UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-04719 --------- The Westwood Funds ------------------------------------------------------------------ (Exact name of registrant as specified in charter) One Corporate Center Rye, New York 10580-1422 ------------------------------------------------------------------ (Address of principal executive offices) (Zip code) Bruce N. Alpert Gabelli Funds, LLC One Corporate Center Rye, New York 10580-1422 ------------------------------------------------------------------ (Name and address of agent for service) registrant's telephone number, including area code: 1-800-422-3554 -------------- Date of fiscal year end: September 30 ------------ Date of reporting period: September 30, 2005 ------------------ Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORTS TO STOCKHOLDERS. The Report to Shareholders is attached herewith. THE WESTWOOD FUNDS EQUITY FUND BALANCED FUND INTERMEDIATE BOND FUND SMALLCAP EQUITY FUND INCOME FUND MIGHTY MITES(SM) FUND ANNUAL REPORT SEPTEMBER 30, 2005 THE WESTWOOD FUNDS ================== EQUITY FUND SMALLCAP EQUITY FUND BALANCED FUND INCOME FUND INTERMEDIATE BOND FUND MIGHTY MITES(SM) FUND CLASS AAA SHARES CLASS A SHARES --------------------------------------------------- ------------------------------------------------------ Average Annual Returns -- September 30, 2005 (a)(e) Average Annual Returns -- September 30, 2005 (a)(b)(e) Since Since 1 Year 5 Year 10 Year Inception 1 Year 5 Year 10 Year Inception ---------------------------------------- ---------------------------------------- Equity ...................... 20.04% 3.33% 11.38% 11.93% 14.78% 2.21% 10.62% 11.48% Balanced .................... 12.84 4.55 9.61 10.52 8.05 3.46 8.91 9.89 Intermediate Bond ........... 1.70 5.51 5.70 5.98 (2.50) 4.57 5.23 5.64 SmallCap Equity ............. 24.34 (6.25) N/A 7.01 19.05 (7.08) N/A 6.38 Income ...................... 24.92 17.61 N/A 11.39 19.57 16.40 N/A 10.67 Mighty Mites(SM) ............ 20.42 10.53 N/A 14.03 15.31 9.42 N/A 13.25 CLASS B SHARES CLASS C SHARES ------------------------------------------------------ ------------------------------------------------------ Average Annual Returns -- September 30, 2005 (a)(c)(e) Average Annual Returns -- September 30, 2005 (a)(d)(e) Since Since 1 Year 5 Year 10 Year Inception 1 Year 5 Year 10 Year Inception ---------------------------------------- ---------------------------------------- Equity ...................... 14.00% 2.28% 10.87% 11.61% 18.09% 2.64% 10.87% 11.61% Balanced .................... 6.98 3.47 9.14 10.06 10.98 3.92 9.20 10.10 Intermediate Bond ........... (4.06) 4.42 5.32 5.71 0.39 4.99 5.44 5.79 SmallCap Equity ............. 18.36 (7.23) N/A 6.60 19.91 (6.96) N/A 6.54 Income ...................... 18.90 16.88 N/A 11.08 22.90 17.22 N/A 11.16 Mighty Mites(SM) ............ 14.56 9.55 N/A 13.54 18.49 9.85 N/A 13.55 (a) TOTAL RETURNS AND AVERAGE ANNUAL RETURNS REFLECT CHANGES IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND ARE NET OF EXPENSES. OF COURSE, RETURNS REPRESENT PAST PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND THE PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE. WHEN SHARES ARE REDEEMED THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR THE INTERMEDIATE BOND, SMALLCAP EQUITY, INCOME AND MIGHTY MITES(SM) FUNDS, THE ADVISER REIMBURSED EXPENSES TO LIMIT THE EXPENSE RATIO. HAD SUCH LIMITATIONS NOT BEEN IN PLACE, RETURNS WOULD HAVE BEEN LOWER. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA PRESENTED. VISIT WWW.GABELLI.COM FOR PERFORMANCE INFORMATION AS OF THE MOST RECENT MONTH END. INVESTORS SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS AND CHARGES AND EXPENSES OF THE FUND CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS MORE INFORMATION ABOUT THIS AND OTHER MATTERS AND SHOULD BE READ CAREFULLY BEFORE INVESTING. (b) INCLUDES THE EFFECT OF THE MAXIMUM 4.0% SALES CHARGE AT THE BEGINNING OF THE PERIOD. (c) INCLUDES THE EFFECT OF THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE UPON REDEMPTION OF CLASS B SHARES WITHIN 72 MONTHS. (d) INCLUDES THE EFFECT OF THE 1% CONTINGENT DEFERRED SALES CHARGE UPON REDEMPTION OF CLASS C SHARES WITHIN 12 MONTHS. (e) THE PERFORMANCE OF THE CLASS AAA SHARES IS USED TO CALCULATE PERFORMANCE FOR THE PERIODS PRIOR TO THE ISSUANCE OF CLASS A SHARES, CLASS B SHARES AND CLASS C SHARES. THE PERFORMANCE FOR THE CLASS B SHARES AND CLASS C SHARES WOULD HAVE BEEN LOWER DUE TO THE ADDITIONAL EXPENSES ASSOCIATED WITH THESE CLASSES OF SHARES. THE INCEPTION DATES FOR THE CLASS AAA SHARES AND THE INITIAL ISSUANCE DATES FOR THE CLASS A SHARES, CLASS B SHARES AND CLASS C SHARES AFTER WHICH SHARES REMAINED CONTINUOUSLY OUTSTANDING ARE LISTED BELOW. Class AAA Shares Class A Shares Class B Shares Class C Shares ---------------- -------------- -------------- -------------- Equity ............... 01/02/87 01/28/94 03/27/01 02/13/01 Balanced ............. 10/01/91 04/06/93 03/27/01 09/25/01 Intermediate Bond .... 10/01/91 07/26/01 03/27/01 10/22/01 SmallCap Equity ...... 04/15/97 11/26/01 03/27/01 11/26/01 Income ............... 09/30/97 05/09/01 11/26/01 11/26/01 Mighty Mites(SM) ..... 05/11/98 11/26/01 06/06/01 08/03/01 PERFORMANCE DISCUSSION EQUITY FUND For the twelve month period ended September 30, 2005, the Westwood Equity Fund Class AAA shares rose 20.04%, strongly outpacing the Standard & Poor's ("S&P") 500 Index and the Lipper Large-Cap Value Fund Average gains of 12.25% and 13.36%, respectively. Top performing sectors for the fiscal year were beneficiaries of high energy prices. Energy stocks led performance of the S&P 500 Index with returns in excess of 45%. Westwood Equity Fund shareholders further benefited from holding a larger commitment to Integrated Oil and other energy stocks. Top contributors to Fund performance within these sectors included Burlington Resources Inc. and ConocoPhillips. Though Consumer Discretionary was a minor contributor to S&P 500 Index performance, based on strength in Federated Department Stores Inc., the sector was the second largest contributor to Fund performance. The smaller Auto & Transportation was the only sector of the S&P 500 with negative performance. However, this sector was another important contributor to the Fund, led by Burlington Northern Santa Fe Corp. The Financial Services sector also contributed strongly to the Fund, with performance attributable to a combination of stock selection and an overweight position in brokerage and diversified financial services companies such as Prudential Financial Inc., Franklin Resources Inc., and Lehman Brothers Holdings Inc. Detracting from relative performance was stock selection in the Utilities sector. Holdings within the Utilities sector such as Verizon Communications Inc. continue to have their share prices pushed lower on pressure from the perceived competitive threat from cable and satellite providers. In Materials & Processing, shares of Alcoa Inc, which were sold, were hurt by cost pressures and lower aluminum pricing, which absorbed most of its cost cutting progress. - -------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS THROUGH SEPTEMBER 30, 2005* -------------------------------------------------- SINCE INCEPTION 6 MONTHS 1 YEAR 3 YEAR 5 YEAR 10 YEAR 15 YEAR (1/2/87) -------- ------ ------ ------ ------- ------- --------- EQUITY FUND CLASS AAA .............. 8.63% 20.04% 17.72% 3.33% 11.38% 12.74% 11.93% S&P 500 Index ...................... 5.02 12.25 16.71 (1.49) 9.49 12.00 11.62 Lipper Large-Cap Value Average ..... 4.80 13.36 17.40 3.40 9.09 11.87 10.86 * RETURNS REPRESENT PAST PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS. TOTAL RETURNS AND AVERAGE ANNUAL RETURNS REFLECT CHANGES IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND ARE NET OF EXPENSES. INVESTMENT RETURNS AND THE PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE. WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA PRESENTED. VISIT WWW.GABELLI.COM FOR PERFORMANCE INFORMATION AS OF THE MOST RECENT MONTH END. INVESTORS SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS AND CHARGES AND EXPENSES OF THE FUND CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS MORE INFORMATION ABOUT THIS AND OTHER MATTERS AND SHOULD BE READ CAREFULLY BEFORE INVESTING. PERFORMANCE RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED. SEE PAGE 1 FOR FURTHER DETAILS ABOUT ADDITIONAL CLASSES OF SHARES. THE S&P 500 INDEX IS AN UNMANAGED INDICATOR OF STOCK MARKET PERFORMANCE, WHILE THE LIPPER AVERAGE REFLECTS THE AVERAGE PERFORMANCE OF MUTUAL FUNDS CLASSIFIED IN THIS PARTICULAR CATEGORY. - -------------------------------------------------------------------------------- 2 COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE EQUITY FUND CLASS AAA AND THE S&P 500 INDEX [THE FOLLOWING TABLE WAS REPRESENTED BY A PERFORMANCE GRAPH IN THE PRINTED MATERIAL.] Equity Fund (Class AAA) S&P 500 Index ----------- ------------- 1/2/87 10,000 10,000 9/87 13,148 13,585 9/88 11,779 11,902 9/89 15,323 15,823 9/90 13,700 14,361 9/91 16,386 18,826 9/92 17,068 20,905 9/93 20,509 23,616 9/94 22,384 24,485 9/95 28,170 31,760 9/96 35,742 38,213 9/97 49,899 53,663 9/98 49,185 58,536 9/99 58,909 74,803 9/00 70,273 84,729 9/01 59,809 62,183 9/02 50,754 49,454 9/03 58,413 61,506 9/04 68,974 70,030 9/05 82,796 78,609 Average Annual Total Return* 1 Year 5 Year 10 Year Life of Fund ------ ------ ------- ------------ Class AAA 20.04% 3.33% 11.38% 11.93% * PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The performance tables and graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. BALANCED FUND For the twelve months ended September 30, 2005, the Westwood Balanced Fund total return was 12.84%, significantly outpacing the common balanced index blend of 60% S&P 500 and 40% Lehman Brothers Government/Corporate Bond Index return of 8.38%. - -------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS THROUGH SEPTEMBER 30, 2005* -------------------------------------------------- SINCE INCEPTION 6 MONTHS 1 YEAR 3 YEAR 5 YEAR 10 YEAR (10/1/91) -------- ------ ------ ------ ------- --------- BALANCED FUND CLASS AAA ..................... 6.00% 12.84% 11.78% 4.55% 9.61% 10.52% 60% S&P 500 Index & 40% Lehman .............. 3.98 8.38 11.68 1.86 8.33 9.30 S&P 500 Index ............................... 5.02 12.25 16.71 (1.49) 9.49 10.75 Lehman Bros. Gov't./Corporate Bond Index .... 2.45 2.58 4.13 6.89 6.59 7.12 Lipper Balanced Fund Average ................ 4.52 9.78 11.60 2.05 7.41 8.46 * RETURNS REPRESENT PAST PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS. TOTAL RETURNS AND AVERAGE ANNUAL RETURNS REFLECT CHANGES IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND ARE NET OF EXPENSES. INVESTMENT RETURNS AND THE PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE. WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE FUND IS SUBJECT TO THE RISK THAT ITS ALLOCATION BETWEEN EQUITY AND DEBT SECURITIES MAY UNDERPERFORM OTHER ALLOCATIONS. INVESTING IN DEBT SECURITIES INVOLVES INTEREST RATE AND CREDIT RISKS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA PRESENTED. VISIT WWW.GABELLI.COM FOR PERFORMANCE INFORMATION AS OF THE MOST RECENT MONTH END. INVESTORS SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS AND CHARGES AND EXPENSES OF THE FUND CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS MORE INFORMATION ABOUT THIS AND OTHER MATTERS AND SHOULD BE READ CAREFULLY BEFORE INVESTING. PERFORMANCE RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED SEE PAGE 1 FOR FURTHER DETAILS ABOUT ADDITIONAL CLASSES OF SHARES. THE S&P 500 INDEX IS AN UNMANAGED INDICATOR OF STOCK MARKET PERFORMANCE AND THE LEHMAN GOVERNMENT/CORPORATE BOND INDEX IS A MARKET VALUE WEIGHTED INDEX THAT TRACKS THE TOTAL RETURN PERFORMANCE OF FIXED RATE, PUBLICLY PLACED, DOLLAR DENOMINATED OBLIGATIONS. THE LIPPER AVERAGE REFLECTS THE AVERAGE PERFORMANCE OF MUTUAL FUNDS CLASSIFIED IN THIS PARTICULAR CATEGORY. - -------------------------------------------------------------------------------- 3 COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE BALANCED FUND CLASS AAA, THE S&P 500 INDEX, THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX, AND A COMPOSITE OF 60% OF THE S&P 500 INDEX AND 40% OF THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX [THE FOLLOWING TABLE WAS REPRESENTED BY A PERFORMANCE GRAPH IN THE PRINTED MATERIAL.] 60% S&P 500 and Balanced Fund 40% Lehman Bros. Lehman Brothers Gov't./ (Class AAA) Gov't./Corp. Bond Index S&P 500 Index Corporate Bond Index ------------- ----------------------- ------------- ----------------------- 10/1/91 10,000 10,000 10,000 10,000 9/92 10,797 11,192 11,104 11,323 9/93 12,622 12,575 12,544 12,618 9/94 13,291 12,644 13,006 12,096 9/95 16,212 15,624 16,870 13,832 9/96 19,297 17,810 20,298 14,454 9/97 24,762 22,814 28,504 15,842 9/98 25,460 25,229 31,092 17,876 9/99 28,658 29,272 39,733 17,586 9/00 32,495 32,392 45,006 18,772 9/01 30,620 28,926 33,030 21,244 9/02 29,062 26,439 26,268 23,200 9/03 32,325 30,994 32,670 24,711 9/04 35,956 33,984 37,198 25,534 9/05 40,591 36,833 41,755 26,192 Average Annual Total Return* 1 Year 5 Year 10 Year Life of Fund ------ ------ ------- ------------ Class AAA 12.84% 4.55% 9.61% 10.52% * PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The performance tables and graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Balanced Fund is designed to provide an investor exposure to equity-like returns with reduced overall risk though simultaneous investments in short to intermediate term investment grade fixed income securities. Aside from the more moderate fixed income risk profile, strategies for and the contributors to the performance of the Equity and Intermediate Bond Funds, which are discussed elsewhere in this letter, also apply to their respective components of the Balanced Fund. INTERMEDIATE BOND FUND For the twelve months ended September 30, 2005 the Westwood Intermediate Bond Fund total return, net of all fees and expenses, was 1.70%. The Lehman Brothers Government/Corporate Bond Index return was 2.58%, while the Lipper Intermediate Investment Grade Debt Fund Average return was 2.42%. From quarter to quarter the investment grade bond market alternated between slightly positive and slightly negative returns. The major exception was the fiscal third quarter of 2005 index return of 3.44%, wherein the Fed related rise in short rates was accompanied by a dramatic decline of over 40 bp in long rates. In the third quarter of 2005, the closing fiscal quarter, most sectors of the fixed income market registered negative returns as both short and long interest rates rose by approximately 50 bp. Growing inflation fears, along with stronger than expected economic data, as investors sold, resulted in higher long rates. The Fed continued to tighten, raising official rates by 25 bp in both August and September. Short maturities were the top performers; their prices were less affected by increasing rates than prices of long maturities. For the twelve month fiscal year, bonds with maturities over ten years and high quality investment grade securities led index performance. The longest (over 20 years) U.S. Agency and Treasury bonds earned 11.9% and 9.2%, respectively. Long utility bonds, as well as long maturity AA- and A-rated bonds, were top performing corporate credits; however, long bonds of non corporate (supranational, sovereign, and foreign agency and local government) issuers outperformed U.S. credits. The worst performing segments of the index included 1 to 5 year Treasury, Agency, and Corporate notes. 4 An underweight position in long maturity corporate bonds detracted from Fund performance. However, security selection contributed positively to Fund performance, as holdings in mortgage backed securities (MBS) outperformed the index. The securities that contributed the most to Fund performance, considering both security return and weighting in the portfolio, were long Treasury bonds maturing in 2027 and 2023 and a bond issued by the World Bank - International Bank for Reconstruction and Development 8.625%, due 10/15/2016. - -------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS THROUGH SEPTEMBER 30, 2005* -------------------------------------------------- SINCE INCEPTION 6 MONTHS 1 YEAR 3 YEAR 5 YEAR 10 YEAR (10/1/91) -------- ------- ------ ------- ------- --------- INTERMEDIATE BOND FUND CLASS AAA ............... 1.89% 1.70% 2.16% 5.51% 5.70% 5.98% Lehman Bros. Gov't./Corporate Bond Index ....... 2.45 2.58 4.13 6.89 6.59 7.12 Lipper Int. Investment Grade Debt Fund Avg. .... 1.99 2.42 3.97 5.99 5.74 6.58 * RETURNS REPRESENT PAST PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS. TOTAL RETURNS AND AVERAGE ANNUAL RETURNS REFLECT CHANGES IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND ARE NET OF EXPENSES. INVESTMENT RETURNS AND THE PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE. WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ADVISER REIMBURSED EXPENSES TO LIMIT THE EXPENSE RATIO. HAD SUCH LIMITATION NOT BEEN IN PLACE, RETURNS WOULD HAVE BEEN LOWER. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA PRESENTED. VISIT WWW.GABELLI.COM FOR PERFORMANCE INFORMATION AS OF THE MOST RECENT MONTH END. THE FUND IS SUBJECT TO INTEREST RATE AND CREDIT RISKS. INVESTORS SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS AND CHARGES AND EXPENSES OF THE FUND CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS MORE INFORMATION ABOUT THIS AND OTHER MATTERS AND SHOULD BE READ CAREFULLY BEFORE INVESTING. PERFORMANCE RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED. SEE PAGE 1 FOR FURTHER DETAILS ABOUT ADDITIONAL CLASSES OF SHARES. THE LEHMAN GOVERNMENT/CORPORATE BOND INDEX IS A MARKET VALUE WEIGHTED INDEX THAT TRACKS THE PERFORMANCE OF FIXED RATE, PUBLICLY PLACED, DOLLAR DENOMINATED OBLIGATIONS, WHILE THE LIPPER AVERAGE REFLECTS THE AVERAGE PERFORMANCE OF MUTUAL FUNDS CLASSIFIED IN THIS PARTICULAR CATEGORY. - -------------------------------------------------------------------------------- COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERMEDIATE BOND FUND CLASS AAA AND THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX [THE FOLLOWING TABLE WAS REPRESENTED BY A PERFORMANCE GRAPH IN THE PRINTED MATERIAL.] Intermediate Bond Fund Lehman Bros. Gov't./ (Class AAA) Corp. Bond Index ---------------------- -------------------- 10/1/91 10,000 10,000 9/92 11,186 11,323 9/93 12,331 12,618 9/94 11,658 12,096 9/95 12,956 13,832 9/96 13,539 14,454 9/97 15,077 15,842 9/98 16,612 17,876 9/99 16,218 17,586 9/00 17,256 18,772 9/01 19,442 21,244 9/02 21,172 23,200 9/03 21,772 24,711 9/04 22,194 25,534 9/05 22,571 26,192 Average Annual Total Return* 1 Year 5 Year 10 Year Life of Fund ------ ------ ------- ------------ Class AAA 1.70% 5.51% 5.70% 5.98% * PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The performance tables and graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 5 SMALLCAP EQUITY FUND The Westwood SmallCap Equity Fund significantly outperformed the Russell 2000 Index, ending the twelve month period at 24.34% compared to the Russell 2000 Index return of 17.95% and the Lipper Small Cap Growth Fund Average return of 18.57%. The price of energy and the level of the yield curve dominated SmallCap Fund performance during the fiscal year. Over the last twelve months, economically sensitive stocks have been the source of most of the return in the small cap market. Energy was the single largest contributor though the sector accounts for a relatively modest percent of the index. Accounting for over one third of the index, Financial Services stocks have been pressured, especially over the last six months, by the negative impact of higher interest rates on the valuation of the stocks. For the SmallCap Fund, the Energy sector contributed one fourth of the 24% total return, as did the combined Materials & Processing and Financial Services sectors. Every other sector, except Consumer Staples, contributed one to three percentage points. Stock selection was the most important factor in Fund outperformance, followed by overweight positions in Energy and Materials & Processing. Top performing stocks included FreightCar America Inc., Greenbrier Cos., and Foundation Coal Holdings Inc. - -------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS THROUGH SEPTEMBER 30, 2005* -------------------------------------------------- SINCE INCEPTION 6 MONTHS 1 YEAR 3 YEAR 5 YEAR (4/15/97) -------- ------ ------ ------ --------- SMALLCAP EQUITY FUND CLASS AAA ...... 