GABELLI WESTWOOD FUNDS, 497, 1998-12-29

GABELLI WESTWOOD FUNDS
497, 1998-12-29

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<PAGE> 1

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.

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.
<PAGE> 2

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 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>

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* 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.

** 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.

2
<PAGE> 3

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.

3
<PAGE> 4

FINANCIAL HIGHLIGHTS

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
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net Asset Value, Beginning
of Period................. $ 9.57 $ 7.68 $ 6.59 $ 5.50 $ 9.91 $14.19 $14.23
-------- ------- ------- ------- ------- ------- -------
Net investment income....... 0.06 0.07 0.08 0.04 0.10 0.05 0.27
Net realized and unrealized
gain (loss) on
investments............... (0.21) 2.72 1.59 1.31 0.64 2.12 0.34
-------- ------- ------- ------- ------- ------- -------
Total from Investment
Operations................ (0.15) 2.79 1.67 1.35 0.74 2.17 0.61
-------- ------- ------- ------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income....... (0.06) (0.07) (0.06) (0.06) (0.07) (0.55) (0.51)
Net realized gain on
investments............... (0.37) (0.83) (0.52) (0.20) (5.08) (5.90) (0.14)
-------- ------- ------- ------- ------- ------- -------
Total Distributions......... (0.43) (0.90) (0.58) (0.26) (5.15) (6.45) (0.65)
-------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period.................... $8.99 $9.57 $7.68 $6.59 $5.50 $9.91 $14.19
======== ======= ======= ======= ======= ======= =======
Total Return (a)............ (1.40%) 39.61% 26.88% 25.85% 9.14% 20.16% 4.16%
RATIOS TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Net Assets End of Period (in
thousands 000's).......... $175,391 $128,697 $29,342 $14,903 $8,637 $5,172 $13,161
Ratio of net investment
income to average net
assets.................... 0.73% 1.11% 1.16% 0.77% 1.63% 0.40% 1.85%
Expenses net of
waivers/reimbursements(b).. 1.47% 1.53% 1.50% 1.61% 0.71% 1.95% 1.40%
Expenses before
waivers/reimbursements.... 1.47% 1.59%(c) 1.95%(c) 2.29%(c) 1.94%(c) 2.32% 1.54%
Portfolio Turnover Rate..... 77% 61% 106% 107% 137% 102% 75%

<CAPTION>
1991 1990 1989
---- ---- ----
<S> <C> <C> <C>
OPERATING PERFORMANCE:
Net Asset Value, Beginning
of Period................. $12.62 $15.11 $12.02
------- ------- -------
Net investment income....... 0.46 0.53 0.61
Net realized and unrealized
gain (loss) on
investments............... 1.92 (2.04) 2.89
------- ------- -------
Total from Investment
Operations................ 2.38 (1.51) 3.50
------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income....... (0.61) (0.56) (0.41)
Net realized gain on
investments............... (0.16) (0.42) --
------- ------- -------
Total Distributions......... (0.77) (0.98) (0.41)
------- ------- -------
Net Asset Value, End of
Period.................... $14.23 $12.62 $15.11
======= ======= =======
Total Return (a)............ 19.61% (10.59%) (30.08%)
RATIOS TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Net Assets End of Period (in
thousands 000's).......... $52,884 $51,754 $57,763
Ratio of net investment
income to average net
assets.................... 3.06% 3.74% 4.57%
Expenses net of
waivers/reimbursements(b).. 1.29% 1.26% 1.27%
Expenses before
waivers/reimbursements.... 1.29% 1.26% 1.27%
Portfolio Turnover Rate..... 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 1997,
1.44% for 1996 and 1.50% for 1995.

(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.

4
<PAGE> 5

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)............... 2.80% 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 average net assets....... 2.37% 2.60% 2.62% 2.47% 1.55% 1.90% 3.13%
Expenses net of
waivers/reimbursements(b)... 1.20% 1.28%++ 1.32%++ 1.35%++ 1.68% 1.82% 1.44%
Expenses before
waivers/reimbursements...... 1.20% 1.36%(c) 1.71%(c) 1.86%(c) 2.36%(c) 2.97%(c) 2.38%(c)
Portfolio Turnover Rate....... 77% 110% 111% 133% 168% 192% 178%
</TABLE>

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

(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 1997,
1.24% for 1996 and 1.25% for 1995.

(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.

5
<PAGE> 6

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
(loss) on investments.......... 0.45 0.41 (0.10) 0.50 (1.04) 0.62 0.65
------ ------ ------ ------ ------ ------ ------
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)................. 10.20% 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
waivers/reimbursements(b)...... 1.08%(b) 1.11% 1.09% 1.17% 0.92% 2.40% 1.94%
Expenses before
waivers/reimbursements(c)...... 2.08%(b) 1.70% 2.46% 2.47% 1.75% 3.46% 3.40%
Portfolio Turnover Rate.......... 232% 628% 309% 165% 203% 222% 198%
</TABLE>

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

(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 prior period through
1995.

