFIC stock, which will be taxed
to stockholders as ordinary income or long-term capital gain, may be increased
or decreased substantially as compared to a fund that did not invest in PFIC
stock. Investors should consult their own tax advisors in this regard.
Distributions of investment company taxable income generally are
taxable to shareholders as ordinary income. Distributions from certain of the
Funds may be eligible for the dividends-received deduction available to
corporations. However, dividends received by a Fund that are attributable to
foreign corporations will not be eligible for the dividends-received deduction,
since that deduction is generally available only with respect to dividends paid
by domestic corporations. In addition, the dividends-received deduction will be
disallowed for shareholders who do not hold their shares in a Fund for at least
45 days during the 90 day period beginning 45 days before a share in the Fund
becomes ex dividend with respect to such dividend.
Distributions of net capital gains, if any, designated by a Fund as
capital gain dividends are taxable to shareholders as long-term capital gains,
regardless of the length of time the Fund's shares have been held by the
shareholder. All distributions are taxable to the shareholder whether reinvested
in additional shares or received in cash. Shareholders will be notified annually
as to the Federal tax status of distributions.
Investors should be careful to consider the tax implications of buying
shares just prior to a distribution by the Funds. The price of shares purchased
at that time includes the amount of the forthcoming distribution. Distributions
by a Fund reduce the net asset value of the Fund's shares, and if a distribution
reduces the net asset value below a stockholder's cost basis, such distribution,
nevertheless, would be taxable to the shareholder as ordinary income or capital
gain as described above, even though, from an investment standpoint, it may
constitute a partial return of capital.
26
<PAGE> 105
Upon the taxable disposition (including a sale or redemption) of shares
of a Fund, a shareholder may realize a gain or loss depending upon its basis in
the shares. Such gain or loss will be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands. Such gain or loss will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Non-corporate shareholders are subject to tax at a
maximum rate of 20% on capital gains resulting from the disposition of shares
held for more than 12 months (10% if the taxpayer is, and would be after
accounting for such gains, subject to the 15% tax bracket for ordinary income).
However, a loss realized by a shareholder on the disposition of Fund shares with
respect to which capital gain dividends have been paid will, to the extent of
such capital gain dividends, also be treated as long-term capital loss if such
shares have been held by the shareholder for six months or less. Further, a loss
realized on a disposition will be disallowed to the extent the shares disposed
of are replaced (whether by reinvestment of distributions or otherwise) within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Shareholders receiving distributions in
the form of additional shares will have a cost basis for Federal income tax
purposes in each share received equal to the net asset value of a share of the
Funds on the reinvestment date.
Under certain circumstances, the sales charge incurred in acquiring
shares of a Fund may not be taken into account in determining the gain or loss
on the disposition of those shares. This rule applies where shares of a Fund are
exchanged within 90 days after the date they were purchased and new Service
Class shares of a Fund are acquired without a sales charge or at a reduced sales
charge. In that case, the gain or loss recognized on the exchange will be
determined by excluding from the tax basis of the shares exchanged all or a
portion of the sales charge incurred in acquiring those shares. This exclusion
applies to the extent that the otherwise applicable sales charge with respect to
the newly acquired shares is reduced as a result of having incurred the sales
charge initially. Instead, the portion of the sales charge affected by this rule
will be treated as a sales charge paid for the new shares.
Certain of the options, futures contracts, and forward foreign currency
exchange contracts in which certain of the Funds may invest are so-called
"section 1256 contracts". With certain exceptions, realized gains or losses on
section 1256 contracts generally are considered 60% long-term and 40% short-term
capital gains or losses ("60/40"). Also, section 1256 contracts held by a Fund
at the end of each taxable year (and, generally, for purposes of the 4% excise
tax, on October 31 of each year) are "marked-to-market" with the result that
unrealized gains or losses are treated as though they were realized and the
resulting gain or loss is treated as 60/40 gain or loss. Investors should
consult their own tax advisers in this regard.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by a Fund. In addition, losses realized
by a Fund on a position that is part of a straddle may be deferred under the
straddle rules, rather than being taken into account in calculating the taxable
income for the taxable year in which such losses are realized. Because only a
few regulations implementing the straddle rules have been promulgated, the tax
consequences to a Fund of hedging transactions are not entirely clear. The
hedging transactions may increase the amount of short-term capital gain realized
by a Fund which is taxed as ordinary income when distributed to stockholders.
A Fund may make one or more of the elections applicable to straddles
available under the Code. In the event that the amount, character and timing of
the recognition of gains or losses from the affected straddle positions will be
determined pursuant to the rules applicable to the election(s) made which may
accelerate the recognition of gains or losses from the affected straddle
positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed
27
<PAGE> 106
to shareholders, and will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a Fund that did not engage in such hedging transactions.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain forward contracts, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase, decrease, or eliminate the amount
of a Fund's investment company taxable income to be distributed to its
shareholders as ordinary income.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other similar income taxes imposed by the foreign
country. The Funds do not expect to be eligible to elect to allow shareholders
to claim such foreign taxes or a credit against their U.S. tax liability.