10.47% 24.34% 14.66% (6.25)% 7.01% Russell 2000 Index .................. 9.21 17.95 24.12 6.45 9.73 Russell 2000 Growth Index ........... 10.02 17.97 23.23 (2.54) 5.58 Lipper Small-Cap Growth Average ..... 9.76 18.57 20.42 (2.45) 9.33 * RETURNS REPRESENT PAST PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS. TOTAL RETURNS AND AVERAGE ANNUAL RETURNS REFLECT CHANGES IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND ARE NET OF EXPENSES. INVESTMENT RETURNS AND THE PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE. WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ADVISER REIMBURSED EXPENSES TO LIMIT THE EXPENSE RATIO. HAD SUCH LIMITATION NOT BEEN IN PLACE, RETURNS WOULD HAVE BEEN LOWER. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA PRESENTED. VISIT WWW.GABELLI.COM FOR PERFORMANCE INFORMATION AS OF THE MOST RECENT MONTH END. INVESTORS SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS AND CHARGES AND EXPENSES OF THE FUND CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS MORE INFORMATION ABOUT THIS AND OTHER MATTERS AND SHOULD BE READ CAREFULLY BEFORE INVESTING. PERFORMANCE RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED. SEE PAGE 1 FOR FURTHER DETAILS ABOUT ADDITIONAL CLASSES OF SHARES. THE RUSSELL 2000 INDEX IS AN UNMANAGED INDICATOR OF STOCK MARKET PERFORMANCE, WHILE THE LIPPER AVERAGE REFLECTS THE AVERAGE PERFORMANCE OF MUTUAL FUNDS CLASSIFIED IN THIS PARTICULAR CATEGORY. INVESTING IN SMALL CAPITALIZATION SECURITIES INVOLVES SPECIAL CHALLENGES BECAUSE THESE SECURITIES MAY TRADE LESS FREQUENTLY AND EXPERIENCE MORE ABRUPT PRICE MOVEMENTS THAN LARGE CAPITALIZATION SECURITIES. - -------------------------------------------------------------------------------- 6 COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE SMALLCAP EQUITY FUND CLASS AAA, THE RUSSELL 2000 INDEX, AND THE RUSSELL 2000 GROWTH INDEX [THE FOLLOWING TABLE WAS REPRESENTED BY A PERFORMANCE GRAPH IN THE PRINTED MATERIAL.] SmallCap Equity Fund (Class AAA) Russell 2000 Index Russell 2000 Growth Index -------------------- ------------------ ------------------------- 4/15/97 10,000 10,000 10,000 9/97 14,480 13,410 13,942 9/98 11,923 10,859 10,480 9/99 18,950 12,930 13,900 9/00 24,512 15,955 18,024 9/01 13,930 12,571 10,348 9/02 11,777 11,402 8,468 9/03 12,861 15,563 12,001 9/04 14,276 18,484 13,432 9/05 17,751 21,825 15,846 Average Annual Total Return* 1 Year 3 Year 5 Year Life of Fund ------ ------ ------- ------------ Class AAA 24.34% 14.66% (6.25)% 7.01% * PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The performance tables and graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. INCOME FUND Effective July 18, 2005, the Westwood Realty Fund's name was changed to Westwood Income Fund and the investment policies, strategies and risks were changed to reflect a reorientation of the Fund to an income focused strategy that emphasizes high current income over capital appreciation and permits the Fund to invest a significant portion of its assets in various types of income producing equity and fixed income securities, in addition to real estate investment trusts ("REITs"). Since the reorientation began late in the fiscal year, in this report we are comparing the Fund performance to the NAREIT Composite REIT Index. Going forward, we shall utilize a blend of equity and fixed income indices. The Income Fund advanced 24.92% during the twelve months ended September 30, 2005. The NAREIT Composite REIT Index total return was 27.28%, while the Lipper Real Estate Fund Average was 26.03% and the Lipper Equity Income Fund Average was 13.69%. For a third consecutive year the REIT asset class posted stellar performance by topping both the S&P 500 Equity Index and the Russell 2000 Equity Index. Three sectors - Regional Malls, Office, and Apartments - together contributed nearly 14% of the return of the NAREIT index, with Shopping Centers running a close fourth. The same four sectors were top contributors to performance of the Fund, accounting for 60% of its performance. No sector earned a negative return, and only Mixed was up less than double digits. For the period until reorientation began and for the fiscal year as a whole, Simon Property Group Inc., a leading Regional Mall REIT, was the top contributor to Fund performance. Other top performers were General Growth Properties Inc., another Retail REIT, and Equity Office Properties Trust. Although purchased during the reorientation period, San Juan Basin Royalty Trust was a top performer for the fiscal year. Very few holdings had a negative contribution but Iowa Telecommunications Services Inc., a telecommunications company purchased after mid July, was a bottom performer. 7 - -------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS THROUGH SEPTEMBER 30, 2005* -------------------------------------------------- SINCE INCEPTION 6 MONTHS 1 YEAR 3 YEAR 5 YEAR (9/30/97) -------- ------ ------ ------ --------- INCOME FUND CLASS AAA ............... 16.20% 24.92% 23.40% 17.61% 11.39% NAREIT Composite REIT Index ......... 18.84 27.28 26.02 19.58 13.22 Lipper Real Estate Fund Average ..... 16.70 26.03 25.98 18.53 11.23 Lipper Equity Income Fund Avg ....... 4.91 13.69 16.69 4.10 5.99 * RETURNS REPRESENT PAST PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS. TOTAL RETURNS AND AVERAGE ANNUAL RETURNS REFLECT CHANGES IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND ARE NET OF EXPENSES. INVESTMENT RETURNS AND THE PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE. WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ADVISER REIMBURSED EXPENSES TO LIMIT THE EXPENSE RATIO. HAD SUCH LIMITATION NOT BEEN IN PLACE, RETURNS WOULD HAVE BEEN LOWER. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA PRESENTED. VISIT WWW.GABELLI.COM FOR PERFORMANCE INFORMATION AS OF THE MOST RECENT MONTH END. INVESTORS SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS AND CHARGES AND EXPENSES OF THE FUND CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS MORE INFORMATION ABOUT THIS AND OTHER MATTERS AND SHOULD BE READ CAREFULLY BEFORE INVESTING. PERFORMANCE RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED. SEE PAGE 1 FOR FURTHER DETAILS ABOUT ADDITIONAL CLASSES OF SHARES. THE NAREIT INDEX IS AN UNMANAGED INDICATOR OF REIT MARKET PERFORMANCE, WHILE THE LIPPER AVERAGE REFLECTS THE AVERAGE PERFORMANCE OF MUTUAL FUNDS CLASSIFIED IN THIS PARTICULAR CATEGORY. INVESTING IN REAL ESTATE RELATED SECURITIES INVOLVES SPECIAL RISKS ASSOCIATED WITH GENERAL OR LOCAL ECONOMIC CONDITIONS, OVERBUILDING AND CHANGES IN ZONING, OR THAT THE REAL ESTATE MARKET WILL UNDERPERFORM THE STOCK MARKET GENERALLY. - -------------------------------------------------------------------------------- COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INCOME FUND CLASS AAA, THE RUSSELL 2000 INDEX, AND THE NATIONAL ASSOCIATION OF REITS COMPOSITE REIT INDEX [THE FOLLOWING TABLE WAS REPRESENTED BY A PERFORMANCE GRAPH IN THE PRINTED MATERIAL.] Income Fund (Class AAA) Russell 2000 Index NAREIT Composite REIT Index ----------- ------------------ --------------------------- 9/30/97 10,000 10,000 10,000 9/98 8,950 8,098 8,540 9/99 8,442 9,642 7,810 9/00 10,541 11,898 9,327 9/01 11,741 9,374 10,602 9/02 12,622 8,502 11,633 9/03 15,503 11,606 14,718 9/04 18,986 13,784 18,483 9/05 23,718 16,275 23,525 Average Annual Total Return* 1 Year 3 Year 5 Year Life of Fund ------ ------ ------- ------------ Class AAA 24.92% 23.40% 17.61% 11.39% * PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The performance tables and graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 8 MIGHTY MITES(SM) FUND For the twelve month period ended September 30, 2005, the Westwood Mighty Mites(SM) advanced 20.42% significantly outperforming the Russell 2000 and Lipper Small-Cap Value Average returns of 17.95% and 18.54%, respectively. Last year when we wrote to you, the ongoing conflict in Iraq, the Presidential election, and rising raw material costs were clearly the major issues confronting the market. Over the past year, we have seen the "civil war" in Iraq continue, raw material costs continue to increase, a dramatic rise in fuel costs, the Federal Funds Rate increase by 175 bps, and two natural disasters in the coast region. The dramatic rise in fuel costs has imposed a "tax" that is putting a drag on overall consumer discretionary spending. It always seems that the moment we solve/settle one problem another rises to take its place. That is the long-term history of the market. We have and will continue to deal with that reality. Small cap stocks made headway during the fiscal year ended September 30, 2005. The Fund's nearly 3% outperformance over the Russell 2000 Index for the past twelve months resulted primarily from our stocks reacting favorably to a series of company-specific positive news events, and to a lesser extent on merger and acquisition activity within the names we own. As is often the case, our best and worst performing stocks in the past twelve months came from a diverse group of industries. Portfolio holdings posting the biggest gains included diversified electronics manufacturer Lamson & Sessions, small turbine manufacturer Capstone Turbine, diagnostic substances manufacturer Quidel, and wireless operator Rural Cellular Corp. As might be expected, energy stocks such as Stolt Offshore and RPC were also excellent performers. Major portfolio disappointments included auto parts manufacturer Standard Motor Products, paper and office product company Nashua Corp., TV broadcaster Young Broadcasting, and diversified electronics firm SL Industries. - -------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS THROUGH SEPTEMBER 30, 2005* -------------------------------------------------- SINCE INCEPTION 6 MONTHS 1 YEAR 3 YEAR 5 YEAR (5/11/98) -------- ------ ------ ------ --------- MIGHTY MITES FUND(SM) CLASS AAA ..... 7.11% 20.42% 17.87% 10.53% 14.03% Russell 2000 Index .................. 9.21 17.95 24.12 6.45 6.02 Lipper Small-Cap Value Average ...... 7.52 18.54 24.04 14.62 9.10 * RETURNS REPRESENT PAST PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS. TOTAL RETURNS AND AVERAGE ANNUAL RETURNS REFLECT CHANGES IN SHARE PRICE AND REINVESTMENT OF DIVIDENDS AND ARE NET OF EXPENSES. INVESTMENT RETURNS AND THE PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE. WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ADVISER REIMBURSED EXPENSES TO LIMIT THE EXPENSE RATIO. HAD SUCH LIMITATION NOT BEEN IN PLACE, RETURNS WOULD HAVE BEEN LOWER. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA PRESENTED. VISIT WWW.GABELLI.COM FOR PERFORMANCE INFORMATION AS OF THE MOST RECENT MONTH END. INVESTORS SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS AND CHARGES AND EXPENSES OF THE FUND CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS MORE INFORMATION ABOUT THIS AND OTHER MATTERS AND SHOULD BE READ CAREFULLY BEFORE INVESTING. PERFORMANCE RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED. SEE PAGE 1 FOR FURTHER DETAILS ABOUT ADDITIONAL CLASSES OF SHARES. THE RUSSELL 2000 INDEX IS AN UNMANAGED INDICATOR OF STOCK MARKET PERFORMANCE, WHILE THE LIPPER AVERAGE REFLECTS THE AVERAGE PERFORMANCE OF MUTUAL FUNDS CLASSIFIED IN THIS PARTICULAR CATEGORY. INVESTING IN SMALL CAPITALIZATION SECURITIES INVOLVES SPECIAL CHALLENGES BECAUSE THESE SECURITIES MAY TRADE LESS FREQUENTLY AND EXPERIENCE MORE ABRUPT PRICE MOVEMENTS THAN LARGE CAPITALIZATION SECURITIES. - -------------------------------------------------------------------------------- 9 COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE MIGHTY MITES(SM) FUND CLASS AAA AND THE RUSSELL 2000 INDEX [THE FOLLOWING TABLE WAS REPRESENTED BY A PERFORMANCE GRAPH IN THE PRINTED MATERIAL.] Mighty Mites(SM) Fund (Class AAA) Russell 2000 Index --------------------- ------------------ 5/11/98 10,000 10,000 9/98 9,700 7,660 9/99 13,018 9,121 9/00 16,010 11,254 9/01 15,567 8,867 9/02 16,128 8,042 9/03 19,314 10,978 9/04 21,915 13,039 9/05 26,391 15,395 Average Annual Total Return* 1 Year 3 Year 5 Year Life of Fund ------ ------ ------- ------------ Class AAA 20.42% 17.87% 10.53% 14.03% * PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The performance tables and graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. - -------------------------------------------------------------------------------- We have separated the portfolio manager's commentary from the financial statements and investment portfolio due to corporate governance regulations stipulated by the Sarbanes-Oxley Act of 2002. We have done this to ensure that the content of the portfolio manager's commentary is unrestricted. The financial statements and investment portfolio are mailed separately from the commentary. Both the commentary and the financial statements, including the portfolio of investments, will be available on our website at www.gabelli.com/funds. - -------------------------------------------------------------------------------- 10 THE WESTWOOD FUNDS DISCLOSURE OF FUND EXPENSES (UNAUDITED) For the Six Month Period from April 1, 2005 through September 30, 2005 EXPENSE TABLE - -------------------------------------------------------------------------------- We believe it is important for you to understand the impact of fees and expenses regarding your investment. All mutual funds have operating expenses. As a shareholder of a fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund's gross income, directly reduce the investment return of a fund. When a fund's expenses are expressed as a percentage of its average net assets, this figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period. The Expense Table below illustrates your Fund's costs in two ways: ACTUAL FUND RETURN: This section provides information about actual account values and actual expenses. You may use this section to help you to estimate the actual expenses that you paid over the period after any fee waivers and expense reimbursements. The "Ending Account Value" shown is derived from the Fund's ACTUAL return during the past six months, and the "Expenses Paid During Period" shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your Fund under the heading "Expenses Paid During Period" to estimate the expenses you paid during this period. HYPOTHETICAL 5% RETURN: This section provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio. It assumes a hypothetical annualized return of 5% before expenses during the period shown. In this case -- because the hypothetical return used is NOT the Fund's actual return -- the results do not apply to your investment and you cannot use the hypothetical account value and expense to estimate the actual ending account balance or expenses you paid for the period. This example is useful in making comparisons of the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as sales charges (loads), redemption fees, or exchange fees, if any, which are described in the Prospectus. If these costs were applied to your account, your costs would be higher. Therefore, the 5% hypothetical return is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The "Annualized Expense Ratio" represents the actual expenses for the last six months and may be different from the expense ratio in the Financial Highlights which is for the year ended September 30, 2005. Beginning Ending Annualized Expenses Account Value Account Value Expense Paid During 04/01/05 09/30/05 Ratio Period* - ------------------------------------------------------------------------------------------------- WESTWOOD EQUITY FUND - ------------------------------------------------------------------------------------------------- Actual Fund Return Class AAA $ 1,000.00 $ 1,086.30 1.49% $ 7.79 Class A $ 1,000.00 $ 1,084.40 1.74% $ 9.09 Class B $ 1,000.00 $ 1,081.90 2.24% $ 11.69 Class C $ 1,000.00 $ 1,082.90 2.24% $ 11.70 Hypothetical 5% Return Class AAA $ 1,000.00 $ 1,017.60 1.49% $ 7.54 Class A $ 1,000.00 $ 1,016.34 1.74% $ 8.80 Class B $ 1,000.00 $ 1,013.84 2.24% $ 11.31 Class C $ 1,000.00 $ 1,013.84 2.24% $ 11.31 11 THE WESTWOOD FUNDS DISCLOSURE OF FUND EXPENSES (CONTINUED) (UNAUDITED) For the Six Month Period from April 1, 2005 through September 30, 2005 EXPENSE TABLE - -------------------------------------------------------------------------------- Beginning Ending Annualized Expenses Account Value Account Value Expense Paid During 04/01/05 09/30/05 Ratio Period* - ------------------------------------------------------------------------------------------------- WESTWOOD BALANCED FUND - ------------------------------------------------------------------------------------------------- Actual Fund Return Class AAA $ 1,000.00 $ 1,060.00 1.22% $ 6.30 Class A $ 1,000.00 $ 1,059.50 1.47% $ 7.59 Class B $ 1,000.00 $ 1,055.90 1.97% $ 10.15 Class C $ 1,000.00 $ 1,056.70 1.97% $ 10.16 Hypothetical 5% Return Class AAA $ 1,000.00 $ 1,018.95 1.22% $ 6.17 Class A $ 1,000.00 $ 1,017.70 1.47% $ 7.44 Class B $ 1,000.00 $ 1,015.19 1.97% $ 9.95 Class C $ 1,000.00 $ 1,015.19 1.97% $ 9.95 - ------------------------------------------------------------------------------------------------- WESTWOOD INTERMEDIATE BOND FUND - ------------------------------------------------------------------------------------------------- Actual Fund Return Class AAA $ 1,000.00 $ 1,018.90 1.00% $ 5.06 Class A $ 1,000.00 $ 1,018.40 1.10% $ 5.57 Class B $ 1,000.00 $ 1,015.10 1.75% $ 8.84 Class C $ 1,000.00 $ 1,018.60 1.75% $ 8.86 Hypothetical 5% Return Class AAA $ 1,000.00 $ 1,020.05 1.00% $ 5.06 Class A $ 1,000.00 $ 1,019.55 1.10% $ 5.57 Class B $ 1,000.00 $ 1,016.29 1.75% $ 8.85 Class C $ 1,000.00 $ 1,016.29 1.75% $ 8.85 - ------------------------------------------------------------------------------------------------- WESTWOOD SMALLCAP EQUITY FUND - ------------------------------------------------------------------------------------------------- Actual Fund Return Class AAA $ 1,000.00 $ 1,104.70 1.50% $ 7.91 Class A $ 1,000.00 $ 1,104.00 1.75% $ 9.23 Class B $ 1,000.00 $ 1,100.70 2.25% $ 11.85 Class C $ 1,000.00 $ 1,084.80 2.25% $ 11.76 Hypothetical 5% Return Class AAA $ 1,000.00 $ 1,017.55 1.50% $ 7.59 Class A $ 1,000.00 $ 1,016.29 1.75% $ 8.85 Class B $ 1,000.00 $ 1,013.79 2.25% $ 11.36 Class C $ 1,000.00 $ 1,013.79 2.25% $ 11.36 Beginning Ending Annualized Expenses Account Value Account Value Expense Paid During 04/01/05 09/30/05 Ratio Period* - ------------------------------------------------------------------------------------------------- WESTWOOD INCOME FUND - ------------------------------------------------------------------------------------------------- Actual Fund Return Class AAA $ 1,000.00 $ 1,162.00 1.50% $ 8.13 Class A $ 1,000.00 $ 1,160.60 1.75% $ 9.48 Class B $ 1,000.00 $ 1,157.30 2.25% $ 12.17 Class C $ 1,000.00 $ 1,157.10 2.25% $ 12.17 Hypothetical 5% Return Class AAA $ 1,000.00 $ 1,017.55 1.50% $ 7.59 Class A $ 1,000.00 $ 1,016.29 1.75% $ 8.85 Class B $ 1,000.00 $ 1,013.79 2.25% $ 11.36 Class C $ 1,000.00 $ 1,013.79 2.25% $ 11.36 - ------------------------------------------------------------------------------------------------- WESTWOOD MIGHTY MITES(SM) FUND - ------------------------------------------------------------------------------------------------- Actual Fund Return Class AAA $ 1,000.00 $ 1,071.10 1.50% $ 7.79 Class A $ 1,000.00 $ 1,069.80 1.75% $ 9.08 Class B $ 1,000.00 $ 1,067.40 2.25% $ 11.66 Class C $ 1,000.00 $ 1,067.00 2.25% $ 11.66 Hypothetical 5% Return Class AAA $ 1,000.00 $ 1,017.55 1.50% $ 7.59 Class A $ 1,000.00 $ 1,016.29 1.75% $ 8.85 Class B $ 1,000.00 $ 1,013.79 2.25% $ 11.36 Class C $ 1,000.00 $ 1,013.79 2.25% $ 11.36 * Expenses are equal to the Fund's annualized expense ratio for the last six months multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 365. PROXY VOTING Each Fund files Form N-PX with its complete proxy voting record for the 12 months ended June 30th, no later than August 31st of each year. A description of the Funds' proxy voting policies, procedures and how the Funds voted proxies relating to portfolio securities are available without charge, upon request, (i) by calling 800-GABELLI (800-422-3554); (ii) by writing to The Gabelli Funds at One Corporate Center, Rye, NY 10580-1422; and (iii) by visiting the Securities and Exchange Commission's website at www.sec.gov. 12 SUMMARY OF PORTFOLIO HOLDINGS (UNAUDITED) The following table presents portfolio holdings as a percent of total net assets: - -------------------------------------------------------------------------------- WESTWOOD EQUITY FUND - -------------------------------------------------------------------------------- Energy and Utilities: Oil ............................................. 