(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.

6
<PAGE> 7

Selected data for a share of
beneficial interest outstanding throughout each year:

YEAR ENDED SEPTEMBER 30,

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

<TABLE>
<CAPTION>
RETAIL CLASS
--------------------------------------------------
MIGHTY
REALTY MITES
SMALLCAP EQUITY FUND FUND 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 investments..... (0.14) -- (0.24) --
-------- -------- -------- --------
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 average net
assets:......................................... (0.74%) 1.89%(e) 3.87% 1.60%(e)
Expenses net of waivers/reimbursements (b)........ 1.72% 1.89%(e) 1.70% 2.05%(e)
Expenses before waivers reimbursements (c)........ 2.11% 2.45%(e) 3.95% 4.50%(e)
Portfolio Turnover Rate........................... 200% 146% 142% 18%
</TABLE>

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

(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, 1997 (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.

7
<PAGE> 8

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.

8
<PAGE> 9

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.

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

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<PAGE> 10

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 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

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<PAGE> 11

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 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

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<PAGE> 12

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 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.

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<PAGE> 13

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 interest rates, or for other reasons when, in the
opinion of the Fund's investment adviser, it is

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<PAGE> 14

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.

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<PAGE> 15

ten years. Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the U.S. Treasury; others, such as those
issued by the Federal National Mortgage Association, by discretionary authority
of the U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Student Loan Marketing
Association, only by credit of the agency or instrumentality. While the U.S.
Government provides financial support to such U.S. Government-sponsored agencies
or instrumentalities, no assurance can be given that it will always do so since
it is not so obligated by law. A Fund will invest in such securities only when
it is satisfied that the credit risk with respect to the issuer is minimal.

REPURCHASE AGREEMENTS (ALL FUNDS) -- Repurchase agreements involve the
acquisition by a Fund of a security, subject to an obligation of the seller to
repurchase, and the Fund to resell, the security at a fixed price, usually not
more than one week after its purchase. The 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
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<PAGE> 16

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 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

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<PAGE> 17

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 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.

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<PAGE> 18

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 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

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<PAGE> 19

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 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 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.

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 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

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<PAGE> 20

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).

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

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<PAGE> 21

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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<PAGE> 22

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.

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<PAGE> 23

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 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. Prior to joining the Sub-Advisor, Mr. Ognisty was
employed by Goldman Sachs where he was responsible for trading equities in the
oil, chemical and pollution control industries. 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
23
<PAGE> 24

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, 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 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

24
<PAGE> 25

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 $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.

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<PAGE> 26

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:

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

26
<PAGE> 27

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 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.

27
<PAGE> 28

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 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.

28
<PAGE> 29

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

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.

29
<PAGE> 30

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 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.

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
30
<PAGE> 31

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 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.

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

31
<PAGE> 32

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.

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, 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.

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<PAGE> 35

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<PAGE> 36

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table............................. 2
Financial Highlights.................. 4
Description of the Funds and Risk
Considerations...................... 7
Management of the Funds............... 23
Purchase of Shares.................... 24
Redemption of Shares.................. 26
Exchange of Funds Shares.............. 28
Retirement Plans...................... 29
Dividends, Distributions and Taxes.... 30
Performance Information............... 31
General Information................... 31
</TABLE>

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
----------------------------------------------------
<PAGE> 37

THE GABELLI WESTWOOD FUNDS
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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.

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.

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.

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%
==== ==== ====
</TABLE>

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(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.

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
Balanced Fund............................................ $54 $84 $116 $200
Intermediate Bond Fund................................... $51 $74 $ 98 $169
</TABLE>

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<PAGE> 39

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.

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<PAGE> 40

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:

EQUITY FUND
--------------
YEAR ENDED SEPTEMBER 30
----------------------------

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994(c)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
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)............................. (1.80%) 39.31% 26.33% 25.54% (0.90%)
RATIOS TO AVERAGE NET ASSET AND SUPPLEMENTAL
DATA:
Net Assets, End of Period (in 000s)......... $2,468 $3,338 $1,221 $ 68 $ 254
Ratio of net investment income to average
net assets................................ 0.46% 0.85% 0.92% 0.64% 1.64%(e)
Expenses net of waivers/reimbursements(b)... 1.72% 1.78% 1.74% 1.85% 1.04%(e)
Expenses before waivers/reimbursements...... 1.72% 1.84%(d) 2.19%(d) 2.63%(d) 2.29%(d)(e)
Portfolio Turnover Rate..................... 77% 61% 106% 107% 137%
</TABLE>

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(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 1997,
1.68% for 1996 and 1.72% for 1995.

(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.