The Funds are required to report to the Internal Revenue Service
("IRS") all distributions to shareholders except in the case of certain exempt
shareholders. Distributions by the Funds (rather than distributions to exempt
shareholders) are generally subject to withholding of Federal income tax at a
rate of 31% ("backup withholding") if (1) the shareholder fails to furnish the
Funds with and to certify the shareholder's correct taxpayer identification
number or social security number, (2) the IRS notifies the Funds or a
shareholder that the shareholder has failed to report properly certain interest
and dividend income to the IRS and to respond to notices to that effect, or (3)
when required to do so, the shareholder fails to certify that he or she is not
subject to backup withholding. If the withholding provisions are applicable, any
such distributions (whether reinvested in additional shares or taken in cash)
will be reduced by the amounts required to be withheld.
The foregoing discussion relates only to Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Distributions by the Funds also
may be subject to state and local taxes, and the treatment of distributions
under state and local income tax laws may differ from the Federal income tax
treatment. Shareholders should consult their tax advisors with respect to
particular questions of Federal, state and local taxation. Shareholders who are
not U.S. persons should consult their tax advisors regarding U.S. and foreign
tax consequences of ownership of shares of the Funds, including the likelihood
that distributions to them would be subject to withholding of U.S. tax at a rate
of 30% (or at a lower rate under a tax treaty).
PERFORMANCE INFORMATION
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION WITH THE
SECTION IN THE FUNDS' PROSPECTUS ENTITLED "PERFORMANCE INFORMATION".
The Funds may, from time to time, include their yield, effective yield
and average annual total return in advertisements or reports to shareholders or
prospective investors.
28
<PAGE> 107
Quotations of yield will be based on the investment income per share
earned during a particular 30-day period, less expenses accrued during a period
("net investment income") and will be computed by dividing net investment income
by the maximum offering price per share on the last day of the period, according
to the following formula:
YIELD = 2[(a-b + 1)6-1]
cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of any reimbursements), c = the average daily number of
shares outstanding during the period that were entitled to receive dividends,
and d = the maximum offering price per share on the last day of the period. For
the thirty day period ended September 30, 1998, the yield of the Intermediate
Bond Fund was 4.99%.
Quotations of average annual total return will be expressed in terms of
the average annual compounded rate of return of a hypothetical investment in a
Fund over periods of 1, 5 and 10 years (up to the life of the Fund), calculated
pursuant to the following formula:
P (1 + T)n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures will reflect the deduction of the maximum sales charge and a
proportional share of Fund expenses (net of certain reimbursed expenses) on an
annual basis, and will assume that all dividends and distributions are
reinvested when paid.
<TABLE>
<CAPTION>
RATES OF TOTAL RETURN
FOR THE YEAR ENDED SEPTEMBER 30
1998 1997 1996
---- ---- ----
RETAIL SERVICE RETAIL SERVICE RETAIL SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Equity (1.4%) (1.8%) 39.61% 33.75% 26.9% 26.3%
Balanced 2.8% 2.6% 28.32% 22.91% 19.0% 18.8%
SmallCap Equity (17.7%) N/A 44.8%* N/A N/A N/A
Intermediate Bond 10.2% N/A 11.36% N/A 4.5% N/A
Mighty Mites (3.0%)** N/A N/A N/A N/A N/A
Realty (10.5%)*** N/A N/A N/A N/A N/A
</TABLE>
29
<PAGE> 108
* For the period from April 15, 1997 through September 30, 1997.
** For the period from May 11, 1998 through September 30, 1998.
*** For the period from October 1, 1997 through September 30, 1998.
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS TEN YEARS LIFE OF FUND
-------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Equity -- Retail Class (1.4%) 19.1% 15.4% 14.5%
Equity -- Service Class (5.7%) N/A N/A 16.8%
Balanced -- Retail Class 2.8% 15.1% N/A 14.3%
Balanced -- Service Class (1.5%) 13.8% N/A 13.9%
SmallCap Equity -- Retail Class (17.7%) N/A N/A 12.8%
Mighty Mites - Retail Class N/A N/A N/A N/A
Realty - Retail Class (10.5%) N/A N/A (10.5%)
Intermediate Bond -- Retail Class 10.2% 6.1% N/A 7.5%
</TABLE>
Quotations of yield and total return will reflect only the performance
of a hypothetical investment in the Funds during the particular time period
shown. Yield and total return for the Funds will vary based on changes in the
market conditions and the level of the Funds' expenses, and no reported
performance figure should be considered an indication of performance which may
be expected in the future.
In connection with communicating its yields or total return to current
or prospective shareholders, the Funds also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
other unmanaged indexes which may assume reinvestment of dividends but generally
do not reflect deductions for administrative and management costs.
Performance information for the Funds may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Composite Stock Index,
the Dow Jones Industrial Average, the Russell 2000 Index, Lehman Brothers
Corporate/Government Bond Index, National Association of REIT Index, or other
unmanaged indices so that investors may compare the Funds' results with those of
a group of unmanaged securities widely regarded by investors as representative
of the securities markets in general; (ii) other groups of mutual funds tracked
by Lipper Analytical Services, a widely used independent research firm which
ranks mutual funds by overall performance, investment
30
<PAGE> 109
objectives, and assets, or tracked by other services, companies, publications,
or persons who rank mutual funds on overall performance or other criteria; and
(iii) the Consumer Price Index (measure for inflation) to assess the real rate
of return from an investment of dividends but generally do not reflect
deductions for administrative and management costs and expenses.
INFORMATION ABOUT THE FUNDS
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION WITH THE
SECTION IN THE FUNDS' PROSPECTUS ENTITLED "GENERAL INFORMATION."
The authorized capitalization of the Trust consists of an unlimited
number of shares of beneficial interest having a par value of $0.001 per share.