12.9% Banking ............................................................... 11.1% Other Financial Services .............................................. 7.6% Diversified Industrial ................................................ 7.5% Brokerage ............................................................. 6.6% Telecommunications .................................................... 6.3% Energy and Utilities: Integrated ...................................... 5.1% U.S. Government Obligations ........................................... 4.0% Transportation ........................................................ 3.8% Consumer Products ..................................................... 3.7% Computer Software and Services ........................................ 3.7% Aerospace ............................................................. 3.5% Food and Beverage ..................................................... 2.6% Aviation: Parts and Services .......................................... 2.5% Specialty Chemicals ................................................... 2.5% Cable ................................................................. 2.5% Metals and Mining ..................................................... 2.5% Retail ................................................................ 2.5% Energy and Utilities: Natural Gas ..................................... 2.4% Computer Hardware ..................................................... 1.4% Paper and Forest Products ............................................. 1.3% Communications Equipment .............................................. 1.3% Agriculture ........................................................... 1.2% Hotels and Gaming ..................................................... 1.2% Other Assets and Liabilities (Net) .................................... 0.3% ----- 100.0% ===== - -------------------------------------------------------------------------------- WESTWOOD BALANCED FUND - -------------------------------------------------------------------------------- U.S. Government Obligations ........................................... 15.5% U.S. Government Agency Obligations .................................... 13.0% Energy and Utilities: Oil ............................................. 8.5% Banking ............................................................... 8.2% Diversified Industrial ................................................ 5.2% Brokerage ............................................................. 5.0% Telecommunications .................................................... 4.8% Other Financial Services .............................................. 4.5% Energy and Utilities: Integrated ...................................... 4.5% Retail ................................................................ 3.2% Consumer Products ..................................................... 2.3% Transportation ........................................................ 2.3% Food and Beverage ..................................................... 2.2% Computer Software and Services ........................................ 2.2% Aerospace ............................................................. 2.1% Computer Hardware ..................................................... 2.1% Paper and Forest Products ............................................. 1.5% Aviation: Parts and Services .......................................... 1.5% Specialty Chemicals ................................................... 1.5% Cable ................................................................. 1.5% Metals and Mining ..................................................... 1.4% Energy and Utilities: Natural Gas ..................................... 1.4% Foreign Government Bonds .............................................. 1.3% Real Estate Investment Trusts ......................................... 1.2% Communications Equipment .............................................. 0.8% Agriculture ........................................................... 0.7% Hotels and Gaming ..................................................... 0.7% Asset Backed Securities ............................................... 0.6% Other Assets and Liabilities (Net) .................................... 0.3% ----- 100.0% ===== - -------------------------------------------------------------------------------- WESTWOOD INTERMEDIATE BOND FUND - -------------------------------------------------------------------------------- Corporate Bonds ....................................................... 37.7% U.S. Government Agency Obligations .................................... 30.5% U.S. Government Obligations ........................................... 24.1% Foreign Government Bonds .............................................. 4.7% Asset Backed Securities ............................................... 2.2% Other Assets and Liabilities (Net) .................................... 0.8% ----- 100.0% ===== - -------------------------------------------------------------------------------- WESTWOOD SMALLCAP EQUITY FUND - -------------------------------------------------------------------------------- Financial Services .................................................... 14.0% Energy and Utilities .................................................. 11.7% Real Estate ........................................................... 10.8% Equipment and Supplies ................................................ 8.6% Health Care ........................................................... 6.0% Aerospace ............................................................. 4.9% Computer Software and Services ........................................ 4.9% Hotels and Gaming ..................................................... 4.1% Consumer Products ..................................................... 3.8% Telecommunications .................................................... 3.7% Transportation ........................................................ 3.0% Diversified Industrial ................................................ 3.0% Building and Construction ............................................. 2.9% Communications Equipment .............................................. 2.2% Metals and Mining ..................................................... 2.1% Business Services ..................................................... 2.1% Food and Beverage ..................................................... 2.0% Electronics ........................................................... 2.0% Paper and Forest Products ............................................. 1.9% Retail ................................................................ 1.7% Other Assets and Liabilities (Net)..................................... 4.6% ----- 100.0% ===== 13 SUMMARY OF PORTFOLIO HOLDINGS (CONTINUED) (UNAUDITED) - -------------------------------------------------------------------------------- WESTWOOD INCOME FUND - -------------------------------------------------------------------------------- Office Property ....................................................... 14.6% Apartments ............................................................ 13.7% Shopping Centers ...................................................... 10.3% Transportation ........................................................ 8.4% Financial Services .................................................... 8.3% Diversified Property .................................................. 8.3% Hotels ................................................................ 5.2% Telecommunications .................................................... 4.6% Health Care ........................................................... 3.9% Industrial Property ................................................... 3.4% Energy and Utilities: Oil ............................................. 2.5% Entertainment ......................................................... 2.4% Food and Beverage ..................................................... 2.4% Paper and Forest Products ............................................. 2.2% Energy and Utilities: Natural Gas ..................................... 2.0% Manufactured Housing .................................................. 1.8% Public Storage ........................................................ 1.2% Energy and Utilities: Electric ........................................ 0.8% Energy and Utilities: Integrated ...................................... 0.4% Other Assets and Liabilities (Net) .................................... 3.6% ----- 100.0% ===== - -------------------------------------------------------------------------------- WESTWOOD MIGHTY MITES(SM) FUND - -------------------------------------------------------------------------------- Financial Services .................................................... 13.7% Health Care ........................................................... 12.1% Manufactured Housing and Recreational Vehicles ........................ 8.6% Equipment and Supplies ................................................ 6.7% Diversified Industrial ................................................ 5.9% Broadcasting .......................................................... 5.1% Consumer Products ..................................................... 4.3% Automotive: Parts and Accessories ..................................... 3.8% Business Services ..................................................... 3.6% Telecommunications .................................................... 3.1% Electronics ........................................................... 3.1% Energy and Utilities: Natural Gas ..................................... 2.8% Real Estate ........................................................... 2.8% Computer Software and Services ........................................ 2.7% Food and Beverage ..................................................... 2.6% Energy and Utilities: Integrated ...................................... 2.3% Specialty Chemicals ................................................... 2.1% Energy and Utilities: Services ........................................ 2.0% Entertainment ......................................................... 1.9% Energy and Utilities: Water ........................................... 1.6% Aviation: Parts and Services .......................................... 1.5% Publishing ............................................................ 1.5% Educational Services .................................................. 1.0% Retail ................................................................ 0.7% Closed-End Funds ...................................................... 0.6% Building and Construction ............................................. 0.6% Energy and Utilities: Electric ........................................ 0.6% Paper and Forest Products ............................................. 0.5% Restaurants ........................................................... 0.5% Hotels and Gaming ..................................................... 0.4% Communications Equipment .............................................. 0.3% Agriculture ........................................................... 0.3% Transportation ........................................................ 0.2% Wireless Communications ............................................... 0.2% Cable ................................................................. 0.1% Consumer Services ..................................................... 0.0% Metals and Mining ..................................................... 0.0% Other Assets and Liabilities (Net) .................................... 0.2% ----- 100.0% ===== THE FUNDS FILE A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q, THE LAST OF WHICH WAS FILED FOR THE QUARTER ENDED JUNE 30, 2005. SHAREHOLDERS MAY OBTAIN THIS INFORMATION AT WWW.GABELLI.COM OR BY CALLING THE FUND AT 800-GABELLI (800-422-3554). THE FUNDS' FORM N-Q IS AVAILABLE ON THE SEC'S WEBSITE AT WWW.SEC.GOV AND MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING 1-800-SEC-0330. THE WESTWOOD INCOME (FORMERLY REALTY) FUND (THE "FUND") SHAREHOLDER MEETING (UNAUDITED) A Special Meeting of Shareholders of the Fund was held on June 24, 2005. The following proposal was submitted for a vote of the shareholders: TO APPROVE A CHANGE IN THE INVESTMENT OBJECTIVE OF THE FUND (THE "PROPOSAL"). The holders of 482,339 shares (83%) represented at the meeting voted in favor of the Proposal, 72,049 shares voted against the Proposal and 26,204 shares abstained. Effective July 18, 2005, the Fund's investment objective was changed "to provide a high level of current income as well as long-term capital appreciation. The Fund invests primarily in income producing equity and fixed income securities." Also, effective July 18, 2005, the Fund's name was changed from the "Westwood Realty Fund" to the "Westwood Income Fund," and the Fund's principal investment policies, strategies, and risks were changed to reflect a reorientation of the Fund to an income oriented strategy that emphasizes high current income over capital appreciation and permits the Fund to invest a significant portion of its assets in various types of income producing equity and fixed income securities, in addition to real estate investment trusts ("REITs"). 14 WESTWOOD EQUITY FUND SCHEDULE OF INVESTMENTS -- SEPTEMBER 30, 2005 - -------------------------------------------------------------------------------- MARKET SHARES COST VALUE - ---------- ------------ ------------ COMMON STOCKS -- 95.7% AEROSPACE -- 3.5% 32,900 Boeing Co. ......................... $ 1,207,023 $ 2,235,555 67,100 Lockheed Martin Corp. .............. 3,414,045 4,095,784 ------------ ------------ 4,621,068 6,331,339 ------------ ------------ AGRICULTURE -- 1.2% 43,000 Bunge Ltd. ......................... 2,427,157 2,262,660 ------------ ------------ AVIATION: PARTS AND SERVICES -- 2.5% 88,700 United Technologies Corp. .......... 2,866,488 4,598,208 ------------ ------------ BANKING -- 11.1% 106,800 Bank of America Corp. .............. 3,021,941 4,496,280 101,933 Citigroup Inc. ..................... 4,210,190 4,639,990 73,400 Comerica Inc. ...................... 4,388,522 4,323,260 131,684 JPMorgan Chase & Co. ............... 4,516,377 4,468,038 44,300 Wachovia Corp. ..................... 2,242,745 2,108,237 ------------ ------------ 18,379,775 20,035,805 ------------ ------------ BROKERAGE -- 6.6% 43,800 Bear Stearns Companies Inc. ........ 2,944,970 4,807,050 21,200 Legg Mason Inc. .................... 1,986,992 2,325,428 21,600 Lehman Brothers Holdings Inc. ...... 1,631,573 2,515,968 42,700 Morgan Stanley ..................... 2,482,681 2,303,238 ------------ ------------ 9,046,216 11,951,684 ------------ ------------ CABLE -- 2.5% 156,000 Comcast Corp., Cl. A, Special+ ..... 4,508,945 4,489,680 ------------ ------------ COMMUNICATIONS EQUIPMENT -- 1.3% 102,900 Motorola Inc. ...................... 1,719,630 2,273,061 ------------ ------------ COMPUTER HARDWARE -- 1.4% 31,000 International Business Machines Corp. ........................... 2,407,424 2,486,820 ------------ ------------ COMPUTER SOFTWARE AND SERVICES -- 3.7% 174,700 Microsoft Corp. .................... 4,717,462 4,495,031 181,400 Oracle Corp.+ ...................... 2,434,707 2,247,546 ------------ ------------ 7,152,169 6,742,577 ------------ ------------ CONSUMER PRODUCTS -- 3.7% 31,600 Altria Group Inc. .................. 1,335,232 2,329,236 84,200 Colgate-Palmolive Co. .............. 4,306,699 4,444,918 ------------ ------------ 5,641,931 6,774,154 ------------ ------------ DIVERSIFIED INDUSTRIAL -- 7.5% 70,000 Eaton Corp. ........................ 3,904,214 4,448,500 131,800 General Electric Co. ............... 3,838,679 4,437,706 41,800 ITT Industries Inc. ................ 3,464,108 4,748,480 ------------ ------------ 11,207,001 13,634,686 ------------ ------------ ENERGY AND UTILITIES: INTEGRATED -- 5.1% 57,200 Burlington Resources Inc. .......... 1,581,886 4,651,504 64,700 ConocoPhillips ..................... 1,998,757 4,523,177 ------------ ------------ 3,580,643 9,174,681 ------------ ------------ ENERGY AND UTILITIES: NATURAL GAS -- 2.4% 58,406 Apache Corp. ....................... 2,068,615 4,393,299 ------------ ------------ ENERGY AND UTILITIES: OIL -- 12.9% 74,100 Baker Hughes Inc. .................. 4,021,124 4,422,288 36,400 Chevron Corp. ...................... 1,643,942 2,356,172 83,700 Exxon Mobil Corp. .................. 