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<PAGE> 41

Selected data for a share of
beneficial interest outstanding throughout each year:

BALANCED FUND
-----------------
YEAR ENDED SEPTEMBER 30
----------------------------

<TABLE>
<CAPTION>
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)...................... 2.60% 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
waivers/reimbursements(b).......... 1.45% 1.53% 1.57% 1.62% 1.17% 2.07%(e)
Expenses before waivers
reimbursements..................... 1.45% 1.61%(d) 1.96%(d) 2.24%(d) 2.11%(d) 3.14%(d)(e)
Portfolio Turnover Rate.............. 77% 110% 111% 133% 168% 192%
</TABLE>

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(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 1997,
1.49% for 1996 and 1.50% for 1995.

(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.

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<PAGE> 42

INTERMEDIATE BOND FUND
----------------------------

<TABLE>
<CAPTION>
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>

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(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.

(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.

DESCRIPTION OF THE FUNDS AND RISK CONSIDERATIONS

INVESTMENT OBJECTIVES

MANAGEMENT POLICIES

EQUITY FUND -- The Equity Fund attempts to achieve its goals by investing
primarily (i.e., in normal circumstances), at least 65% of its total assets in
common stocks, some of which may pay dividends, or securities convertible into
common stocks (see "Convertible Securities" below for a complete description).
The Equity Fund invests in securities issued by seasoned companies (generally
with market capitalizations in excess of $500,000,000 and continuous operating
histories of at least three years) believed to have proven records and
above-average historical earnings growth when compared to published indexes,
such as those

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<PAGE> 43

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.

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 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.

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<PAGE> 44

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.

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

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<PAGE> 45

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.

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<PAGE> 46

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

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

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<PAGE> 47

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.

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

CORPORATE DEBT SECURITIES (ALL FUNDS) -- A Fund's investments in corporate
debt may include U.S. dollar -- or foreign currency-denominated corporate bonds,
debentures, notes and other similar corporate debt instruments of domestic and
foreign issuers, which meet the previously disclosed minimum ratings and
maturity criteria established for each Fund under the direction of the Board of
Trustees and the Adviser or, if unrated, are in the Adviser's opinion comparable
in quality to rated corporate debt securities in which each Fund may invest. The
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.

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.

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.

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<PAGE> 49

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.

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.

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<PAGE> 50

accrue and compound over the period until maturity or the first interest accrual
date at a rate of interest reflecting the market rate of the security at the
time of issuance. While zero coupon bonds do not require the periodic payment of
interest, deferred interest bonds provide for a period of delay before the
regular payment of interest begins.

Although this period of delay is different for each deferred interest bond,
a typical period is approximately one-third of the bond's term to maturity. PIK
securities are debt obligations which provide that the issuer thereof may, at
its option, pay interest on such bonds in cash or in the form of additional debt
obligations. Such investments benefit the issuer by mitigating its need for cash
to meet debt service, but also require a higher rate of return to attract
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.

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.

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

14
<PAGE> 51

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.

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.

15
<PAGE> 52

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.

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

16
<PAGE> 53

hedging purposes is to minimize the risk to a Fund from adverse changes in the
relationship between the U.S. dollar and foreign currencies.

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.

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.

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

18
<PAGE> 55

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

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. Ms. Fraze is solely responsible for the day-to-day management of the
Intermediate Bond 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

19
<PAGE> 56

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.

DISTRIBUTOR

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

20
<PAGE> 57

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.

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.

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<PAGE> 58

and subsequently adjusted to market value. See "Determination of Net Asset
Value" in the Additional Statement.

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.

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
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

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

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<PAGE> 59

SYSTEMATIC WITHDRAWAL 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
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.

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.

<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

23
<PAGE> 60

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.

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
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<PAGE> 61

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.

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.

TELEPHONE REDEMPTION BY CHECK

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<PAGE> 62

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.

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.

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<PAGE> 63

EXCHANGE OF FUNDS SHARES

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

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

EXCHANGE BY MAIL

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

EXCHANGE BY TELEPHONE

To exchange Fund shares by telephone or if you have any questions, simply
call your broker or the Funds toll free at 1-800-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

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<PAGE> 64

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 of net capital gains to shareholders are taxable as long-term
capital gains whether received in cash or reinvested in additional shares.

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.

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

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 which track the performance of investment companies.

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

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<PAGE> 66

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.

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.

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<PAGE> 67

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].

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.

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<PAGE> 68

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: infor @ 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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table............................. 2
Financial Highlights.................. 4
Description of the Funds and Risk
Considerations...................... 6
Management of the Funds............... 19
Purchase of Shares.................... 20
Redemption of Shares.................. 24
Retirement Plans...................... 26
Exchange of Funds Shares.............. 27
Dividends, Distributions and Taxes.... 27
Performance Information............... 29
General Information................... 29
</TABLE>

THE

GABELLI

WESTWOOD
FUNDS

EQUITY FUND
BALANCED FUND
INTERMEDIATE BOND FUND
SERVICE CLASS
PROSPECTUS
----------------------------------------------------
DECEMBER 21, 1998
----------------------------------------------------