The Trust's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares of beneficial interest. Pursuant to that
authority, the Board of Trustees has authorized the issuance of six series
representing six portfolios of the Trust (i.e., the Funds).
Except as noted below, each share of a Fund represents an equal
proportionate interest in that Fund with each other share of the same Fund and
is entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared in the discretion of the Trust's
Board of Trustees. In the event of the liquidation or dissolution of the Trust,
shares of a Fund are entitled to receive the assets belonging to that Fund which
are available for distribution, and a proportionate distribution, based upon the
relative net assets of the Funds, of any general assets not belonging to a Fund
which are available for distribution.
Each Fund is comprised of two classes of shares of beneficial interest
- -- "Retail Class" shares (formerly "Institutional Class") and "Service Class"
shares. Retail Class shares and Service Class shares are identical in all
respects, except that Service Class shares are subject to a sales load and bear
higher expenses incurred in the distribution and marketing of such shares. These
expenses are paid pursuant to the Rule 12b-1 Distribution Plan and Agreement
described under "Investment Advisory and Other Services" in this Additional
Statement.
All shares of the Trust have equal voting rights and will be voted in
the aggregate, and not by class or series, except where voting by class or
series is required by law or where the matter involved affects only one class or
series. For example, shareholders of each Fund will vote separately by series on
matters involving investment advisory contracts and shareholders of each Class
will vote separately by class for matters involving the Rule 12b-1 Distribution
Plan. As used in the Prospectus and in this Additional Statement, the term
"majority", when referring to the approvals to be obtained from shareholders in
connection with general matters affecting all of the Funds (e.g., election of
Trustees and ratification of independent accountants), means the vote of a
majority of each Fund's outstanding shares represented at a meeting. The term
"majority", as defined by the Act when referring to the approvals to be obtained
from shareholders in connection with matters affecting a single Fund or class
(e.g., approval of investment advisory contracts or changing the fundamental
policies of a Fund, or approving the Rule 12b-1 Distribution Plan and Agreement
with respect to a class), means the vote of the lesser of (i) 67% of the shares
of the Fund (or class) represented at a meeting if the holders of more than 50%
of the outstanding shares of the Fund (or class) are present in person or by
proxy, or (ii) more than 50% of the outstanding shares of the Fund (or class).
Shareholders are entitled to one vote for each full share held, and fractional
votes for fractional shares held.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Trust.
The Funds send annual and semi-annual financial statements to all of
their shareholders.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, COUNSEL
AND INDEPENDENT ACCOUNTANTS
The Bank of New York, 110 Washington Street, New York, New York 10286,
acts as the Funds' custodian. State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA 02110, acts as transfer agent for the Trust. Neither State
Street Bank and Trust Company nor The Bank of New York takes any part in
determining the investment policies of the Funds or which portfolio securities
are to be purchased or sold by the Funds.
31
<PAGE> 110
Battle Fowler LLP, 75 East 55th Street, New York, New York 10022,
passes upon certain legal matters in connection with the shares offered by the
Funds and also acts as Counsel to the Funds.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New
York 10036, serves as the independent accountants for the Trust.
PricewaterhouseCoopers LLP provides audit services, tax return preparation and
assistance and consultation in connection with certain SEC filings.
32
<PAGE> 111
APPENDIX
Descriptions of certain Standard & Poor's Corporation ("S&P") and
Moody's Investors Service, Inc. ("Moody's") corporate bond ratings:
S&P
AAA
Bonds rated AAA have the highest rating assigned by S&P to a debt obligation.
Capacity to pay interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in a small degree.
A
Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for bonds in this
category than for bonds in higher rated categories.
BB, B, CCC, CC, C
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of this obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such bonds will
likely have some quality and protective characteristics, they are outweighed by
large uncertainties of major risk exposures to adverse conditions.
Plus (+) or minus (-): The ratings from AA to BBB may be modified by
the addition of a plus or minus designation to show relative standing within the
major ratings categories.
MOODY'S
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of higher quality by all standards.
Together with the Aaa group they comprise what generally are known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
33
<PAGE> 112
Ba
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B
Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and in
the categories below B. The modifier 1 indicates a ranking for the security in
the higher end of a rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of a rating
category.
DESCRIPTION OF S&P AND MOODY'S COMMERCIAL PAPER RATINGS:
The designation A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted with a
plus sign designation. Capacity for timely payment on issues with an A-2
designation is strong. However, the relative degree of safety is not as high as
for issues designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be evidenced
by leading market positions in well established industries, high rates of return
of funds employed, conservative capitalization structures with moderate reliance
on debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
34
<PAGE> 113
FINANCIAL STATEMENTS
The audited financial statements for the Funds dated September 30, 1998
and the Report of PricewaterhouseCoopers LLP thereon, are incorporated herein by
reference to the Trust's Annual Report. The Annual Report is available upon
request and without charge.
35
<PAGE> 114
THE GABELLI WESTWOOD FUNDS
PART C: OTHER INFORMATION
Item 23. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS:
Included in Part A:
THE GABELLI WESTWOOD FUNDS
Financial Highlights for each of the five years in the period ended September
30, 1998.
Included in Part B for all the Funds and incorporated by reference to the Funds'
Annual Report dated September 30, 1998:
THE GABELLI WESTWOOD FUNDS
Portfolio of Investments -- September 30, 1998.
Statement of Assets and Liabilities -- September 30, 1998.
Statement of Operations -- year ended September 30, 1998.