3,687,215 5,318,298 64,200 Marathon Oil Corp. ................. 2,995,803 4,425,306 44,540 Murphy Oil Corp. ................... 1,861,706 2,221,210 54,200 Occidental Petroleum Corp. ......... 4,089,365 4,630,306 ------------ ------------ 18,299,155 23,373,580 ------------ ------------ MARKET SHARES COST VALUE - ---------- ------------ ------------ FOOD AND BEVERAGE -- 2.6% 60,300 Dean Foods Co.+ .................... $ 1,640,550 $ 2,343,258 48,000 General Mills Inc. ................. 2,220,066 2,313,600 ------------ ------------ 3,860,616 4,656,858 ------------ ------------ HOTELS AND GAMING -- 1.2% 37,200 Starwood Hotels & Resorts Worldwide Inc. .................. 1,687,802 2,126,724 ------------ ------------ METALS AND MINING -- 2.5% 34,200 Phelps Dodge Corp. ................. 3,054,272 4,443,606 ------------ ------------ OTHER FINANCIAL SERVICES -- 7.6% 81,400 American Express Co. ............... 3,075,284 4,675,616 87,100 Eaton Vance Corp. .................. 1,603,129 2,161,822 54,100 Franklin Resources Inc. ............ 3,593,507 4,542,236 35,000 Prudential Financial Inc. .......... 1,198,162 2,364,600 ------------ ------------ 9,470,082 13,744,274 ------------ ------------ PAPER AND FOREST PRODUCTS -- 1.3% 39,828 Rayonier Inc. ...................... 1,548,243 2,294,890 ------------ ------------ RETAIL -- 2.5% 33,500 Federated Department Stores Inc. ... 1,666,032 2,240,145 17,691 Sears Holdings Corp.+ .............. 2,289,971 2,201,114 ------------ ------------ 3,956,003 4,441,259 ------------ ------------ SPECIALTY CHEMICALS -- 2.5% 58,100 E.I. du Pont de Nemours and Co. .... 2,687,179 2,275,777 38,600 PPG Industries Inc. ................ 2,437,149 2,284,734 ------------ ------------ 5,124,328 4,560,511 ------------ ------------ TELECOMMUNICATIONS -- 6.3% 68,900 ALLTEL Corp. ....................... 3,764,132 4,486,079 56,600 Harris Corp. ....................... 1,636,410 2,365,880 138,604 Verizon Communications Inc. ........ 5,228,439 4,530,965 ------------ ------------ 10,628,981 11,382,924 ------------ ------------ TRANSPORTATION -- 3.8% 80,900 Burlington Northern Santa Fe Corp. ........................... 3,650,045 4,837,820 36,000 Overseas Shipholding Group Inc. .... 2,070,141 2,099,880 ------------ ------------ 5,720,186 6,937,700 ------------ ------------ TOTAL COMMON STOCKS ................ 138,976,730 173,110,980 ------------ ------------ PRINCIPAL AMOUNT - ---------- U.S. GOVERNMENT OBLIGATIONS -- 4.0% U.S. TREASURY BILLS -- 4.0% $7,200,000 U.S. Treasury Bills, 3.320% to 3.440%++, 10/06/05 to 12/15/05 ............. 7,175,207 7,176,146 ------------ ------------ TOTAL U.S. GOVERNMENT OBLIGATIONS ...................... 7,175,207 7,176,146 ------------ ------------ TOTAL INVESTMENTS -- 99.7% ......... $146,151,937 180,287,126 ============ OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.3% ..... 553,354 ------------ NET ASSETS -- 100.0% .............................. $180,840,480 ============ - ---------- + Non-income producing security. ++ Represents annualized yield at date of purchase. See accompanying notes to financial statements. 15 WESTWOOD BALANCED FUND SCHEDULE OF INVESTMENTS -- SEPTEMBER 30, 2005 - -------------------------------------------------------------------------------- MARKET SHARES COST VALUE - ---------- ------------ ------------ COMMON STOCKS -- 59.3% AEROSPACE -- 2.1% 16,300 Boeing Co. ......................... $ 615,357 $ 1,107,585 33,800 Lockheed Martin Corp. .............. 1,733,514 2,063,152 ------------ ------------ 2,348,871 3,170,737 ------------ ------------ AGRICULTURE -- 0.7% 21,100 Bunge Ltd. ......................... 1,188,369 1,110,282 ------------ ------------ AVIATION: PARTS AND SERVICES -- 1.5% 43,900 United Technologies Corp. .......... 1,337,007 2,275,776 ------------ ------------ BANKING -- 6.5% 52,400 Bank of America Corp. .............. 1,616,086 2,206,040 48,733 Citigroup Inc. ..................... 1,809,374 2,218,326 36,900 Comerica Inc. ...................... 2,183,185 2,173,410 64,596 JPMorgan Chase & Co. ............... 2,269,218 2,191,742 21,800 Wachovia Corp. ..................... 1,103,630 1,037,462 ------------ ------------ 8,981,493 9,826,980 ------------ ------------ BROKERAGE -- 4.0% 21,800 Bear Stearns Companies Inc. ........ 1,508,619 2,392,550 10,800 Legg Mason Inc. .................... 992,210 1,184,652 11,800 Lehman Brothers Holdings Inc. ...... 865,791 1,374,464 21,400 Morgan Stanley. .................... 1,238,111 1,154,316 ------------ ------------ 4,604,731 6,105,982 ------------ ------------ CABLE -- 1.5% 76,500 Comcast Corp., Cl. A Special+ ...... 2,205,211 2,201,670 ------------ ------------ COMMUNICATIONS EQUIPMENT -- 0.8% 54,000 Motorola Inc. ...................... 850,251 1,192,860 ------------ ------------ COMPUTER HARDWARE -- 0.8% 14,700 International Business Machines Corp. ........................... 1,016,809 1,179,234 ------------ ------------ COMPUTER SOFTWARE AND SERVICES -- 2.2% 85,600 Microsoft Corp. .................... 2,297,362 2,202,488 89,200 Oracle Corp.+ ...................... 1,201,149 1,105,188 ------------ ------------ 3,498,511 3,307,676 ------------ ------------ CONSUMER PRODUCTS -- 2.3% 17,000 Altria Group Inc. .................. 695,986 1,253,070 43,200 Colgate-Palmolive Co. .............. 2,215,540 2,280,528 ------------ ------------ 2,911,526 3,533,598 ------------ ------------ DIVERSIFIED INDUSTRIAL -- 4.4% 33,600 Eaton Corp. ........................ 1,963,109 2,135,280 65,700 General Electric Co. ............... 1,839,055 2,212,119 20,500 ITT Industries Inc. ................ 1,692,593 2,328,800 ------------ ------------ 5,494,757 6,676,199 ------------ ------------ ENERGY AND UTILITIES: INTEGRATED -- 4.5% 28,100 Burlington Resources Inc. .......... 817,858 2,285,092 31,700 ConocoPhillips ..................... 1,017,957 2,216,147 42,300 Kinder Morgan Energy Partners LP. .. 1,704,470 2,235,555 ------------ ------------ 3,540,285 6,736,794 ------------ ------------ ENERGY AND UTILITIES: NATURAL GAS -- 1.4% 28,680 Apache Corp. ....................... 1,133,694 2,157,310 ------------ ------------ MARKET SHARES COST VALUE - ---------- ------------ ------------ ENERGY AND UTILITIES: OIL -- 7.9% 36,200 Baker Hughes Inc. .................. $ 1,958,000 $ 2,160,416 19,300 Chevron Corp. ...................... 845,975 1,249,289 44,000 Exxon Mobil Corp. .................. 1,810,786 2,795,760 31,500 Marathon Oil Corp. ................. 1,485,116 2,171,295 21,886 Murphy Oil Corp. ................... 900,079 1,091,455 28,300 Occidental Petroleum Corp. ......... 2,133,437 2,417,669 ------------ ------------ 9,133,393 11,885,884 ------------ ------------ FOOD AND BEVERAGE -- 1.6% 32,200 Dean Foods Co.+ .................... 852,391 1,251,292 23,600 General Mills Inc. ................. 1,087,123 1,137,520 ------------ ------------ 1,939,514 2,388,812 ------------ ------------ HOTELS AND GAMING -- 0.7% 18,000 Starwood Hotels & Resorts Worldwide Inc. .................. 816,139 1,029,060 ------------ ------------ METALS AND MINING -- 1.4% 16,800 Phelps Dodge Corp. ................. 1,503,336 2,182,824 ------------ ------------ OTHER FINANCIAL SERVICES -- 4.5% 41,000 American Express Co. ............... 1,545,897 2,355,040 44,800 Eaton Vance Corp. .................. 810,723 1,111,936 27,200 Franklin Resources Inc. ............ 1,807,321 2,283,712 16,600 Prudential Financial Inc. .......... 535,762 1,121,496 ------------ ------------ 4,699,703 6,872,184 ------------ ------------ PAPER AND FOREST PRODUCTS -- 1.5% 19,978 Rayonier Inc. ...................... 799,611 1,151,133 29,000 Temple-Inland Inc. ................. 826,239 1,184,650 ------------ ------------ 1,625,850 2,335,783 ------------ ------------ RETAIL -- 1.4% 16,400 Federated Department Stores Inc. ... 851,045 1,096,668 8,741 Sears Holdings Corp.+ .............. 1,135,534 1,087,555 ------------ ------------ 1,986,579 2,184,223 ------------ ------------ SPECIALTY CHEMICALS -- 1.5% 28,300 E.I. du Pont de Nemours and Co. .... 1,314,159 1,108,511 18,800 PPG Industries Inc. ................ 1,188,512 1,112,772 ------------ ------------ 2,502,671 2,221,283 ------------ ------------ TELECOMMUNICATIONS -- 3.8% 36,900 ALLTEL Corp. ....................... 2,018,143 2,402,559 27,800 Harris Corp. ....................... 762,087 1,162,040 67,938 Verizon Communications Inc. ........ 2,495,183 2,220,893 ------------ ------------ 5,275,413 5,785,492 ------------ ------------ TRANSPORTATION -- 2.3% 40,300 Burlington Northern Santa Fe Corp. ........................... 1,754,258 2,409,940 17,900 Overseas Shipholding Group Inc. .... 1,027,443 1,044,107 ------------ ------------ 2,781,701 3,454,047 ------------ ------------ TOTAL COMMON STOCKS ................ 71,375,814 89,814,690 ------------ ------------ See accompanying notes to financial statements. 16 WESTWOOD BALANCED FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2005 - -------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COST VALUE - ---------- ------------ ------------ ASSET BACKED SECURITIES -- 0.6% $ 825,000 GS Mortgage Securities Corp. II, 97-GL Cl. A2D, 6.940%, 07/13/30 ................ $ 832,240 $ 853,875 ------------ ------------ CORPORATE BONDS -- 10.0% COMPUTER HARDWARE -- 1.3% 750,000 Hewlett-Packard Co., 3.625%, 03/15/08 ................ 748,815 733,667 1,250,000 IBM Corp., 4.875%, 10/01/06 ................ 1,274,007 1,255,750 ------------ ------------ 2,022,822 1,989,417 ------------ ------------ DIVERSIFIED INDUSTRIAL -- 0.8% 1,200,000 General Electric Co., 5.000%, 02/01/13 ................ 1,213,651 1,211,816 ------------ ------------ ENERGY AND UTILITIES: OIL -- 0.6% 1,005,000 Occidental Petroleum Corp., 4.250%, 03/15/10 ................ 1,007,498 986,361 ------------ ------------ BANKING -- 1.7% 1,250,000 Bank of America Corp., 5.375%, 06/15/14 ................ 1,303,990 1,289,873 1,125,000 Citigroup Inc., 6.500%, 01/18/11 ................ 1,237,909 1,214,288 ------------ ------------ 2,541,899 2,504,161 ------------ ------------ BROKERAGE -- 1.0% 1,450,000 Goldman Sachs Group Inc., 6.650%, 05/15/09 ................ 1,459,195 1,540,458 ------------ ------------ FOOD AND BEVERAGE -- 0.6% 950,000 Anheuser-Busch Cos. Inc., 4.375%, 01/15/13 ................ 935,510 931,113 ------------ ------------ REAL ESTATE INVESTMENT TRUSTS -- 1.2% 1,600,000 Archstone-Smith Trust, 7.200%, 03/01/13 ................ 1,556,161 1,769,072 ------------ ------------ RETAIL -- 1.8% 1,275,000 Neiman Marcus Group Inc., 6.650%, 06/01/08 ................ 1,274,517 1,331,113 1,250,000 Wal-Mart Stores, 6.875%, 08/10/09 ................ 1,305,486 1,347,456 ------------ ------------ 2,580,003 2,678,569 ------------ ------------ TELECOMMUNICATIONS -- 1.0% 1,460,000 Verizon Communications, Deb., 6.460%, 04/15/08 ................ 1,465,910 1,524,795 ------------ ------------ TOTAL CORPORATE BONDS .............. 14,782,649 15,135,762 ------------ ------------ FOREIGN GOVERNMENT BONDS -- 1.3% 1,000,000 Canadian Government Global Bond, 6.750%, 08/28/06 ................ 1,010,220 1,021,957 1,000,000 Republic of Italy Global Bond, 2.500%, 03/31/06 ................ 999,840 992,547 ------------ ------------ TOTAL FOREIGN GOVERNMENT BONDS ..... 2,010,060 2,014,504 ------------ ------------ PRINCIPAL MARKET AMOUNT COST VALUE - ---------- ------------ ------------ U.S. GOVERNMENT AGENCY OBLIGATIONS -- 13.0% FEDERAL HOME LOAN BANK -- 3.3% $1,500,000 2.875%, 08/15/06 ................ $ 1,488,842 $ 1,481,778 1,500,000 3.375%, 02/23/07 ................ 1,492,875 1,480,230 2,000,000 Zero Coupon, 12/15/05 ........... 1,984,792 1,984,812 ------------ ------------ 4,966,509 4,946,820 ------------ ------------ FEDERAL HOME LOAN MORTGAGE CORP. -- 6.4% 1,000,000 5.500%, 07/15/06 ................ 1,017,678 1,009,120 2,000,000 3.500%, 09/15/07 ................ 2,013,200 1,970,066 1,200,000 4.250%, 07/15/09 ................ 1,212,338 1,190,739 600,000 4.750%, 12/08/10 ................ 599,132 600,290 1,250,000 5.000%, 07/15/14 ................ 1,297,712 1,283,819 2,000,000 Zero Coupon, 10/11/05 ........... 1,998,339 1,998,339 1,750,000 Zero Coupon, 01/17/06 ........... 1,730,313 1,730,342 ------------ ------------ 9,868,712 9,782,715 ------------ ------------ FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 3.3% 1,000,000 2.625%, 11/15/06 ................ 998,568 981,263 2,500,000 4.375%, 03/15/13 ................ 2,477,382 2,471,355 1,500,000 5.000%, 04/15/15 ................ 1,576,752 1,545,816 ------------ ------------ 5,052,702 4,998,434 ------------ ------------ TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS ..................... 19,887,923 19,727,969 ------------ ------------ U.S. GOVERNMENT OBLIGATIONS -- 15.5% U.S. INFLATION INDEX NOTES -- 1.0% 1,500,000 0.875%, 04/15/10 ................ 1,546,501 1,507,870 ------------ ------------ U.S. TREASURY BILLS -- 3.9% 5,900,000 U.S. Treasury Bills, 3.320% to 3.340%++, 10/06/05 to 12/15/05 ............ 5,877,610 5,878,109 ------------ ------------ U.S. TREASURY NOTES -- 10.6% 1,000,000 1.625%, 10/31/05 ................ 999,523 999,523 1,600,000 5.750%, 11/15/05 ................ 1,602,897 1,602,897 2,250,000 2.250%, 04/30/06 ................ 2,236,394 2,228,555 2,725,000 3.500%, 11/15/06 ................ 2,726,691 2,707,012 750,000 3.375%, 02/28/07 ................ 745,343 742,032 1,000,000 3.625%, 04/30/07 ................ 998,793 991,876 1,250,000 3.375%, 12/15/08 ................ 1,235,901 1,219,776 2,500,000 4.750%, 05/15/14 ................ 2,531,786 2,576,368 1,000,000 4.000%, 02/15/15 ................ 1,003,857 973,751 2,000,000 4.250%, 08/15/15 ................ 1,994,065 1,988,126 ------------ ------------ 16,075,250 16,029,916 ------------ ------------ TOTAL U.S. GOVERNMENT OBLIGATIONS .. 23,499,361 23,415,895 ------------ ------------ TOTAL INVESTMENTS -- 99.7% ......... $132,388,047 150,962,695 ============ OTHER ASSETS AND LIABILITIES (NET) -- 0.3% ........ 387,199 ------------ NET ASSETS -- 100.0% .............................. $151,349,894 ============ - ---------- + Non-income producing security. ++ Represents annualized yield at date of purchase. See accompanying notes to financial statements. 17 WESTWOOD INTERMEDIATE BOND FUND SCHEDULE OF INVESTMENTS -- SEPTEMBER 30, 2005 - -------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COST VALUE - ---------- ------------ ------------ ASSET BACKED SECURITIES -- 2.2% $ 225,000 GS Mortgage Securities Corp. II, 97-GL Cl. A2D, 6.940%, 07/13/30 ................ $ 231,376 $ 232,875 ------------ ------------ CORPORATE BONDS -- 37.7% COMPUTER HARDWARE -- 5.3% 325,000 Hewlett-Packard Co., 3.625%, 03/15/08 ................ 325,698 317,922 250,000 IBM Corp., 4.875%, 10/01/06 ................ 253,255 251,150 ------------ ------------ 578,953 569,072 ------------ ------------ DIVERSIFIED INDUSTRIAL -- 2.4% 250,000 General Electric Co., 5.000%, 02/01/13 ................ 252,844 252,462 ------------ ------------ ENERGY AND UTILITIES: OIL -- 4.1% 225,000 Chevron Corp., 3.375%, 02/15/08 ................ 225,856 219,344 225,000 Occidental Petroleum Corp., 4.250%, 03/15/10 ................ 225,000 220,827 ------------ ------------ 450,856 440,171 ------------ ------------ FINANCIAL SERVICES -- 15.9% 300,000 Bank of America Corp., 5.375%, 06/15/14 ................ 312,958 309,569 225,000 Bear Stearns Co. Inc., 2.875%, 07/02/08 ................ 217,283 214,957 225,000 Citigroup Inc., 6.500%, 01/18/11 ................ 247,225 242,858 300,000 Goldman Sachs Group Inc., 6.650%, 05/15/09 ................ 308,945 318,716 260,000 International Bank for Reconstruction & Development, 8.625%, 10/15/16 ................ 322,369 347,571 275,000 Merrill Lynch & Co. Inc., 5.000%, 01/15/15 ................ 275,242 274,012 ------------ ------------ 1,684,022 1,707,683 ------------ ------------ FOOD AND BEVERAGE -- 2.3% 250,000 Anheuser-Busch Cos. Inc., 4.375%, 01/15/13 ................ 246,196 245,030 ------------ ------------ REAL ESTATE -- 1.6% 150,000 Archstone-Smith Trust, 7.200%, 03/01/13 ................ 146,220 165,850 ------------ ------------ RETAIL -- 4.9% 300,000 Neiman Marcus Group Inc., 6.650%, 06/01/08 ................ 311,292 313,203 200,000 Wal-Mart Stores, 6.875%, 08/10/09 ................ 208,878 215,593 ------------ ------------ 520,170 528,796 ------------ ------------ PRINCIPAL MARKET AMOUNT COST VALUE - ---------- ------------ ------------ TELECOMMUNICATIONS -- 1.2% $ 125,000 Verizon Communications, Deb., 6.460%, 04/15/08 ................ $ 126,077 $ 130,547 ------------ ------------ TOTAL CORPORATE BONDS .............. 4,005,338 4,039,611 ------------ ------------ FOREIGN GOVERNMENT BONDS -- 4.7% 175,000 Canadian Government Global Bond, 6.750%, 08/28/06 ................ 175,396 178,843 325,000 Republic of Italy Global Bond, 2.500%, 03/31/06 ................ 325,129 322,578 ------------ ------------ TOTAL FOREIGN GOVERNMENT BONDS ................ 500,525 501,421 ------------ ------------ U.S. GOVERNMENT AGENCY OBLIGATIONS -- 30.5% FEDERAL HOME LOAN BANK -- 5.8% 250,000 2.875%, 08/15/06 ................ 248,140 246,963 375,000 Zero Coupon, 12/15/05 ........... 372,149 372,152 ------------ ------------ 620,289 619,115 ------------ ------------ FEDERAL HOME LOAN MORTGAGE CORP. -- 10.4% 250,000 3.750%, 04/15/07 ................ 249,063 247,858 300,000 3.500%, 09/15/07 ................ 297,144 295,510 150,000 4.250%, 07/15/09 ................ 151,542 148,842 150,000 Zero Coupon, 10/11/05 ........... 149,876 149,876 275,000 Zero Coupon, 01/17/06 ........... 271,906 271,911 ------------ ------------ 1,119,531 1,113,997 ------------ ------------ FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 7.4% 200,000 2.000%, 01/15/06 ................ 199,704 198,867 300,000 4.375%, 03/15/13 ................ 298,041 296,562 177,808 5.500%, 01/01/35 ................ 181,009 177,876 125,000 Zero Coupon, 11/10/05 ........... 124,510 124,510 ------------ ------------ 803,264 797,815 ------------ ------------ GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 6.9% 14,962 GNMA, Pool #580871, 6.500%, 12/15/31 ................ 15,009 15,577 130,013 GNMA, Pool #562288, 6.000%, 12/15/33 ................ 132,847 133,236 209,797 GNMA, Pool #604946, 5.500%, 01/15/34 ................ 213,237 211,914 175,999 GNMA, Pool #604970, 5.500%, 01/15/34 ................ 178,341 177,775 199,652 GNMA, Pool #003747, 5.000%, 08/20/35 ................ 197,781 197,125 ------------ ------------ 737,215 735,627 ------------ ------------ TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS .............. 3,280,299 3,266,554 ------------ ------------ See accompanying notes to financial statements. 18 WESTWOOD INTERMEDIATE BOND FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2005 - -------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COST VALUE - ---------- ------------ ------------ U.S. GOVERNMENT OBLIGATIONS -- 24.1% U.S. INFLATION INDEX NOTES -- 2.6% $ 275,000 0.875%, 04/15/10 ................ $ 283,524 $ 276,443 ------------ ------------ U.S. TREASURY BONDS -- 8.5% 250,000 7.125%, 02/15/23 ................ 310,580 324,453 300,000 6.125%, 11/15/27 ................ 308,968 362,075 200,000 5.500%, 08/15/28 ................ 219,115 224,781 ------------ ------------ 838,663 911,309 ------------ ------------ U.S. TREASURY NOTES -- 13.0% 225,000 1.625%, 10/31/05 ................ 224,786 224,786 275,000 2.250%, 04/30/06 ................ 273,331 272,379 225,000 3.375%, 02/28/07 ................ 224,399 222,610 200,000 3.625%, 04/30/07 ................ 199,759 198,375 200,000 4.750%, 05/15/14 ................ 206,741 206,110 275,000 4.250%, 08/15/15 ................ 274,184 273,367 ------------ ------------ 1,403,200 1,397,627 ------------ ------------ TOTAL U.S. GOVERNMENT OBLIGATIONS .......... 2,525,387 2,585,379 ------------ ------------ MARKET SHARES COST VALUE - ---------- ------------ ------------ WARRANTS -- 0.0% ENERGY AND UTILITIES -- 0.0% 8 Forman Petroleum Corp., Series A, expire 01/14/07+ (a)(b) ......... $ 0 $ 0 25 Forman Petroleum Corp., Series B, expire 01/14/07+ (a)(b) ......... 0 0 25 Forman Petroleum Corp., Series C, expire 01/14/07+ (a)(b) ......... 0 0 25 Forman Petroleum Corp., Series D, expire 01/14/07+ (a)(b) ......... 0 0 ------------ ------------ 0 0 ------------ ------------ TOTAL WARRANTS ..................... 0 0 ------------ ------------ TOTAL INVESTMENTS -- 99.2% ......... $ 10,542,925 10,625,840 ============ OTHER ASSETS AND LIABILITIES (NET) -- 0.8% ........ 84,821 ------------ NET ASSETS -- 100.0% .............................. $ 10,710,661 ============ - ----------------- (a) Security fair valued under procedures established by the Board of Trustees. The procedures may include reviewing available financial information about the company and reviewing valuation of comparable securities and other factors on a regular basis. At September 30, 2005, the market value of fair valued securities amounted to $0 or 0.00% of total net assets. (b) Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At September 30, 2005, the market value of Rule 144A securities amounted to $0 or 0.00% of total net assets. + Non-income producing security. See accompanying notes to financial statements. 19 WESTWOOD SMALLCAP EQUITY FUND SCHEDULE OF INVESTMENTS -- SEPTEMBER 30, 2005 - -------------------------------------------------------------------------------- MARKET SHARES COST VALUE - ---------- ------------ ------------ COMMON STOCKS -- 95.4% AEROSPACE -- 4.9% 3,700 DRS Technologies Inc. .............. $ 137,197 $ 182,632 4,800 K&F Industries Holdings Inc.+ ...... 85,304 80,304 5,800 Moog Inc., Cl. A+ .................. 144,848 171,216 ------------ ------------ 367,349 434,152 ------------ ------------ BUILDING AND CONSTRUCTION -- 2.9% 3,600 Layne Christensen Co.+ ............. 84,406 84,780 3,200 Washington Group International Inc.+ 132,323 172,448 ------------ ------------ 216,729 257,228 ------------ ------------ BUSINESS SERVICES -- 2.1% 4,500 URS Corp.+ ......................... 137,843 181,755 ------------ ------------ COMMUNICATIONS EQUIPMENT -- 2.2% 5,600 Thomas & Betts Corp.+ .............. 158,391 192,696 ------------ ------------ COMPUTER SOFTWARE AND SERVICES -- 4.9% 1,900 Hyperion Solutions Corp.+ .......... 69,520 92,435 6,100 ManTech International Corp., Cl. A+ 173,907 161,101 5,800 SI International Inc.+ ............. 156,071 179,626 ------------ ------------ 399,498 433,162 ------------ ------------ CONSUMER PRODUCTS -- 3.8% 3,800 Arctic Cat Inc. .................... 84,509 78,052 4,500 Knoll Inc. ......................... 67,500 82,575 14,100 Prestige Brands Holdings Inc.+ ..... 213,118 173,712 ------------ ------------ 365,127 334,339 ------------ ------------ DIVERSIFIED INDUSTRIAL -- 3.0% 3,600 Kennametal Inc. .................... 155,013 176,544 3,200 Oregon Steel Mills Inc.+ ........... 68,857 89,280 ------------ ------------ 223,870 265,824 ------------ ------------ ELECTRONICS -- 2.0% 5,900 Benchmark Electronics Inc.+ ........ 210,747 177,708 ------------ ------------ ENERGY AND UTILITIES -- 11.7% 2,900 Atmos Energy Corp. ................. 79,458 81,925 5,000 Foundation Coal Holdings Inc. ...... 122,500 192,250 2,600 Houston Exploration Co.+ ........... 139,418 174,850 4,500 Remington Oil & Gas Corp.+ ......... 143,915 186,750 2,000 Spinnaker Exploration Co.+ ......... 70,346 129,380 3,300 Unit Corp.+ ........................ 133,990 182,424 3,500 Westar Energy Inc. ................. 71,552 84,455 ------------ ------------ 761,179 1,032,034 ------------ ------------ EQUIPMENT AND SUPPLIES -- 8.6% 6,100 Greenbrier Companies Inc. .......... 166,139 202,764 3,900 IDEX Corp. ......................... 164,634 165,945 2,700 Middleby Corp.+ .................... 146,099 195,750 4,900 Titanium Metals Corp.+ ............. 132,043 193,844 ------------ ------------ 608,915 758,303 ------------ ------------ FINANCIAL SERVICES -- 14.0% 6,647 Baldwin & Lyons Inc., Cl. B ........ 171,238 166,375 4,300 BKF Capital Group Inc. ............. 121,433 132,999 MARKET SHARES COST VALUE - ---------- ------------ ------------ 6,300 Boston Private Financial Holdings Inc. ............................ $ 150,807 $ 167,202 3,400 Calamos Asset Management Inc., Cl. A ........................... 74,631 83,912 5,000 Cathay General Bancorp ............. 168,456 177,300 5,000 Provident Bankshares Corp. ......... 160,780 173,900 11,800 Republic Bancorp Inc. .............. 158,750 166,852 3,300 State National Bancshares Inc.+ .... 87,611 85,800 2,300 Stifel Financial Corp.+ ............ 82,000 82,570 ------------ ------------ 1,175,706 1,236,910 ------------ ------------ FOOD AND BEVERAGE -- 2.0% 3,100 J & J Snack Foods Corp. ............ 119,010 179,180 ------------ ------------ HEALTH CARE -- 6.0% 3,800 Orthofix International NV+ ......... 172,120 165,680 4,600 Sybron Dental Specialties Inc.+ .... 130,323 191,268 7,300 Symmetry Medical Inc.+ ............. 130,702 173,010 ------------ ------------ 433,145 529,958 ------------ ------------ HOTELS AND GAMING -- 4.1% 9,100 Marcus Corp. ....................... 179,695 182,364 6,300 Orient-Express Hotels Ltd., Cl. A .. 165,552 179,046 ------------ ------------ 345,247 361,410 ------------ ------------ METALS AND MINING -- 2.1% 2,100 Cleveland-Cliffs Inc. .............. 149,623 182,931 ------------ ------------ PAPER AND FOREST PRODUCTS -- 1.9% 8,800 Longview Fibre Co. ................. 115,533 171,512 ------------ ------------ REAL ESTATE -- 10.8% 1,900 EastGroup Properties Inc. .......... 61,872 83,125 3,100 Getty Realty Corp. ................. 75,079 89,218 2,300 Heritage Property Investment Trust ........................... 62,630 80,500 5,300 LaSalle Hotel Properties ........... 146,756 182,585 3,800 Lexington Corporate Properties Trust 85,885 89,490 4,500 Post Properties Inc. ............... 150,949 167,625 3,000 Ramco-Gershenson Properties Trust .. 74,877 87,570 7,200 Sunstone Hotel Investors Inc. ...... 172,041 175,608 ------------ ------------ 830,089 955,721 ------------ ------------ RETAIL -- 1.7% 7,100 Pacific Sunwear of California Inc.+ 168,820 152,224 ------------ ------------ TELECOMMUNICATIONS -- 3.7% 16,076 General Communication Inc., Cl. A+ .......................... 161,399 159,152 12,400 Valor Communications Group Inc. .... 178,080 169,012 ------------ ------------ 339,479 328,164 ------------ ------------ TRANSPORTATION -- 3.0% 7,400 Arlington Tankers Ltd. ............. 168,771 173,382 2,300 Freightcar America Inc. ............ 47,733 93,794 ------------ ------------ 216,504 267,176 ------------ ------------ TOTAL COMMON STOCKS ................ 7,342,804 8,432,387 ------------ ------------ TOTAL INVESTMENTS -- 95.4% ......... $ 7,342,804 8,432,387 ============ OTHER ASSETS AND LIABILITIES (NET) -- 4.6% ........ 410,677 ------------ NET ASSETS -- 100.0% .............................. $ 8,843,064 ============ - ---------- + Non-income producing security. See accompanying notes to financial statements. 20 WESTWOOD INCOME FUND SCHEDULE OF INVESTMENTS -- SEPTEMBER 30, 2005 - -------------------------------------------------------------------------------- MARKET SHARES COST VALUE - ---------- ------------ ------------ COMMON STOCKS -- 87.0% APARTMENTS -- 13.7% 8,382 Archstone-Smith Trust .............. $ 198,011 $ 334,190 3,900 BRE Properties Inc., Cl. A ......... 124,154 173,550 7,593 Camden Property Trust .............. 267,157 423,310 10,700 Equity Residential ................. 301,353 404,995 3,900 Gables Residential Trust ........... 148,875 170,235 3,800 Home Properties Inc. ............... 125,486 149,150 3,500 Mid-America Apartment Communities Inc. ............................ 94,315 162,785 6,700 Post Properties Inc. ............... 194,547 249,575 6,800 United Dominion Realty Trust Inc. .. 119,552 161,160 ------------ ------------ 1,573,450 2,228,950 ------------ ------------ DIVERSIFIED PROPERTY -- 8.3% 3,700 Colonial Properties Trust .......... 125,196 164,576 10,366 Duke Realty Corp. .................. 267,265 351,200 6,500 First Potomac Realty Trust ......... 129,453 167,050 6,000 Getty Realty Corp. ................. 119,892 172,680 6,800 Lexington Corporate Properties Trust ........................... 112,174 160,140 7,800 Liberty Property Trust ............. 236,291 331,812 ------------ ------------ 990,271 1,347,458 ------------ ------------ ENERGY AND UTILITIES: INTEGRATED -- 0.2% 1,000 Hawaiian Electric Industries Inc. .. 26,804 27,880 ------------ ------------ ENERGY AND UTILITIES: NATURAL GAS -- 2.0% 6,400 Enterprise Products Partners LP .... 160,447 161,152 3,500 Northern Border Partners LP ........ 181,518 167,475 ------------ ------------ 341,965 328,627 ------------ ------------ ENERGY AND UTILITIES: OIL -- 2.5% 4,000 Cross Timbers Royalty Trust ........ 169,317 217,200 4,000 San Juan Basin Royalty Trust ....... 172,701 195,200 ------------ ------------ 342,018 412,400 ------------ ------------ ENTERTAINMENT -- 2.3% 18,700 Regal Entertainment Group, Cl. A ... 384,083 374,748 ------------ ------------ FINANCIAL SERVICES -- 1.5% 1,000 Alliance Capital Management Holding LP .............................. 45,830 47,850 7,000 U.S. Bancorp ...................... 211,895 196,560 ------------ ------------ 257,725 244,410 ------------ ------------ FOOD AND BEVERAGE -- 2.4% 19,400 Reddy Ice Holdings Inc. ............ 393,497 397,894 ------------ ------------ HEALTH CARE -- 2.9% 12,000 Health Care Property Investors Inc. ............................ 229,761 323,880 4,300 Universal Health Realty Income Trust ........................... 126,245 142,975 ------------ ------------ 356,006 466,855 ------------ ------------ MARKET SHARES COST VALUE - ---------- ------------ ------------ HOTELS -- 5.2% 5,900 Hospitality Properties Trust ....... $ 217,852 $ 252,874 5,300 LaSalle Hotel Properties ........... 103,940 182,585 4,200 Starwood Hotels & Resorts Worldwide Inc. ............................ 112,500 240,114 7,000 Sunstone Hotel Investors Inc. ...... 154,250 170,730 ------------ ------------ 588,542 846,303 ------------ ------------ INDUSTRIAL PROPERTY -- 3.4% 5,700 AMB Property Corp. ................. 177,143 255,930 3,700 EastGroup Properties Inc. .......... 126,213 161,875 3,023 ProLogis ........................... 132,339 133,949 ------------ ------------ 435,695 551,754 ------------ ------------ MANUFACTURED HOUSING -- 1.8% 6,700 Equity Lifestyle Properties Inc. ... 219,640 301,500 ------------ ------------ OFFICE PROPERTY -- 14.6% 4,500 Arden Realty Inc. .................. 102,397 185,265 5,300 Brandywine Realty Trust ............ 125,059 164,777 4,500 CarrAmerica Realty Corp. ........... 128,399 161,775 8,000 Cousins Properties Inc. ............ 218,765 241,760 8,800 Crescent Real Estate Equities Co. .. 134,851 180,488 14,684 Equity Office Properties Trust ..... 410,249 480,314 5,400 Highwoods Properties Inc. .......... 108,702 159,354 5,400 Mack-Cali Realty Corp. ............. 183,721 242,676 9,500 Maguire Properties Inc. ............ 231,678 285,475 7,000 Prentiss Properties Trust .......... 201,050 284,200 ------------ ------------ 1,844,871 2,386,084 ------------ ------------ PAPER AND FOREST PRODUCTS -- 2.2% 4,800 Plum Creek Timber Co. Inc. ......... 117,470 181,968 3,188 Rayonier Inc. ...................... 130,801 183,692 ------------ ------------ 248,271 365,660 ------------ ------------ PUBLIC STORAGE -- 1.2% 3,900 Sovran Self Storage Inc. ........... 105,891 190,905 ------------ ------------ SHOPPING CENTERS -- 10.0% 9,600 General Growth Properties Inc. ..... 256,857 431,328 4,600 Heritage Property Investment Trust ........................... 129,085 161,000 5,700 Ramco-Gershenson Properties Trust .. 116,514 166,383 10,200 Realty Income Corp. ................ 211,259 243,882 8,375 Simon Property Group Inc. .......... 310,301 620,755 ------------ ------------ 1,024,016 1,623,348 ------------ ------------ TELECOMMUNICATIONS -- 4.4% 18,100 Iowa Telecommunications Services Inc. ................... 393,978 304,442 2,000 SBC Communications Inc. ............ 49,480 47,940 26,600 Valor Communications Group Inc. .... 396,996 362,558 ------------ ------------ 840,454 714,940 ------------ ------------ TRANSPORTATION -- 8.4% 3,500 Alexander & Baldwin Inc. ........... 115,127 186,340 28,500 Aries Maritime Transport Ltd.+ ..... 421,993 427,500 See accompanying notes to financial statements. 21 WESTWOOD INCOME FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2005 - -------------------------------------------------------------------------------- MARKET SHARES COST VALUE - ---------- ------------ ------------ COMMON STOCKS (CONTINUED) TRANSPORTATION (CONTINUED) 18,700 Arlington Tankers Ltd. ............. $ 426,318 $ 438,141 7,000 Teekay LNG Partners LP ............. 200,200 220,500 4,000 U.S. Shipping Partners LP .......... 102,160 101,000 ------------ ------------ 1,265,798 1,373,481 ------------ ------------ TOTAL COMMON STOCKS ................ 11,238,997 14,183,197 ------------ ------------ PREFERRED STOCKS -- 6.8% ENERGY AND UTILITIES: ELECTRIC -- 0.8% 5,000 Alabama Power Co., 5.200% Pfd. ..... 124,750 125,000 ------------ ------------ ENTERTAINMENT -- 0.1% 1,000 Viacom Inc., 7.250% Pfd. ........... 25,538 25,280 ------------ ------------ FINANCIAL SERVICES -- 5.4% 4,000 Bear Stearns Co., 5.490% Pfd., Ser. G .......................... 202,400 200,400 8,000 Berkley (W.R.) Capital Trust II, 6.750% Pfd. ..................... 200,267 197,200 1,000 Fannie Mae, 7.000% Pfd. (a) ........ 55,700 55,250 1,000 General Electric Capital Corp., 5.875% Pfd. ..................... 25,405 25,100 7,000 Lehman Brothers Holdings Inc., 4.518% Pfd., Ser. G (a) ......... 173,390 177,030 2,000 Metlife Inc., 4.870% Pfd. (a) ...... 50,170 50,980 7,000 Wells Fargo Capital Trust IV, 7.000% Pfd. ..................... 182,258 178,360 ------------ ------------ 889,590 884,320 ------------ ------------ SHOPPING CENTERS -- 0.3% 2,000 CBL & Associates Properties Inc., 7.375% Pfd., Ser. D ............. 50,874 50,560 ------------ ------------ TELECOMMUNICATIONS -- 0.2% 1,000 Verizon New England Inc., 7.000% Pfd., Ser. B ............. 26,187 25,770 ------------ ------------ TOTAL PREFERRED STOCKS ............. 1,116,939 1,110,930 ------------ ------------ MARKET SHARES COST VALUE - ---------- ------------ ------------ CONVERTIBLE PREFERRED STOCKS -- 2.6% ENERGY AND UTILITIES: INTEGRATED -- 0.2% 1,000 Great Plains Energy Inc., 8.000% Cv. Pfd. ................. $ 27,448 $ 27,830 ------------ ------------ FINANCIAL SERVICES -- 1.4% 7,000 Lehman Brothers Holdings Inc., 6.250% Cv. Pfd., Ser. GIS ....... 180,320 182,420 1,000 Merrill Lynch & Co., 6.750% Cv. Pfd., Ser. JNC ....... 36,800 37,584 ------------ ------------ 217,120 220,004 ------------ ------------ HEALTH CARE -- 1.0% 3,000 Baxter International, 7.000% Cv. Pfd. ................. 168,646 171,000 ------------ ------------ TOTAL CONVERTIBLE PREFERRED STOCKS ................ 413,214 418,834 ------------ ------------ TOTAL INVESTMENTS -- 96.4% ......... $ 12,769,150 15,712,961 ============ OTHER ASSETS AND LIABILITIES (NET) -- 3.6% ........ 580,137 ------------ NET ASSETS -- 100.0% .............................. $ 16,293,098 ============ - ---------- + Non-income producing security. (a) Floating rate security. The rate disclosed is that in effect at September 30, 2005. See accompanying notes to financial statements. 22 WESTWOOD MIGHTY MITES(SM) FUND SCHEDULE OF INVESTMENTS -- SEPTEMBER 30, 2005 - -------------------------------------------------------------------------------- MARKET SHARES COST VALUE - ---------- ------------ ------------ COMMON STOCKS -- 98.3% AGRICULTURE -- 0.3% 200 J.G. Boswell Co. ................... $ 124,000 $ 118,300 ------------ ------------ AUTOMOTIVE: PARTS AND ACCESSORIES -- 2.7% 27,000 Midas Inc.+ ........................ 363,150 536,760 52,000 Proliance International Inc.+ ...... 243,947 284,960 1,000 Puradyn Filter Technologies Inc.+ .. 1,645 1,150 50,000 Scheib (Earl) Inc.+ ................ 243,864 187,500 35,000 Standard Motor Products Inc. ....... 387,785 283,850 ------------ ------------ 1,240,391 1,294,220 ------------ ------------ AVIATION: PARTS AND SERVICES -- 1.5% 1,000 Aviall Inc.+ ....................... 12,210 33,780 12,500 CPI Aerostructures Inc.+ ........... 132,133 124,625 2,000 Curtiss-Wright Corp. ............... 43,050 123,420 138,000 Fairchild Corp., Cl. A+ ............ 704,898 320,160 6,200 Kaman Corp., Cl. A ................. 92,246 126,790 ------------ ------------ 984,537 728,775 ------------ ------------ BROADCASTING -- 5.1% 60,000 Acme Communications Inc.+ .......... 364,898 233,400 23,000 Beasley Broadcast Group Inc., Cl. A+ .......................... 254,241 323,150 70,000 Crown Media Holdings Inc., Cl. A+ .. 526,008 766,500 12,000 Fisher Communications Inc.+ ........ 532,157 558,720 5,000 Granite Broadcasting Corp.+ ........ 2,000 1,950 25,000 Gray Television Inc. ............... 263,858 264,750 38,000 Paxson Communications Corp.+ ....... 147,171 17,100 7,000 Salem Communications Corp., Cl. A+ .......................... 126,904 129,080 30,000 Young Broadcasting Inc., Cl. A+ .... 288,879 104,700 ------------ ------------ 2,506,116 2,399,350 ------------ ------------ BUILDING AND CONSTRUCTION -- 0.6% 10,407 Homasote Co.+ ...................... 82,431 34,343 5,000 Huttig Building Products Inc.+ ..... 17,126 45,250 8,000 Monarch Cement Co. ................. 172,556 200,000 ------------ ------------ 272,113 279,593 ------------ ------------ BUSINESS SERVICES -- 3.3% 142,000 AMICAS Inc.+ ....................... 728,362 766,800 28,000 ANC Rental Corp.+ .................. 840 141 80,100 Edgewater Technology Inc.+ ......... 308,396 382,077 20,000 Information Resources Inc.+ ........ 32,400 11,000 46,000 Nashua Corp.+ ...................... 310,147 285,200 804 National Stock Yards Co. ........... 80,700 115,776 10,000 PubliCARD Inc.+ .................... 14,436 460 500 StarTek Inc. ....................... 8,375 6,600 ------------ ------------ 1,483,656 1,568,054 ------------ ------------ MARKET SHARES COST VALUE - ---------- ------------ ------------ CABLE -- 0.1% 90,000 Adelphia Communications Corp., Cl. A+ .......................... $ 15,750 $ 8,100 2,500 Outdoor Channel Holdings Inc.+ ..... 24,825 36,900 ------------ ------------ 40,575 45,000 ------------ ------------ CLOSED-END FUNDS -- 0.6% 24,750 MVC Capital Inc. ................... 224,322 292,050 ------------ ------------ COMMUNICATIONS EQUIPMENT -- 0.3% 1,500 Andrew Corp.+ ...................... 5,120 16,725 10,000 Communications Systems Inc. ........ 