Statement of Changes in Net Assets -- for the years ended September 30, 1997 and
September 30, 1998.
Notes to Financial Statements.
Report of Independent Accountants dated November 11, 1998.
(b) EXHIBITS:
(1) Registrant's Declaration of Trust and Amendments thereto are
incorporated by reference to Exhibit 1 of Pre-Effective Amendment No. 1
to the Registration Statement on Form N-1A, filed on December 22, 1986.
(2) Registrant's By-Laws are incorporated by reference to Exhibit 2 of
Pre-Effective Amendment No. 1 to the Registration Statement on Form
N-1A, filed on December 22, 1986.
(3) None.
(4) The specimen copy of a share certificate is incorporated by reference
to Exhibit 4 of Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A, filed on December 22, 1986.
(5a) Revised form of Investment Advisory Agreement between the Registrant
and Teton Advisers LLC incorporated by reference to Exhibit 5(a) of
Post-Effective Amendment No. 16 to the Registration Statement on Form
N-1A, filed on April 14, 1997.
<PAGE> 115
(5b) Sub-Administration Contract with BISYS Fund Services for The Gabelli
Westwood Funds incorporated by reference to Exhibit 5(b) of
Post-Effective Amendment No. 17 to the Registration Statement on Form
N-1A, filed on October 30, 1997.
(5c) The Form of Investment Sub-Advisory Agreement between Gabelli Advisers
LLC and Westwood Management Corporation for the Gabelli Westwood
SmallCap Equity Fund and Gabelli Westwood Realty Fund, incorporated by
reference to Exhibit 5(c) of Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A, filed on April 14, 1997.
(5d) The Form of Investment Advisory Agreement between the Registrant on
behalf of the Gabelli Westwood Mighty Mites(sm) Fund and Gabelli
Advisers, LLC incorporated by reference to Exhibit 5(d) of Post
Effective Amendment No. 19 to the Registration Statement on Form N-1A,
filed on February 25, 1997.
(6) The Distribution Agreement between Gabelli & Company, Inc. and The
Gabelli Westwood Funds, incorporated by reference to Exhibit 6 of
Post-Effective Amendment No. 12 to the Registration Statement on Form
N-1A, filed on January 31, 1995.
(7) None.
(8a) The Amended and Restated Custody Agreement dated August 18, 1989 is
incorporated by reference to Exhibit 8 of Post-Effective Amendment No.
4 to the Registration Statement on Form N-1A, filed on January 29,
1990.
(9) None.
(10a) Opinion of Baker & McKenzie, Trust Counsel, incorporated by reference
to Exhibit 10(a) of Post-Effective Amendment No. 15 to the Registration
Statement on Form N-1A, filed on February 20, 1997.
(10b) Consent of Battle Fowler LLP, Trust Counsel.*
(11) Consent of PricewaterhouseCoopers LLP, Independent Accountants.*
(12) None.
(13) None.
(14) None.
(15) Rule 12b-1 Distribution Plan and Agreement for The Gabelli Westwood
Funds (Retail Class) incorporated by reference to Exhibit (15)(b) of
Post-Effective Amendment No. 12 to the Registration Statement on Form
N-1A, filed on January 31, 1995.
- -------------------------------------------------------------------------------
<PAGE> 116
* Filed herewith.
(15a) Rule 12b-1 Distribution Plan and Agreement for The Gabelli Westwood
Funds (Service Class) incorporated by reference to Exhibit (15)(b) of
Post-Effective Amendment No. 12 to the Registration Statement on Form
N-1A, filed on January 31, 1995.
(16) Schedule for Computation of Performance Quotations -- the Gabelli
Westwood Equity Fund is incorporated by reference to Exhibit (16) of
Post-Effective Amendment No. 18 to the Registration Statement on Form
N-1A, filed on January 20, 1998.
(17) Not Applicable.
(18a) Power of Attorney is incorporated by reference to Post-Effective
Amendment No. 4 to the Registration Statement on Form N-1A, filed on
January 29, 1990 (following the signature page).
(18b) Certificate of Secretary is incorporated by reference to Post-Effective
Amendment No. 4 to the Registration Statement on Form N-1A, filed on
January 29, 1990.
(18c) Power of Attorney dated as of July 15, 1991 is incorporated by
reference to Exhibit 16(c) of Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A, filed on July 19, 1991.
(18d) Power of Attorney dated as of November 27, 1991 is incorporated by
reference to Exhibit 16(d) of Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A, filed on December 4, 1991.
(18e) Power of Attorney dated as of November 15, 1994 is incorporated by
reference to Exhibit 16(f) of Post Effective Amendment No. 12 to the
Registration Statement on Form N-1A, filed on January 31, 1995.
(18f) Power of Attorney dated as of November 18, 1997 is incorporated by
reference to Exhibit 16(f) of Post-Effective Amendment No. 18 to the
Registration Statement on Form N-1A, filed on January 20, 1998.
(10) Report of Independent Accountants concerning the operation and control
objectives and procedures relating to the calculation of the Funds' net
asset values and dividends and distributions under the multi-class
system, is incorporated by reference to Exhibit 16(e) of Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A, filed on
January 31, 1995.
Item 24. Persons Controlled by or Under Common Control with Registrant
Not Applicable.
<PAGE> 117
Item 25. Number of Holders of Securities
N/A
Item 26. Indemnification
The statement as to the general effect of any contract, arrangements or statute
under which a trustee, officer, underwriter or affiliated person of the
Registrant is indemnified is incorporated by reference to Item 27 of Part C of
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A, filed
on December 22, 1986.