84,990 112,500 ------------ ------------ 90,110 129,225 ------------ ------------ COMPUTER SOFTWARE AND SERVICES -- 2.7% 18,000 Citadel Security Software Inc.+ .... 62,337 10,800 23,881 Gemplus International SA+ .......... 10,945 66,013 3,000 iVillage Inc.+ ..................... 2,520 21,780 5,600 Lab-Volt Systems Inc.+ (a) ......... 31,800 60,760 35,000 Mobius Management Systems Inc.+ ................... 288,281 183,750 460,000 Net Perceptions Inc.+ .............. 188,508 349,600 834 Prosoft Learning Corp.+ ............ 11,216 451 850,000 StorageNetworks Inc. Escrow+ (a) ... 0 25,500 57,000 Tyler Technologies Inc.+ ........... 223,611 471,960 29,000 Vitria Technology Inc.+ ............ 177,051 96,570 ------------ ------------ 996,269 1,287,184 ------------ ------------ CONSUMER PRODUCTS -- 4.3% 68,000 Adams Golf Inc.+ ................... 115,878 91,800 8,500 American Locker Group Inc.+ ........ 104,619 39,440 12,000 Ducati Motor Holding SpA, ADR+ ..... 184,105 175,200 6,000 Levcor International Inc.+ ......... 20,801 7,260 4,500 Marine Products Corp. .............. 4,609 49,635 5,000 Marzotto SpA ....................... 3,933 24,923 500 National Presto Industries Inc. .... 14,537 21,405 41,530 Syratech Corp.+ .................... 10,382 3,322 4,000 Valentino Fashion Group SpA+ ....... 23,076 104,321 21,000 Water Pik Technologies Inc.+ ....... 180,074 426,300 209,500 Weider Nutrition International Inc.+ 385,962 1,108,255 ------------ ------------ 1,047,976 2,051,861 ------------ ------------ CONSUMER SERVICES -- 0.0% 200 Carriage Services Inc.+ ............ 1,014 1,268 1,000 Collectors Universe Inc.+ .......... 3,530 12,700 1,000 Neptune Society Inc.+ .............. 3,564 2,235 ------------ ------------ 8,108 16,203 ------------ ------------ DIVERSIFIED INDUSTRIAL -- 5.9% 10,200 Ampco-Pittsburgh Corp. ............. 118,479 158,100 101,500 Harbor Global Co. Ltd.+ ............ 504,865 923,650 64,000 Katy Industries Inc.+ .............. 306,659 156,160 18,000 Lamson & Sessions Co.+ ............. 72,423 329,760 2,000 Lindsay Manufacturing Co. .......... 39,765 44,020 500 Oregon Steel Mills Inc.+ ........... 4,276 13,950 See accompanying notes to financial statements. 23 WESTWOOD MIGHTY MITES(SM) FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2005 - -------------------------------------------------------------------------------- MARKET SHARES COST VALUE - ---------- ------------ ------------ COMMON STOCKS (CONTINUED) DIVERSIFIED INDUSTRIAL (CONTINUED) 32,000 Pinguely-Haulotte .................. $ 171,236 $ 638,423 11,750 RWC Inc.+ .......................... 281,315 40,831 35,000 Tech/Ops Sevcon Inc. ............... 205,347 208,775 25,018 WHX Corp.+ ......................... 349,470 275,198 ------------ ------------ 2,053,835 2,788,867 ------------ ------------ EDUCATIONAL SERVICES -- 1.0% 32,000 Concorde Career Colleges Inc.+ ..... 633,195 491,200 ------------ ------------ ELECTRONICS -- 3.1% 7,000 California Micro Devices Corp.+ .... 42,015 54,040 25,000 CTS Corp. .......................... 201,432 302,500 1,000 Fargo Electronics+ ................. 5,642 17,470 11,500 George Risk Industries Inc. ........ 52,760 74,750 154,000 IntriCon Corp.+ .................... 488,672 877,800 2,000 Lowrance Electronics Inc. .......... 8,860 50,780 10,000 SIRIT Inc.+ ........................ 8,259 3,527 5,000 Zoran Corp.+ ....................... 32,186 71,500 ------------ ------------ 839,826 1,452,367 ------------ ------------ ENERGY AND UTILITIES: ELECTRIC -- 0.6% 800 British Energy Group plc+ .......... 4,271 6,759 2,000 Green Mountain Power Corp. ......... 43,141 65,860 7,000 Unitil Corp. ....................... 172,585 196,700 ------------ ------------ 219,997 269,319 ------------ ------------ ENERGY AND UTILITIES: INTEGRATED -- 2.3% 25,000 Aquila Inc.+ ....................... 71,600 99,000 31,950 Florida Public Utilities Co. ....... 276,065 507,366 9,000 MGE Energy Inc. .................... 285,435 328,590 800 Pardee Resources Co. Inc. .......... 72,100 127,200 95,200 Progress Energy Inc., CVO+ ......... 10,472 8,568 ------------ ------------ 715,672 1,070,724 ------------ ------------ ENERGY AND UTILITIES: NATURAL GAS -- 2.8% 4,500 Cascade Natural Gas Corp. .......... 92,753 97,965 11,800 Chesapeake Utilities Corp. ......... 265,346 414,770 17,000 Corning Natural Gas Corp.+ ......... 277,307 256,700 31,200 PetroCorp Escrow Shares+ (a) ....... 0 1,872 2,500 Petroleum Development Corp.+ ....... 54,647 95,850 17,000 RGC Resources Inc. ................. 364,576 454,410 ------------ ------------ 1,054,629 1,321,567 ------------ ------------ ENERGY AND UTILITIES: SERVICES -- 2.0% 950 Covanta Holding Corp.+ ............. 3,996 12,758 1,000 KFx Inc.+ .......................... 7,920 17,120 28,500 RPC Inc. ........................... 259,619 734,160 16,000 Stolt Offshore SA, ADR+ ............ 51,709 185,280 ------------ ------------ 323,244 949,318 ------------ ------------ ENERGY AND UTILITIES: WATER -- 1.6% 3,000 Artesian Resources Corp., Cl. A .... 48,062 90,240 1,500 BIW Ltd. ........................... 27,266 29,550 MARKET SHARES COST VALUE - ---------- ------------ ------------ 2,500 California Water Service Group ..... $ 55,552 $ 103,000 2,000 Consolidated Water Co. Ltd. ........ 7,500 40,100 8,000 Middlesex Water Co. ................ 136,664 179,600 6,000 SJW Corp. .......................... 140,427 289,680 ------------ ------------ 415,471 732,170 ------------ ------------ ENTERTAINMENT -- 1.9% 12,500 Canterbury Park Holding Corp. ...... 129,392 178,250 30,000 Dover Motorsports Inc. ............. 146,431 205,200 45,000 GC Companies Inc.+ (a) ............. 67,956 38,700 27,000 Jetix Europe NV+ ................... 159,843 451,055 2,500 LodgeNet Entertainment Corp.+ ...... 27,500 36,825 ------------ ------------ 531,122 910,030 ------------ ------------ EQUIPMENT AND SUPPLIES -- 6.7% 180,000 Baldwin Technology Co. Inc., Cl. A+ .......................... 339,712 775,800 15,000 Capstone Turbine Corp.+ ............ 27,450 53,250 20,000 Cherokee International Corp.+ ...... 97,907 70,000 18,000 Core Molding Technologies Inc.+ .... 53,893 102,060 4,800 Eastern Co. ........................ 74,890 104,400 22,000 Fedders Corp. ...................... 152,640 47,080 1,000 Genoil Inc.+ ....................... 225 310 11,200 Gerber Scientific Inc.+ ............ 41,595 87,808 10,000 Gildemeister AG+ ................... 75,736 73,193 5,000 GrafTech International Ltd.+ ....... 30,000 27,150 20,500 L.S. Starrett Co., Cl. A ........... 332,495 375,355 40,000 Maezawa Kyuso Industries Co. Ltd. ............. 215,893 724,101 9,000 Mine Safety Appliances Co. ......... 252,861 348,300 104,100 Raytech Corp.+ ..................... 250,996 129,604 13,900 SL Industries Inc.+ ................ 88,117 198,353 1,000 SRS Labs Inc.+ ..................... 5,500 6,440 1,100 Watts Water Technologies Inc., Cl. A ........................... 16,825 31,735 ------------ ------------ 2,056,735 3,154,939 ------------ ------------ FINANCIAL SERVICES -- 13.7% 4,000 Bancshares of Florida Inc.+ ........ 57,251 88,480 18,000 Berkshire Bancorp Inc. ............. 222,926 323,278 500 BKF Capital Group Inc. ............. 10,724 15,465 11,000 Crazy Woman Creek Bancorp Inc. ..... 143,391 162,800 526,000 Epoch Holding Corp.+ ............... 768,285 2,630,000 5,500 Fidelity Southern Corp. ............ 44,340 95,700 35,000 Flushing Financial Corp. ........... 526,408 572,950 31,250 Fulton Financial Corp. ............. 204,658 523,438 10 Guaranty Corp., Cl. A+ ............. 137,500 166,500 70,000 Ladenburg Thalmann Financial Services Inc.+ .................. 50,558 42,700 5,500 Northrim BanCorp Inc. .............. 113,985 137,720 6,790 Parish National Corp.+ ............. 255,327 338,651 9,167 Patriot National Bancorp Inc. ...... 141,747 172,972 2,500 PennFed Financial Services Inc. .... 42,628 45,700 11,500 Seacoast Banking Corp. of Florida .. 222,420 269,445 See accompanying notes to financial statements. 24 WESTWOOD MIGHTY MITES(SM) FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2005 - -------------------------------------------------------------------------------- MARKET SHARES COST VALUE - ---------- ------------ ------------ COMMON STOCKS (CONTINUED) FINANCIAL SERVICES (CONTINUED) 116 Sunwest Bank+ ...................... $ 322,722 $ 421,080 15,000 SWS Group Inc. ..................... 274,802 246,000 15,700 Synergy Financial Group Inc. ....... 160,223 193,424 500 TIB Financial Corp. ................ 7,780 15,550 400 Washington Savings Bank F.S.B. ..... 5,810 3,644 ------------ ------------ 3,713,485 6,465,497 ------------ ------------ FOOD AND BEVERAGE -- 2.5% 9,000 Boston Beer Co. Inc., Cl. A+ ....... 146,264 225,000 7,261 Cruzan International Inc.+ ......... 101,092 203,381 4,000 Genesee Corp., Cl. A+ .............. 13,980 6,400 30,100 Genesee Corp., Cl. B+ .............. 55,564 51,170 1,800 J & J Snack Foods Corp. ............ 52,209 104,040 11,000 Lifeway Foods Inc.+ ................ 78,614 136,730 35,000 MGP Ingredients Inc. ............... 168,688 392,000 20,000 Northland Cranberries Inc., Cl. A .. 15,400 4,400 1,000 Poore Brothers Inc.+ ............... 2,660 5,450 8,500 Scheid Vineyards Inc., Cl. A+ ...... 47,912 54,825 100 Willamette Valley Vineyards Inc.+ .. 400 503 ------------ ------------ 682,783 1,183,899 ------------ ------------ HEALTH CARE -- 12.1% 30,000 AFP Imaging Corp.+ ................. 65,459 61,500 17,040 Arkopharma ......................... 243,837 278,522 80,000 BioLase Technology Inc. ............ 946,944 570,400 5,800 Biosite Inc.+ ...................... 177,102 358,788 15,000 Boiron SA .......................... 243,760 369,569 7,000 Bruker BioSciences Corp.+ .......... 27,970 30,660 46,400 Cholestech Corp.+ .................. 357,002 467,712 100,000 Del Global Technologies Corp.+ ..... 215,065 250,000 15,279 Exactech Inc.+ ..................... 235,527 226,129 2,500 ICU Medical Inc.+ .................. 77,295 71,900 73,300 Lifecore Biomedical Inc.+ .......... 581,393 886,197 17,000 Neogen Corp.+ ...................... 193,951 306,000 2,500 NMT Medical Inc.+ .................. 7,858 27,550 11,000 NWH Inc. ........................... 203,610 157,850 1,500 Orthofix International NV+ ......... 40,805 65,400 40,000 Quidel Corp.+ ...................... 174,668 378,400 40,000 Regeneration Technologies Inc.+ .... 358,155 326,800 13,000 Schick Technologies Inc.+ .......... 121,722 341,900 74,000 Sonic Innovations Inc.+ ............ 372,636 327,376 2,000 Tutogen Medical Inc.+ .............. 10,180 9,120 500 United-Guardian Inc. ............... 3,895 4,100 5,000 Young Innovations Inc. ............. 135,279 189,300 ------------ ------------ 4,794,113 5,705,173 ------------ ------------ HOTELS AND GAMING -- 0.4% 1,000 Cloverleaf Kennel Club, Cl. A+ ..... 3,250 3,375 9,024 Dover Downs Gaming & Entertainment Inc. .............. 84,943 122,727 29 Fair Grounds Corp.+ (a) ............ 177,460 33,821 2,000 Florida Gaming Corp.+ .............. 6,950 25,600 ------------ ------------ 272,603 185,523 ------------ ------------ MARKET SHARES COST VALUE - ---------- ------------ ------------ MANUFACTURED HOUSING AND RECREATIONAL VEHICLES -- 8.6% 97,000 Cavalier Homes Inc.+ ............... $ 532,177 $ 641,170 21,000 Cavco Industries Inc.+ ............. 387,813 761,880 11,000 Nobility Homes Inc. ................ 173,067 287,100 16,500 Palm Harbor Homes Inc.+ ............ 336,182 320,595 32,000 Skyline Corp. ...................... 1,078,234 1,300,480 107,000 Southern Energy Homes Inc.+ ........ 407,370 754,350 ------------ ------------ 2,914,843 4,065,575 ------------ ------------ METALS AND MINING -- 0.0% 615,000 Royal Oak Mines Inc.+ .............. 2,314 2,153 ------------ ------------ PAPER AND FOREST PRODUCTS -- 0.5% 300 Keweenaw Land Association Ltd. ..... 46,200 47,250 15,000 Packaging Dynamics Corp. ........... 111,035 189,000 ------------ ------------ 157,235 236,250 ------------ ------------ PUBLISHING -- 1.5% 100,000 PRIMEDIA Inc.+ ..................... 190,965 409,000 14,000 Thomas Nelson Inc. ................. 148,218 262,640 1,500 William H. Sadlier Inc. ............ 42,465 55,875 ------------ ------------ 381,648 727,515 ------------ ------------ REAL ESTATE -- 2.8% 9,700 Biloxi Marsh Lands Corp. ........... 88,838 431,650 5,000 Capital Properties Inc., Cl. A ..... 73,300 120,450 50 Case Pomeroy & Co. Inc., Cl. A ..... 58,825 77,500 50 Case Pomeroy & Co. Inc., Cl. B ..... 58,825 68,000 5,000 CKX Lands Inc. ..................... 38,504 61,975 15,829 Griffin Land & Nurseries Inc.+ ..... 315,356 387,811 3,200 Gyrodyne Company of America Inc.+ .. 56,549 140,800 400 Holobeam Inc.+ ..................... 15,500 17,200 2,508 Royalty Ll+ (a) .................... 0 0 ------------ ------------ 705,697 1,305,386 ------------ ------------ RESTAURANTS -- 0.5% 24,500 Nathan's Famous Inc.+ .............. 169,007 220,500 ------------ ------------ RETAIL -- 0.7% 2,200 Bowlin Travel Centers Inc.+ ........ 3,750 3,575 14,000 CoolBrands International Inc.+ ..... 34,256 29,505 1,000 Cost-U-Less Inc.+ .................. 7,022 6,150 1,000 Gander Mountain Co.+ ............... 13,345 8,990 12,000 Movado Group Inc. .................. 171,186 224,640 8,000 Sport Supply Group Inc.+ ........... 10,251 51,200 ------------ ------------ 239,810 324,060 ------------ ------------ SPECIALTY CHEMICALS -- 2.1% 267,226 General Chemical Group Inc.+ ....... 59,859 5,612 30,000 Hawkins Inc. ....................... 380,688 411,000 1,000 KMG Chemicals Inc. ................. 3,270 7,940 22,000 Material Sciences Corp.+ ........... 251,930 331,540 57,000 Omnova Solutions Inc.+ ............. 315,576 249,090 ------------ ------------ 1,011,323 1,005,182 ------------ ------------ See Accompanying Notes to Financial Statements. 25 WESTWOOD MIGHTY MITES(SM) FUND SCHEDULE OF INVESTMENTS(CONTINUED) -- SEPTEMBER 30, 2005 - -------------------------------------------------------------------------------- MARKET SHARES COST VALUE - ---------- ------------ ------------ COMMON STOCKS (CONTINUED) TELECOMMUNICATIONS -- 3.1% 1,000 Ambient Corp.+ ..................... $ 280 $ 189 32,540 ATX Communications Inc.+ ........... 68,495 371 25,896 D&E Communications Inc. ............ 290,401 234,877 13,000 HickoryTech Corp. .................. 154,118 114,400 80 Horizon Telecom Inc., Cl. A ........ 9,250 10,360 339 Horizon Telecom Inc., Cl. B ........ 39,073 34,747 1,500 Lexcom Inc., Cl. B ................. 86,355 63,787 20,000 New Ulm Telecom Inc. ............... 198,220 360,500 922 NTL Inc.+ .......................... 31,540 61,590 10,000 PNV Inc.+ .......................... 3 26 300 Preformed Line Products Co. ........ 13,941 14,160 6,600 Shenandoah Telecommunications Co. .. 101,736 271,854 20,000 Stratos International Inc.+ ........ 81,837 116,800 500 SureWest Communications ............ 13,332 14,340 50,000 Sycamore Networks Inc.+ ............ 164,231 188,500 ------------ ------------ 1,252,812 1,486,501 ------------ ------------ TRANSPORTATION -- 0.2% 2,500 Old Dominion Freight Line Inc.+ .... 53,375 83,725 2,000 Providence & Worcester Railroad Co. .................... 29,988 27,980 ------------ ------------ 83,363 111,705 ------------ ------------ WIRELESS COMMUNICATIONS -- 0.2% 9,000 Rural Cellular Corp., Cl. A+ ....... 7,830 109,440 ------------ ------------ TOTAL COMMON STOCKS ................ 34,250,765 46,484,675 ------------ ------------ PREFERRED STOCKS -- 1.1% AUTOMOTIVE: PARTS AND ACCESSORIES -- 1.1% 21,000 Jungheinrich AG Pfd. ............... 170,462 526,230 ------------ ------------ CONVERTIBLE PREFERRED STOCKS -- 0.4% BUSINESS SERVICES -- 0.3% 3,745 Interep National Radio Sales Inc., 4.000% Cv. Pfd., Ser. A+ (a)(b)(c) ............... 360,483 131,070 ------------ ------------ FOOD AND BEVERAGE -- 0.1% 4,000 Seneca Foods Corp., Cv. Pfd. Ser. 2003+ ............. 61,000 64,000 ------------ ------------ TOTAL CONVERTIBLE PREFERRED STOCKS ................ 421,483 195,070 ------------ ------------ MARKET SHARES COST VALUE - ---------- ------------ ------------ WARRANTS -- 0.0% BUSINESS SERVICES -- 0.0% 1,666 Avalon Digital Marketing Systems Inc., expire 11/11/11+ (a)(c) ... $ 0 $ 0 37,500 Interep National Radio Sales Inc., expire 05/06/07+ (a)(b)(c) ......... 0 0 ------------ ------------ 0 0 ------------ ------------ DIVERSIFIED INDUSTRIAL -- 0.0% 3,780 WHX Corp., expire 02/28/08+ ........ 11,721 9,923 ------------ ------------ ENERGY AND UTILITIES: ELECTRIC -- 0.0% 1,680 British Energy Group plc, expire 01/14/09+ ................ 5,488 11,193 ------------ ------------ TOTAL WARRANTS ..................... 17,209 21,116 ------------ ------------ TOTAL INVESTMENTS -- 99.8% ......... $ 34,859,919 47,227,091 ============ OTHER ASSETS AND LIABILITIES (NET) -- 0.2% ........ 71,176 ------------ NET ASSETS -- 100.0% .............................. $ 47,298,267 ============ - ---------- (a) Security fair valued under procedures established by the Board of Trustees. The procedures may include reviewing available financial information about the company and reviewing valuation of comparable securities and other factors on a regular basis. At September 30, 2005, the market value of fair valued securities amounted to $291,723 or 0.62% of total net assets. (b) Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At September 30, 2005, the market value of Rule 144A securities amounted to $131,070 or 0.28% of total net assets. (c) At September 30, 2005, the Fund held restricted and illiquid securities amounting to $131,070 or 0.28% of net assets, which were valued under methods approved by the Board, as follows: 09/30/05 CARRYING ACQUISITION ACQUISITION ACQUISITION VALUE SHARES ISSUER DATE COST PER UNIT - ----------- -------------------------------------- ----------- ----------- -------- 1,666 Avalon Digital Marketing Systems, Inc. Warrants expire 11/11/11 .......... 04/03/00 -- -- 3,745 Interep National Radio Sales Inc., 4.000% Cv. Pfd., Ser. A ........... 05/03/02 $ 360,483 $35.0000 37,500 Interep National Radio Sales Inc. Warrants expire 05/06/07 .......... 05/03/02 -- -- + Non-income producing security. ADR American Depository Receipt CVO Contingent Value Obligation See accompanying notes to financial statements. 26 THE WESTWOOD FUNDS STATEMENTS OF ASSETS AND LIABILITIES SEPTEMBER 30, 2005 - -------------------------------------------------------------------------------- EQUITY BALANCED INTERMEDIATE FUND FUND BOND FUND ------------- ------------- -------------- ASSETS: Investments, at value (cost $146,151,937, $132,388,047, $10,542,925, $7,342,804, $12,769,150 and $34,859,919, respectively) .. $ 180,287,126 $ 150,962,695 $ 10,625,840 Cash ........................................... 919,747 536,771 9,480 Receivable for investments sold ................ 1,516,334 934,006 -- Receivable for Fund shares sold ................ 124,536 62,020 512 Dividends and interest receivable .............. 188,835 628,493 95,438 Receivable from Adviser ........................ -- -- 5,045 Other assets ................................... 1,560 1,265 331 ------------- ------------- -------------- TOTAL ASSETS ................................... 183,038,138 153,125,250 10,736,646 ------------- ------------- -------------- LIABILITIES: Dividends payable .............................. -- -- 2,902 Payable for Fund shares redeemed ............... 