Item 27. Business and Other Connections of the Investment Adviser
Gabelli Advisers, Inc. ("The Adviser"), a subsidiary of Gabelli Funds, Inc.,
serves as the Funds' investment adviser. The Adviser is a Delaware Corporation.
The Adviser was formed in 1994 and prior to November 7, 1997, it was known as
Teton Advisers LLC.
Westwood Management Corporation (the "Sub-Adviser") serves as the Funds' (with
the exception of the Mighty Mites(sm) Fund) investment adviser. The Sub-Adviser
is a registered investment adviser managing in excess of $1.7 billion in
separate accounts, primarily corporate pension funds. The Sub-Adviser was formed
in 1983.
Officers and Directors of Investment Adviser
Name and Position
with Investment Adviser Other Businesses:
- ----------------------- -----------------
Bruce N. Alpert Chief Operating Officer of Investment
President Advisory Division of Gabelli Funds, Inc.
<PAGE> 118
<PAGE> 119
Name and Position
with Investment Adviser Other Businesses:
- ----------------------- -----------------
Joseph R. Rindler Chairman of Gabelli Asset Management
Director Company, Inc.
John D. Gabelli Senior Vice President of Gabelli &
Director Company, Inc.
James E. McKee General Counsel of Gabelli Funds, Inc.
Secretary
Officers and Directors of Investment Sub-Adviser
Name and Position
with Investment Sub-Adviser Other Businesses:
- --------------------------- -----------------
Susan M. Byrne Director:
Director, President and Treasurer Westwood Trust
200 Crescent Court Suite 1300
Dallas, TX
Director: Southwest Securities Group
1201 Elm Street, #3500
Dallas, TX
Patricia Rice Fraze None
Director and
Executive Vice President
Lynda Jean Calkin None
Senior Vice President
Donald A. Buchholz Chairman, Director:
Director Southwest Securities Group
1201 Elm Street, #3500
Dallas, TX
Director: Westwood Trust
200 Crescent Court Suite 1300
Dallas, TX
Director: Southwest Investment Advisers,
1201 Elm Street, #3500 Dallas, TX
<PAGE> 120
Name and Position
with Investment Sub-Adviser Other Businesses:
- --------------------------- -----------------
Raymond E. Woolridge Vice Chairman:
Director Southwest Securities Group
1201 Elm Street, #3500
Dallas, TX
Director:
Westwood Trust
200 Crescent Court Suite 1300
Dallas, TX
Chief Executive Officer:
Southwest Investment Advisers,
1201 Elm Street, #3500
Dallas, TX
Director:
Brokers Transactions Services
Preston Road, Dallas, TX
Director:
D.A. Davidson & Co.
Great Falls, MT
David Glatstein Director, President and Chief Executive
Director Officer:
Southwest Securities Group
1201 Elm Street, #3500 Dallas, TX
Jacqueline Finley Subsidiary Accountant:
Secretary Southwest Securities, Inc.
1201 Elm Street, #3500 Dallas, TX
Item 28. Principal Underwriter
(a) Gabelli & Company, Inc. or its affiliate, is Distributor for the
Registrant, Gabelli Equity Series Funds, Inc., Gabelli Gold Fund, Inc.,
Gabelli Global Series Funds, Inc., Gabelli International Growth Fund,
Inc., Gabelli Investor Funds, Inc., Gabelli Capital Asset Fund, Gabelli
Asset Fund, Gabelli Growth Fund, Gabelli Value Fund, Inc.
<PAGE> 121
(b) Officers and Trustees*
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Distributor with Registrant
- ---------------- ---------------- ---------------
<S> <C> <C>
Stephen G. Bondi Director, Vice President--Finance None
James E. McKee Secretary Secretary
Donald C. Jenkins Director None
Walter K. Walsh Compliance Officer None
James G. Webster, III Chairman and Director None
</TABLE>
Item 29. Location of Accounts and Records
1. The Bank of New York
90 Washington Street
New York, New York 10266
2. Gabelli Advisers, Inc.
One Corporate Center
Rye, New York 10580
3. Westwood Management Corporation
300 Crescent Court, Suite 1320
Dallas, TX 75201
4. BISYS Fund Services, Inc.
3435 Stelzer Rd., Suite 1000
Columbus, OH 43219
5. State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Item 30. Management Services
Not Applicable.
Item 31. Undertakings
(a) Registrant undertakes to call a meeting of shareholders for the purpose
of voting upon the removal of a trustee if requested to do so by the
holders of at least 10% of the Registrant's outstanding shares.
(b) Registrant undertakes to provide the support to shareholders specified
in Section 16(c) of the 1940 Act as though that section applied to the
Registrant.
<PAGE> 122
<PAGE> 123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned thereunto duly authorized, in the City of Rye, and State of
New York on the 30th day of November, 1998.
THE GABELLI WESTWOOD FUNDS
BY: Susan M. Byrne
-----------------------------------------
Susan M. Byrne
President and Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Amendment to the Registration Statement
has been signed below by the following persons in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
*SUSAN M. BYRNE Trustee, President and November 30, 1998
- ------------------- Principal Executive Officer
Susan M. Byrne
*ANTHONY J. COLAVITA Trustee November 30, 1998
- -------------------
Anthony J. Colavita
*JAMES P. CONN Trustee November 30, 1998
- -------------------
James P. Conn
*WERNER ROEDER, M.D. Trustee November 30, 1998
- --------------------
Werner Roeder, M.D.