124,817 515,944 198 Payable for investments purchased .............. 1,774,212 1,062,515 -- Payable for investment advisory fees ........... 147,431 93,644 -- Payable for distribution fees .................. 37,427 33,049 2,449 Payable for shareholder services fees .......... 32,095 19,831 2,836 Other accrued expenses ......................... 81,676 50,373 17,600 ------------- ------------- -------------- TOTAL LIABILITIES .............................. 2,197,658 1,775,356 25,985 ------------- ------------- -------------- NET ASSETS ..................................... $ 180,840,480 $ 151,349,894 $ 10,710,661 ============= ============= ============== NET ASSETS CONSIST OF: Shares of beneficial interest, each class at $0.001 par value ............................ $ 16,325 $ 11,878 $ 980 Additional paid-in capital ..................... 150,818,355 123,067,034 10,629,416 Accumulated (distributions in excess of) net investment income ........................... 391,082 131,253 (428) Accumulated net realized gain (loss) on investments and foreign currency transactions ................................ (4,520,471) 9,565,081 (2,222) Net unrealized appreciation on investments and foreign currency translations ............... 34,135,189 18,574,648 82,915 ------------- ------------- -------------- NET ASSETS ..................................... $ 180,840,480 $ 151,349,894 $ 10,710,661 ============= ============= ============== SHARES OF BENEFICIAL INTEREST: CLASS AAA: Net assets ..................................... $ 178,394,081 $ 144,571,421 $ 10,271,620 ============= ============= ============== Shares of beneficial interest outstanding; unlimited number of shares authorized ....... 16,103,260 11,345,979 939,427 ============= ============= ============== NET ASSET VALUE, offering and redemption price per share ................................... $ 11.08 $ 12.74 $ 10.93 ============= ============= ============== CLASS A: Net assets ..................................... $ 2,267,245 $ 5,657,928 $ 57,666 ============= ============= ============== Shares of beneficial interest outstanding; unlimited number of shares authorized ....... 205,092 444,182 5,275 ============= ============= ============== NET ASSET VALUE and redemption price per share ....................................... $ 11.05 $ 12.74 $ 10.93 ============= ============= ============== Maximum offering price per share (NAV / 0.96, based on maximum sales charge of 4.00% of the offering price) ............................. $ 11.51 $ 13.27 $ 11.39 ============= ============= ============== CLASS B: Net assets ..................................... $ 29,675 $ 138,278 $ 381,271 ============= ============= ============== Shares of beneficial interest outstanding; unlimited number of shares authorized ....... 2,707 10,834 34,885 ============= ============= ============== NET ASSET VALUE and offering price per share ... $ 10.96(a) $ 12.76(a) $ 10.93(a) ============= ============= ============== CLASS C: Net assets ..................................... $ 149,479 $ 982,267 $ 104.18 ============= ============= ============== Shares of beneficial interest outstanding; unlimited number of shares authorized ....... 13,628 76,876 9.63 ============= ============= ============== NET ASSET VALUE and offering price per share ... $ 10.97(a) $ 12.78(a) $ 10.82(a) ============= ============= ============== SMALLCAP INCOME MIGHTY EQUITY FUND FUND MITES(SM) FUND ------------- ------------- -------------- ASSETS: Investments, at value (cost $146,151,937, $132,388,047, $10,542,925, $7,342,804, $12,769,150 and $34,859,919, respectively) .. $ 8,432,387 $ 15,712,961 $ 47,227,091 Cash ........................................... 334,177 410,711 55,368 Receivable for investments sold ................ 182,728 56,192 80,170 Receivable for Fund shares sold ................ 100 8,437 10,425 Dividends and interest receivable .............. 16,908 79,060 44,830 Receivable from Adviser ........................ 487 81,371 -- Other assets ................................... 355 387 617 ------------- ------------- -------------- TOTAL ASSETS ................................... 8,967,142 16,349,119 47,418,501 ------------- ------------- -------------- LIABILITIES: Dividends payable .............................. -- -- -- Payable for Fund shares redeemed ............... -- 36,288 8,172 Payable for investments purchased .............. 101,319 -- -- Payable for investment advisory fees ........... -- -- 35,787 Payable for distribution fees .................. 1,795 3,377 10,221 Payable for shareholder services fees .......... 2,389 2,661 26,823 Other accrued expenses ......................... 18,575 13,695 39,231 ------------- ------------- -------------- TOTAL LIABILITIES .............................. 124,078 56,021 120,234 ------------- ------------- -------------- NET ASSETS ..................................... $ 8,843,064 $ 16,293,098 $ 47,298,267 ============= ============= ============== NET ASSETS CONSIST OF: Shares of beneficial interest, each class at $0.001 par value ............................ $ 783 $ 986 $ 2,829 Additional paid-in capital ..................... 17,082,095 9,489,863 30,154,118 Accumulated (distributions in excess of) net investment income ........................... -- 8,073 7,159 Accumulated net realized gain (loss) on investments and foreign currency transactions ................................ (9,329,397) 3,850,365 4,766,957 Net unrealized appreciation on investments and foreign currency translations ............... 1,089,583 2,943,811 12,367,204 ------------- ------------- -------------- NET ASSETS ..................................... $ 8,843,064 $ 16,293,098 $ 47,298,267 ============= ============= ============== SHARES OF BENEFICIAL INTEREST: CLASS AAA: Net assets ..................................... $ 8,702,021 $ 16,181,734 $ 46,496,569 ============= ============= ============== Shares of beneficial interest outstanding; unlimited number of shares authorized ....... 770,775 979,217 2,779,528 ============= ============= ============== NET ASSET VALUE, offering and redemption price per share ................................... $ 11.29 $ 16.53 $ 16.73 ============= ============= ============== CLASS A: Net assets ..................................... $ 130,902 $ 93,408 $ 41,144 ============= ============= ============== Shares of beneficial interest outstanding; unlimited number of shares authorized ....... 11,638 5,573 2,464 ============= ============= ============== NET ASSET VALUE and redemption price per share ....................................... $ 11.25 $ 16.76 $ 16.70 ============= ============= ============== Maximum offering price per share (NAV / 0.96, based on maximum sales charge of 4.00% of the offering price) ............................. $ 11.72 $ 17.46 $ 17.40 ============= ============= ============== CLASS B: Net assets ..................................... $ 10,031 $ 2,117 $ 433,268 ============= ============= ============== Shares of beneficial interest outstanding; unlimited number of shares authorized ....... 917.5 125.53 26,572 ============= ============= ============== NET ASSET VALUE and offering price per share ... $ 10.93(a) $ 16.86(a) $ 16.31(a) ============= ============= ============== CLASS C: Net assets ..................................... $ 109.73 $ 15,839 $ 327,286 ============= ============= ============== Shares of beneficial interest outstanding; unlimited number of shares authorized ....... 10.091 917.5 20,156 ============= ============= ============== NET ASSET VALUE and offering price per share ... $ 10.87(a) $ 17.26(a) $ 16.24(a) ============= ============= ============== - ---------- (a) Redemption price varies based on length of time held. See accompanying notes to financial statements. 27 THE WESTWOOD FUNDS STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2005 - -------------------------------------------------------------------------------- EQUITY BALANCED INTERMEDIATE SMALLCAP INCOME MIGHTY FUND FUND BOND FUND EQUITY FUND FUND MITES(SM) FUND ------------ ------------ ------------ ------------ ------------ -------------- INVESTMENT INCOME: Dividends (net of foreign taxes of $0, $0, $0, $0, $0 and $6,013, respectively) ... $ 3,852,262 $ 1,996,396 $ -- $ 140,072 $ 583,994 $ 660,725 Interest ................................. 25,232 2,274,207 434,445 -- 621 11,657 ------------ ------------ ------------ ------------ ------------ -------------- TOTAL INVESTMENT INCOME .................. 3,877,494 4,270,603 434,445 140,072 584,615 672,382 ------------ ------------ ------------ ------------ ------------ -------------- EXPENSES: Investment advisory fees ................. 1,774,591 1,106,760 63,574 99,807 175,413 492,179 Distribution fees -- Class AAA ........... 437,435 352,221 25,241 24,604 43,672 121,076 Distribution fees -- Class A ............. 11,470 27,994 264 600 295 215 Distribution fees -- Class B ............. 357 1,454 4,236 173 20 4,108 Distribution fees -- Class C ............. 1,555 9,355 1 18 115 3,336 Legal and audit fees ..................... 92,902 85,033 34,075 36,310 99,577 47,331 Custodian fees ........................... 36,399 44,870 9,576 23,117 19,656 40,992 Shareholder services fees ................ 157,553 112,185 13,648 15,081 17,253 67,919 Registration fees ........................ 25,205 29,297 29,439 28,110 39,386 21,765 Shareholder communications expenses ...... 71,591 34,248 1,921 4,178 19,474 32,373 Trustees' fees ........................... 10,708 8,784 714 705 1,141 3,052 Miscellaneous expenses ................... 61,372 58,381 9,703 4,600 4,888 28,555 ------------ ------------ ------------ ------------ ------------ -------------- TOTAL EXPENSES ........................... 2,681,138 1,870,582 192,392 237,303 420,890 862,901 ------------ ------------ ------------ ------------ ------------ -------------- LESS: Expense reimbursements (see Note 3) ... -- -- (79,099) (81,296) (137,126) (118,942) Custodian fee credits ................. (28,181) (43,117) (4,083) (5,853) (20,396) -- ------------ ------------ ------------ ------------ ------------ -------------- TOTAL REIMBURSEMENTS AND CREDITS ...... (28,181) (43,117) (83,182) (87,149) (157,522) (118,942) ------------ ------------ ------------ ------------ ------------ -------------- TOTAL NET EXPENSES ....................... 2,652,957 1,827,465 109,210 150,154 263,368 743,959 ------------ ------------ ------------ ------------ ------------ -------------- NET INVESTMENT INCOME (LOSS) ............. 1,224,537 2,443,138 325,235 (10,082) 321,247 (71,577) ------------ ------------ ------------ ------------ ------------ -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY: Net realized gain on investments and foreign currency transactions ......... 25,102,359 13,147,368 15,973 1,981,152 3,988,703 5,351,217 Net change in unrealized appreciation/ depreciation on investments and foreign currency translations ..... 6,163,758 2,236,304 (154,585) 329,566 (504,578) 3,944,342 ------------ ------------ ------------ ------------ ------------ -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY ... 31,266,117 15,383,672 (138,612) 2,310,718 3,484,125 9,295,559 ------------ ------------ ------------ ------------ ------------ -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....................... $ 32,490,654 $ 17,826,810 $ 186,623 $ 2,300,636 $ 3,805,372 $ 9,223,982 ============ ============ ============ ============ ============ ============== See accompanying notes to financial statements. 28 THE WESTWOOD FUNDS STATEMENTS OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- EQUITY FUND BALANCED FUND -------------------------------- -------------------------------- FOR THE YEAR ENDED SEPTEMBER 30, FOR THE YEAR ENDED SEPTEMBER 30, -------------------------------- -------------------------------- 2005 2004 2005 2004 --------------- -------------- --------------- -------------- OPERATIONS: Net investment income ................................... $ 1,224,537 $ 1,836,819 $ 2,443,138 $ 2,809,596 Net realized gain on investments ........................ 25,102,359 12,951,512 13,147,368 5,341,452 Net change in unrealized appreciation/depreciation on investments ........................................ 6,163,758 19,598,673 2,236,304 7,980,425 --------------- -------------- --------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .... 32,490,654 34,387,004 17,826,810 16,131,473 --------------- -------------- --------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class AAA ............................................. (1,760,755) (2,610,574) (2,246,908) (2,712,732) Class A ............................................... (8,953) (33,292) (61,410) (88,575) Class B ............................................... -- (658) (446) (2,302) Class C ............................................... (502) -- (3,121) (9,907) --------------- -------------- --------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS ..................... (1,770,210) (2,644,524) (2,311,885) (2,813,516) --------------- -------------- --------------- -------------- SHARES OF BENEFICIAL INTEREST TRANSACTIONS: Proceeds from shares issued Class AAA ............................................. 26,510,381 40,481,821 27,058,840 32,079,495 Class A ............................................... 302,826 739,947 687,831 346,618 Class B ............................................... -- 6,837 -- 27,409 Class C ............................................... 2,979 10,387 218,960 919,608 --------------- -------------- --------------- -------------- 26,816,186 41,238,992 27,965,631 33,373,130 --------------- -------------- --------------- -------------- Proceeds from reinvestment of dividends Class AAA ............................................. 1,608,725 2,404,917 2,092,576 2,514,096 Class A ............................................... 8,446 32,283 51,281 72,907 Class B ............................................... -- 399 380 2,035 Class C ............................................... 502 -- 2,172 6,158 --------------- -------------- --------------- -------------- 1,617,673 2,437,599 2,146,409 2,595,196 --------------- -------------- --------------- -------------- Cost of shares redeemed Class AAA ............................................. (59,376,350) (116,358,886) (35,775,507) (63,378,286) Class A ............................................... (1,815,288) (841,291) (984,117) (646,777) Class B ............................................... (13,854) (53,946) (40,935) (66,789) Class C ............................................... (31,680) (9,276) (188,945) (608,535) --------------- -------------- --------------- -------------- (61,237,172) (117,263,399) (36,989,504) (64,700,387) --------------- -------------- --------------- -------------- NET DECREASE IN NET ASSETS FROM SHARES OF BENEFICIAL INTEREST TRANSACTIONS ................................. (32,803,313) (73,586,808) (6,877,464) (28,732,061) --------------- -------------- --------------- -------------- REDEMPTION FEES ......................................... (1,224) 7,830 5,163 2,085 --------------- -------------- --------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS ................... (2,084,093) (41,836,498) 8,642,624 (15,412,019) NET ASSETS: Beginning of period ..................................... 182,924,573 224,761,071 142,707,270 158,119,289 --------------- -------------- --------------- -------------- End of period ........................................... $ 180,840,480 $ 182,924,573 $ 151,349,894 $ 142,707,270 =============== ============== =============== ============== Undistributed net investment income ..................... $ 391,082 $ 936,755 $ 131,253 $ -- =============== ============== =============== ============== See accompanying notes to financial statements. 29 THE WESTWOOD FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) - -------------------------------------------------------------------------------- INTERMEDIATE BOND FUND SMALLCAP EQUITY FUND -------------------------------- -------------------------------- FOR THE YEAR ENDED SEPTEMBER 30, FOR THE YEAR ENDED SEPTEMBER 30, -------------------------------- -------------------------------- 2005 2004 2005 2004 --------------- -------------- --------------- -------------- OPERATIONS: Net investment income (loss) ............................ $ 325,235 $ 315,825 $ (10,082) $ (148,137) Net realized gain on investments ........................ 15,973 89,104 1,981,152 2,782,169 Net change in unrealized appreciation/depreciation on investments ........................................ (154,585) (240,477) 329,566 (561,144) Net increase from payments by affiliates and net gains (losses) realized on the disposal of investments in excess of restrictions (See Note 6) .... -- -- -- -- --------------- -------------- --------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .... 186,623 164,452 2,300,636 2,072,888 --------------- -------------- --------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class AAA ............................................. (313,036) (302,691) -- -- Class A ............................................... (2,268) (2,749) -- -- Class B ............................................... (9,927) (9,589) -- -- Class C ............................................... (4) (796) -- -- --------------- -------------- --------------- -------------- (325,235) (315,825) -- -- --------------- -------------- --------------- -------------- Net realized gains on investments Class AAA ............................................. (85,504) (12,960) -- -- Class A ............................................... (644) (124) -- -- Class B ............................................... (3,791) (478) -- -- Class C ............................................... (1) (55) -- -- --------------- -------------- --------------- -------------- (89,940) (13,617) -- -- --------------- -------------- --------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS ..................... (415,175) (329,442) -- -- --------------- -------------- --------------- -------------- SHARES OF BENEFICIAL INTEREST TRANSACTIONS: Proceeds from shares issued Class AAA ............................................. 2,030,120 1,979,778 1,715,102 15,506,831 Class A ............................................... 31,409 2,800 4,704 15,000 Class B ............................................... 1,152 79,307 -- 350 Class C ............................................... -- 2 -- -- --------------- -------------- --------------- -------------- 2,062,681 2,061,887 1,719,806 15,522,181 --------------- -------------- --------------- -------------- Proceeds from reinvestment of dividends Class AAA ............................................. 363,093 279,339 -- -- Class A ............................................... 2,841 2,791 -- -- Class B ............................................... 