*KARL OTTO POHL Trustee November 30, 1998
- --------------------
Karl Otto Pohl
</TABLE>
BY: /s/ BRUCE N. ALPERT
-------------------
Bruce N. Alpert
Attorney-in-Fact
* Pursuant to Power of Attorney filed as Exhibit 18(f) of Post-Effective
Amendment No. 18 to the Registration Statement on Form N-1A, on January
20, 1998.
<PAGE> 1
EXHIBIT 10b
CONSENT OF BATTLE FOWLER LLP
We consent to the reference to our firm under the heading "Custodian,
Transfer and Dividend Disbursing Agent, Counsel and Independent Accountants" in
Amendment No. 20 to the Registration Statement on Form N-1A of The Gabelli
Westwood Funds as filed with the Securities and Exchange Commission on November
30, 1998.
/s/ Battle Fowler LLP
BATTLE FOWLER LLP
New York, New York
November 30, 1998
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus and Statement of Additional
Information constituting part of this Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A (the "Registration Statement") of our
report dated November 11, 1998, relating to the financial statements and
financial highlights appearing in the September 30, 1998 Annual Report to
Shareholders of The Gabelli Westwood Funds, which is also incorporated by
reference in the Registration Statement. We also consent to the references to
us under the headings "Independent Accountants" and "Financial Highlights" in
the Prospectus and under the headings "Custodian, Transfer and Dividend
Disbursing Agent, Counsel and Independent Accountants" and "Financial
Statements" in the Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
1177 Avenue of the Americas
New York, NY 10036
November 25, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> GABELLI WESTWOOD EQUITY FUND RETAIL CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 165,137,001
<INVESTMENTS-AT-VALUE> 176,559,297
<RECEIVABLES> 2,181,763
<ASSETS-OTHER> 4,068,244
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 182,809,304
<PAYABLE-FOR-SECURITIES> 4,657,338
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 292,719
<TOTAL-LIABILITIES> 4,950,057
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 161,765,193
<SHARES-COMMON-STOCK> 19,518,254<F1>
<SHARES-COMMON-PRIOR> 13,445,123<F1>
<ACCUMULATED-NII-CURRENT> 941,080
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,730,678
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,422,296
<NET-ASSETS> 177,859,247
<DIVIDEND-INCOME> 3,180,647
<INTEREST-INCOME> 704,084
<OTHER-INCOME> 0
<EXPENSES-NET> 2,600,223
<NET-INVESTMENT-INCOME> 1,284,508
<REALIZED-GAINS-CURRENT> 4,550,079
<APPREC-INCREASE-CURRENT> (9,210,035)
<NET-CHANGE-FROM-OPS> (3,375,448)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,016,825<F1>
<DISTRIBUTIONS-OF-GAINS> 5,772,109<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 12,764,712<F1>
<NUMBER-OF-SHARES-REDEEMED> 7,434,151<F1>
<SHARES-REINVESTED> 742,570<F1>
<NET-CHANGE-IN-ASSETS> 45,824,710
<ACCUMULATED-NII-PRIOR> 683,192
<ACCUMULATED-GAINS-PRIOR> 5,016,270
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,759,265
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,632,758
<AVERAGE-NET-ASSETS> 173,310,999<F1>
<PER-SHARE-NAV-BEGIN> 9.57<F1>
<PER-SHARE-NII> 0.06<F1>
<PER-SHARE-GAIN-APPREC> (0.21)<F1>
<PER-SHARE-DIVIDEND> 0.06<F1>
<PER-SHARE-DISTRIBUTIONS> 0.37<F1>
<RETURNS-OF-CAPITAL> 0.00<F1>
<PER-SHARE-NAV-END> 8.99<F1>
<EXPENSE-RATIO> 1.45<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>RETAIL CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> GABELLI WESTWOOD EQUITY FUND SERVICE CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 165,137,001
<INVESTMENTS-AT-VALUE> 176,559,297
<RECEIVABLES> 2,181,763
<ASSETS-OTHER> 4,068,244
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 182,809,304
<PAYABLE-FOR-SECURITIES> 4,657,338
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 292,719
<TOTAL-LIABILITIES> 4,950,057
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 161,765,193
<SHARES-COMMON-STOCK> 275,220<F1>
<SHARES-COMMON-PRIOR> 348,798<F1>
<ACCUMULATED-NII-CURRENT> 941,080
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,730,678
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,422,296
<NET-ASSETS> 177,859,247
<DIVIDEND-INCOME> 3,180,647
<INTEREST-INCOME> 704,084
<OTHER-INCOME> 0
<EXPENSES-NET> 2,600,223
<NET-INVESTMENT-INCOME> 1,284,508
<REALIZED-GAINS-CURRENT> 4,550,079
<APPREC-INCREASE-CURRENT> (9,210,035)
<NET-CHANGE-FROM-OPS> (3,375,448)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,795<F1>
<DISTRIBUTIONS-OF-GAINS> 63,562<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 272,855<F1>
<NUMBER-OF-SHARES-REDEEMED> 354,511<F1>
<SHARES-REINVESTED> 8,078<F1>
<NET-CHANGE-IN-ASSETS> 45,824,710
<ACCUMULATED-NII-PRIOR> 683,192
<ACCUMULATED-GAINS-PRIOR> 5,016,270
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,759,265
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,632,758
<AVERAGE-NET-ASSETS> 2,740,751<F1>
<PER-SHARE-NAV-BEGIN> 9.57<F1>
<PER-SHARE-NII> 0.08<F1>
<PER-SHARE-GAIN-APPREC> (0.25)<F1>
<PER-SHARE-DIVIDEND> 0.06<F1>
<PER-SHARE-DISTRIBUTIONS> 0.37<F1>
<RETURNS-OF-CAPITAL> 0.00<F1>
<PER-SHARE-NAV-END> 8.97<F1>
<EXPENSE-RATIO> 1.70<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>SERVICE CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> GABELLI WESTWOOD INTERMEDIATE BOND FUND RETAIL CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 7,221,989
<INVESTMENTS-AT-VALUE> 7,461,192
<RECEIVABLES> 221,751
<ASSETS-OTHER> 103,679
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,786,622
<PAYABLE-FOR-SECURITIES> 105,899
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 62,795
<TOTAL-LIABILITIES> 168,694
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,738,511
<SHARES-COMMON-STOCK> 709,439
<SHARES-COMMON-PRIOR> 574,529
<ACCUMULATED-NII-CURRENT> 51
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 359,837
<ACCUM-APPREC-OR-DEPREC> 239,203
<NET-ASSETS> 7,617,928
<DIVIDEND-INCOME> 1,358
<INTEREST-INCOME> 418,445
<OTHER-INCOME> 0
<EXPENSES-NET> 65,004
<NET-INVESTMENT-INCOME> 354,799
<REALIZED-GAINS-CURRENT> 128,342
<APPREC-INCREASE-CURRENT> 160,804
<NET-CHANGE-FROM-OPS> 643,945
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 354,799
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 323,824
<NUMBER-OF-SHARES-REDEEMED> 211,584
<SHARES-REINVESTED> 22,670
<NET-CHANGE-IN-ASSETS> 1,706,094
<ACCUMULATED-NII-PRIOR> 51
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 488,179
<GROSS-ADVISORY-FEES> 39,002
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 135,569
<AVERAGE-NET-ASSETS> 6,505,033
<PER-SHARE-NAV-BEGIN> 10.29
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> 0.45
<PER-SHARE-DIVIDEND> 0.57
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.74
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> GABELLI WESTWOOD BALANCED FUND RETAIL CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 132,028,502
<INVESTMENTS-AT-VALUE> 140,141,544
<RECEIVABLES> 2,486,551
<ASSETS-OTHER> 3,401,467
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 146,029,562
<PAYABLE-FOR-SECURITIES> 3,020,548
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 202,394
<TOTAL-LIABILITIES> 3,222,942
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 133,932,664
<SHARES-COMMON-STOCK> 11,674,171<F1>
<SHARES-COMMON-PRIOR> 5,833,362<F1>
<ACCUMULATED-NII-CURRENT> 105,135
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 655,779
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,113,042
<NET-ASSETS> 142,806,620
<DIVIDEND-INCOME> 1,392,018
<INTEREST-INCOME> 2,933,342
<OTHER-INCOME> 0
<EXPENSES-NET> 1,489,165
<NET-INVESTMENT-INCOME> 2,836,195
<REALIZED-GAINS-CURRENT> 1,192,217
<APPREC-INCREASE-CURRENT> (2,657,020)
<NET-CHANGE-FROM-OPS> 1,371,392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,450,244<F1>
<DISTRIBUTIONS-OF-GAINS> 3,804,112<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 7,583,810<F1>
<NUMBER-OF-SHARES-REDEEMED> 2,292,678<F1>
<SHARES-REINVESTED> 549,677<F1>
<NET-CHANGE-IN-ASSETS> 61,328,576
<ACCUMULATED-NII-PRIOR> 46,195
<ACCUMULATED-GAINS-PRIOR> 4,056,856
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 905,501
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,520,900
<AVERAGE-NET-ASSETS> 104,372,074<F1>
<PER-SHARE-NAV-BEGIN> 11.49<F1>
<PER-SHARE-NII> 0.26<F1>
<PER-SHARE-GAIN-APPREC> 0.05<F1>
<PER-SHARE-DIVIDEND> 0.26<F1>
<PER-SHARE-DISTRIBUTIONS> 0.56<F1>
<RETURNS-OF-CAPITAL> 0.00<F1>
<PER-SHARE-NAV-END> 10.98<F1>
<EXPENSE-RATIO> 1.17<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>RETAIL CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> GABELLI WESTWOOD BALANCED FUND SERVICE CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 132,028,502
<INVESTMENTS-AT-VALUE> 140,141,544
<RECEIVABLES> 2,486,551
<ASSETS-OTHER> 3,401,467
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 146,029,562
<PAYABLE-FOR-SECURITIES> 3,020,548
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 202,394
<TOTAL-LIABILITIES> 3,222,942
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 133,932,664
<SHARES-COMMON-STOCK> 1,331,261<F1>
<SHARES-COMMON-PRIOR> 1,260,223<F1>
<ACCUMULATED-NII-CURRENT> 105,135
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 655,779
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,113,042
<NET-ASSETS> 142,806,620
<DIVIDEND-INCOME> 1,392,018
<INTEREST-INCOME> 2,933,342
<OTHER-INCOME> 0
<EXPENSES-NET> 1,489,165
<NET-INVESTMENT-INCOME> 2,836,195
<REALIZED-GAINS-CURRENT> 1,192,217
<APPREC-INCREASE-CURRENT> (2,657,020)
<NET-CHANGE-FROM-OPS> 1,371,392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 321,577<F1>
<DISTRIBUTIONS-OF-GAINS> 795,071<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 499,396<F1>
<NUMBER-OF-SHARES-REDEEMED> 519,210<F1>
<SHARES-REINVESTED> 90,852<F1>
<NET-CHANGE-IN-ASSETS> 61,328,576
<ACCUMULATED-NII-PRIOR> 46,195
<ACCUMULATED-GAINS-PRIOR> 4,056,856
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 905,501
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,520,900
<AVERAGE-NET-ASSETS> 16,529,686<F1>
<PER-SHARE-NAV-BEGIN> 11.46<F1>
<PER-SHARE-NII> 0.26<F1>
<PER-SHARE-GAIN-APPREC> 0.02<F1>
<PER-SHARE-DIVIDEND> 0.22<F1>
<PER-SHARE-DISTRIBUTIONS> 0.56<F1>
<RETURNS-OF-CAPITAL> 0.00<F1>
<PER-SHARE-NAV-END> 10.96<F1>
<EXPENSE-RATIO> 1.42<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>SERVICE CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> GABELLI WESTWOOD SMALLCAP EQUITY FUND RETAIL CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 12,466,053
<INVESTMENTS-AT-VALUE> 11,356,833
<RECEIVABLES> 183,228
<ASSETS-OTHER> 423,213
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,963,274
<PAYABLE-FOR-SECURITIES> 232,359
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37,386
<TOTAL-LIABILITIES> 269,745
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,928,803
<SHARES-COMMON-STOCK> 1,046,077
<SHARES-COMMON-PRIOR> 590,203
<ACCUMULATED-NII-CURRENT> 5,729
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 131,783
<ACCUM-APPREC-OR-DEPREC> (1,109,220)
<NET-ASSETS> 11,693,529
<DIVIDEND-INCOME> 90,681
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 178,896
<NET-INVESTMENT-INCOME> (88,215)
<REALIZED-GAINS-CURRENT> 3,145
<APPREC-INCREASE-CURRENT> (2,467,027)
<NET-CHANGE-FROM-OPS> (2,552,097)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 55,075
<DISTRIBUTIONS-OF-GAINS> 481,130
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,575,803
<NUMBER-OF-SHARES-REDEEMED> 1,162,861
<SHARES-REINVESTED> 42,932
<NET-CHANGE-IN-ASSETS> 3,147,550
<ACCUMULATED-NII-PRIOR> 47,186
<ACCUMULATED-GAINS-PRIOR> 344,055
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 119,031
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 251,416
<AVERAGE-NET-ASSETS> 11,911,882
<PER-SHARE-NAV-BEGIN> 14.48
<PER-SHARE-NII> (0.09)
<PER-SHARE-GAIN-APPREC> (2.39)
<PER-SHARE-DIVIDEND> 0.08
<PER-SHARE-DISTRIBUTIONS> 0.74
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.18
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 061
<NAME> GABELLI WESTWOOD REALTY FUND RETAIL CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 2,084,381
<INVESTMENTS-AT-VALUE> 1,739,228
<RECEIVABLES> 15,322
<ASSETS-OTHER> 81,497
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,836,047
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,315
<TOTAL-LIABILITIES> 21,315
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,191,963
<SHARES-COMMON-STOCK> 215,231
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 11,473
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 43,551
<ACCUM-APPREC-OR-DEPREC> (345,153)
<NET-ASSETS> 1,814,732
<DIVIDEND-INCOME> 110,404
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 30,771
<NET-INVESTMENT-INCOME> 79,633
<REALIZED-GAINS-CURRENT> (3,949)
<APPREC-INCREASE-CURRENT> (345,153)
<NET-CHANGE-FROM-OPS> (269,469)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 69,760
<DISTRIBUTIONS-OF-GAINS> 39,769
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 401,821
<NUMBER-OF-SHARES-REDEEMED> 196,766
<SHARES-REINVESTED> 10,176
<NET-CHANGE-IN-ASSETS> 1,814,732
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 20,515
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 81,203
<AVERAGE-NET-ASSETS> 2,056,421
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.37
<PER-SHARE-GAIN-APPREC> (1.37)
<PER-SHARE-DIVIDEND> 0.33
<PER-SHARE-DISTRIBUTIONS> 0.24
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.43
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 071
<NAME> GABELLI WESTWOOD MIGHTY MITES FUND RETAIL CLASS
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> MAY-11-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 5,133,479
<INVESTMENTS-AT-VALUE> 4,873,678
<RECEIVABLES> 54,663
<ASSETS-OTHER> 57,861
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,986,202
<PAYABLE-FOR-SECURITIES> 123,441
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,374
<TOTAL-LIABILITIES> 147,815
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,072,407
<SHARES-COMMON-STOCK> 498,593
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 24,826
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 955
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (259,801)
<NET-ASSETS> 4,838,387
<DIVIDEND-INCOME> 6,450
<INTEREST-INCOME> 38,856
<OTHER-INCOME> 0
<EXPENSES-NET> 25,134
<NET-INVESTMENT-INCOME> 20,172
<REALIZED-GAINS-CURRENT> 955
<APPREC-INCREASE-CURRENT> (259,801)
<NET-CHANGE-FROM-OPS> (238,674)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 649,926
<NUMBER-OF-SHARES-REDEEMED> 151,333
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,838,387
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12,543
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 56,593
<AVERAGE-NET-ASSETS> 3,235,478
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> (0.34)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.70
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