6,110 4,539 -- -- Class C ............................................... -- 814 -- -- --------------- -------------- --------------- -------------- 372,044 287,483 -- -- --------------- -------------- --------------- -------------- Cost of shares redeemed Class AAA ............................................. (1,457,099) (4,724,149) (7,388,405) (21,176,934) Class A ............................................... (50,245) (67,125) (39,558) -- Class B ............................................... (72,586) (123,006) (13,872) (49,941) Class C ............................................... -- (45,792) (10,985) (101,961) --------------- -------------- --------------- -------------- (1,579,930) (4,960,072) (7,452,820) (21,328,836) --------------- -------------- --------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM SHARES OF BENEFICIAL INTEREST TRANSACTIONS ................... 854,795 (2,610,702) (5,733,014) (5,806,655) --------------- -------------- --------------- -------------- REDEMPTION FEES ......................................... (78) 194 (155) 396 --------------- -------------- --------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS ................... 626,165 (2,775,498) (3,432,533) (3,733,371) NET ASSETS: Beginning of period ..................................... 10,084,496 12,859,994 12,275,597 16,008,968 --------------- -------------- --------------- -------------- End of period ........................................... $ 10,710,661 $ 10,084,496 $ 8,843,064 $ 12,275,597 =============== ============== =============== ============== Undistributed net investment income ..................... $ -- $ 2,656 $ -- $ -- =============== ============== =============== ============== See accompanying notes to financial statements. 30 THE WESTWOOD FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) - -------------------------------------------------------------------------------- INCOME FUND MIGHTY MITES(SM) FUND -------------------------------- -------------------------------- FOR THE YEAR ENDED SEPTEMBER 30, FOR THE YEAR ENDED SEPTEMBER 30, -------------------------------- -------------------------------- 2005 2004 2005 2004 --------------- -------------- --------------- -------------- OPERATIONS: Net investment income (loss) ............................ $ 321,247 $ 388,106 $ (71,577) $ (127,799) Net realized gain on investments and foreign currency transactions ................................. 3,988,703 1,063,262 5,351,217 3,983,019 Net change in unrealized appreciation/depreciation on investments and foreign currency translations ...... (504,578) 1,402,579 3,944,342 2,813,159 --------------- -------------- --------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .... 3,805,372 2,853,947 9,223,982 6,668,379 --------------- -------------- --------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class AAA ............................................. (312,053) (387,478) -- -- Class A ............................................... (1,038) (503) -- -- Class B ............................................... (10) (32) -- -- Class C ............................................... (73) (93) -- -- --------------- -------------- --------------- -------------- (313,174) (388,106) -- -- --------------- -------------- --------------- -------------- Net realized gains on investments Class AAA ............................................. (885,319) (58,855) (4,019,285) (661,777) Class A ............................................... (2,234) (76) (3,339) (388) Class B ............................................... (87) (5) (34,684) (5,992) Class C ............................................... (407) (14) (26,813) (1,697) --------------- -------------- --------------- -------------- (888,047) (58,950) (4,084,121) (669,854) --------------- -------------- --------------- -------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS ..................... (1,201,221) (447,056) (4,084,121) (669,854) --------------- -------------- --------------- -------------- SHARES OF BENEFICIAL INTEREST TRANSACTIONS: Proceeds from shares issued Class AAA ............................................. 4,500,719 6,942,146 1,101,902 52,277,745 Class A ............................................... 80,304 29,047 1,152 1,694 Class B ............................................... -- -- -- 10,286 Class C ............................................... 8,018 -- 1,200 203,866 --------------- -------------- --------------- -------------- 4,589,041 6,971,193 1,104,254 52,493,591 --------------- -------------- --------------- -------------- Proceeds from reinvestment of dividends Class AAA ............................................. 1,123,377 407,356 3,747,947 577,769 Class A ............................................... 3,262 576 3,328 387 Class B ............................................... 89 34 31,868 5,990 Class C ............................................... 471 104 26,802 1,696 --------------- -------------- --------------- -------------- 1,127,199 408,070 3,809,945 585,842 --------------- -------------- --------------- -------------- Cost of shares redeemed Class AAA ............................................. (8,514,297) (7,202,768) (14,221,912) (59,054,214) Class A ............................................... (3,263) (39,859) (6,629) -- Class B ............................................... -- -- (38,328) (192,800) Class C ............................................... -- -- (40,914) (11,877) --------------- -------------- --------------- -------------- (8,517,560) (7,242,627) (14,307,783) (59,258,891) --------------- -------------- --------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM SHARES OF BENEFICIAL INTEREST TRANSACTIONS ................... (2,801,320) 136,636 (9,393,584) (6,179,458) --------------- -------------- --------------- -------------- REDEMPTION FEES ......................................... 6,511 984 22 461 --------------- -------------- --------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS ................... (190,658) 2,544,511 (4,253,701) (180,472) NET ASSETS: Beginning of period ..................................... 16,483,756 13,939,245 51,551,968 51,732,440 --------------- -------------- --------------- -------------- End of period ........................................... $ 16,293,098 $ 16,483,756 $ 47,298,267 $ 51,551,968 =============== ============== =============== ============== Undistributed net investment income ..................... $ 8,073 $ -- $ 7,159 $ -- =============== ============== =============== ============== See accompanying notes to financial statements. 31 THE WESTWOOD FUNDS NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. ORGANIZATION. The Westwood Funds, formerly the Gabelli Westwood Funds, (the "Trust") was organized as a Massachusetts business trust on June 12, 1986. The Trust is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified open-end management investment company and currently consists of six active separate investment portfolios: Equity Fund, Balanced Fund, Intermediate Bond Fund, SmallCap Equity Fund, Income Fund and Mighty Mites(SM) Fund (collectively, the "Funds"), each with four classes of shares outstanding known as the Class AAA Shares, Class A Shares, Class B Shares and Class C Shares. Each class of shares outstanding bears the same voting, dividend, liquidation and other rights and conditions, except that the expenses incurred in the distribution and marketing of such shares are different for each class. Prior to July 18, 2005, the Westwood Income Fund's name was Westwood Realty Fund. The investment objectives of each Fund are as follows: Equity Fund seeks to provide capital appreciation. The Fund's secondary goal is to produce current income. Balanced Fund seeks to provide capital appreciation and current income resulting in a high total investment return consistent with prudent investment risk and a balanced investment approach. Intermediate Bond Fund seeks to maximize total return, while maintaining a level of current income consistent with the maintenance of principal and liquidity. SmallCap Equity Fund seeks to provide long-term capital appreciation by investing primarily in smaller capitalization equity securities. Income Fund seeks to provide a high level of current income as well as long-term capital appreciation by investing primarily in income producing equity and fixed income securities. Mighty Mites(SM) Fund seeks to provide long-term capital appreciation by investing primarily in micro-capitalization equity securities. 2. SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements. SECURITY VALUATION. Portfolio securities listed or traded on a nationally recognized securities exchange or traded in the U.S. over-the-counter market for which market quotations are readily available are valued at the last quoted sale price or a market's official closing price as of the close of business on the day the securities are being valued. If there were no sales that day, the security is valued at the average of the closing bid and asked prices or, if there were no asked prices quoted on that day, then the security is valued at the closing bid price on that day. If no bid or asked prices are quoted on such day, the security is valued at the most recently available price or, if the Board of Trustees (the "Board") so determines, by such other method as the Board shall determine in good faith, to reflect its fair market value. Portfolio securities traded on more than one national securities exchange or market are valued according to the broadest and most representative market, as determined by Gabelli Advisers, Inc. (the "Adviser"). Portfolio securities primarily traded on foreign markets are generally valued at the preceding closing values of such securities on their respective exchanges or if after the close of the foreign markets, but prior to the close of business on the day the securities are being valued, market conditions change significantly, certain foreign securities may be fair valued pursuant to procedures established by the Board. Debt instruments with remaining maturities of 60 days or less that are not credit impaired are valued at amortized cost, unless the Board determines such amount does not reflect the securities' fair value, in which case these securities will be valued at their fair value as determined by the Board. Debt instruments having a maturity greater than 60 days for which market quotations are readily available are valued at the average of the latest bid and asked prices. If there were no asked prices quoted on such day, the security is valued using the closing bid price. Futures contracts are valued at the closing settlement price of the exchange or board of trade on which the applicable contract is traded. 32 THE WESTWOOD FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- Securities and assets for which market quotations are not readily available are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Board. Fair valuation methodologies and procedures may include, but are not limited to: analysis and review of available financial and non-financial information about the company; comparisons to the valuation and changes in valuation of similar securities, including a comparison of foreign securities to the equivalent U.S. dollar value ADR securities at the close of the U.S. exchange; and evaluation of any other information that could be indicative of the value of the security. ACCOUNTING FOR REAL ESTATE INVESTMENT TRUSTS. The Funds (except for Intermediate Bond Fund and Mighty Mites(SM) Fund) own shares of Real Estate Investment Trusts ("REITS") which report information on the source of their distributions annually. Distributions received from REITS during the year which represent a return of capital are recorded as a reduction to the cost of the individual REIT and distributions which represent a capital gain dividend are recorded as a realized long-term capital gain on investments. FOREIGN CURRENCY TRANSLATIONS. The books and records of the Trust are maintained in United States (U.S.) dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the exchange rates prevailing at the end of the period, and purchases and sales of investment securities, income and expenses are translated at the exchange rate prevailing on the respective dates of such transactions. Unrealized gains and losses that result from changes in foreign exchange rates and/or changes in market prices of securities have been included in unrealized appreciation/depreciation on investments and foreign currency translations. Net realized foreign currency gains and losses resulting from changes in exchange rates include foreign currency gains and losses between trade date and settlement date on investment securities transactions, foreign currency transactions and the difference between the amounts of interest and dividends recorded on the books of the Trust and the amounts actually received. The portion of foreign currency gains and losses related to fluctuation in exchange rates between the initial trade date and subsequent sale trade date is included in realized gain/(loss) on investments. FOREIGN SECURITIES. The Funds may directly purchase securities of foreign issuers. Investing in securities of foreign issuers involves special risks not typically associated with investing in securities of U.S. issuers. The risks include possible revaluation of currencies, the ability to repatriate funds, less complete financial information about companies and possible future adverse political and economic developments. Moreover, securities of many foreign issuers and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. issuers. RESTRICTED AND ILLIQUID SECURITIES. Each Fund may invest up to 5% (except for the SmallCap Equity Fund, Income Fund and Mighty Mites(SM) Fund which may invest up to 15%) of its net assets in restricted securities issued under Section 4(2) of the Securities Act of 1933 and up to 10% (except for the SmallCap Equity Fund, Income Fund and Mighty Mites(SM) Fund which may invest up to 15%) of certain Rule 144A and other illiquid securities. Illiquid securities include securities the disposition of which is subject to substantial legal or contractual restrictions. The sale of illiquid securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of securities eligible for trading on national securities exchanges or in the over-the-counter markets. Restricted securities may sell at a price lower than similar securities that are not subject to restrictions on resale. Rule 144A securities freely salable among qualified institutional investors under special rules adopted by the Securities and Exchange Commission ("SEC") may be treated as liquid if they satisfy liquidity standards established by the Board. The continued liquidity of such securities is not as well assured as that of publicly traded securities, and accordingly the Board will monitor their liquidity. FOREIGN TAXES. The Funds may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. The Funds will accrue such taxes and recoveries as applicable, based upon their current interpretation of tax rules and regulations that exist in the markets in which they invest. SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are accounted for on the trade date with realized gain or loss on investments determined by using the identified cost method. Interest income (including amortization of premium and accretion of discount) is recorded as earned. Dividend income is recorded on the ex-dividend date. 33 THE WESTWOOD FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- DETERMINATION OF NET ASSET VALUE AND CALCULATION OF EXPENSES. Certain administrative expenses are common to, and allocated among, the Funds and then among the Classes of Shares. Such allocations are made on the basis of each Fund's and Class' average net assets or other criteria directly affecting the expenses as determined by the Adviser pursuant to procedures established by the Board. In calculating net asset value per share of each class, investment income, realized and unrealized gains and losses, redemption fees and expenses other than class specific expenses are allocated daily to each class of shares based upon the proportion of net assets of each class at the beginning of each day. Distribution expenses are borne solely by the class incurring the expense. CUSTODIAN FEE CREDITS. When cash balances are maintained in a Fund's custody account, the Fund receives credits which are used to offset custodian fees. The gross expenses paid under each custody arrangement are included in custodian fees in the Statement of Operations with the corresponding expense offset shown as "custodian fee credits". DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends from net investment income are declared and paid annually for the Equity, SmallCap Equity and Mighty Mites(SM) Funds, and quarterly for the Balanced and Income Funds. The Intermediate Bond Fund declares dividends daily and pays those dividends monthly. Distributions of net realized gain on investments are normally declared and paid at least annually by each Fund. Dividends and distributions to shareholders are recorded on the ex-dividend date. Distributions to shareholders are based on ordinary income and long-term capital gains as determined in accordance with Federal income tax regulations, which may differ from income and capital gains as determined under U.S. generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Funds, timing differences and differing characterizations of distributions made by the Funds. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, adjustments are made to the appropriate equity accounts in the period that the differences arise. For the year ended September 30, 2005, the following reclassifications were made to increase (decrease) such accounts with offsetting adjustments to additional paid-in capital. These reclassifications related primarily to distributions from Real Estate Investment Trusts and net operating losses. PAID-IN ACCUMULATED UNDISTRIBUTED ACCUMULATED REALIZED CAPITAL NET INVESTMENT INCOME (LOSS) GAIN (LOSS) ON INVESTMENTS --------- ---------------------------- -------------------------- Equity Fund ....................... -- -- -- Balanced Fund ..................... -- -- -- Intermediate Bond Fund ............ -- -- -- SmallCap Equity Fund .............. $ (10,082) $ 10,082 -- Income Fund ....................... -- -- -- Mighty Mites(SM) Fund ............. -- 52,552 $ (52,552) The tax character of distributions paid during the years ended September 30, 2005 and September 30, 2004 was as follows: EQUITY FUND BALANCED FUND INTERMEDIATE BOND FUND ------------------------- ------------------------- ------------------------ YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, ------------------------- ------------------------- ------------------------ 2005 2004 2005 2004 2005 2004 ----------- ----------- ----------- ----------- ---------- ---------- Ordinary income (inclusive of short-term capital gains) ..... $ 1,770,210 $ 2,644,524 $ 2,311,885 $ 2,813,516 $ 326,226 $ 315,825 Net long-term capital gains .................... -- -- -- -- 88,949 13,617 ----------- ----------- ----------- ----------- ---------- ---------- Total distributions paid ....................... $ 1,770,210 $ 2,644,524 $ 2,311,885 $ 2,813,516 $ 415,175 $ 329,442 =========== =========== =========== =========== ========== ========== 34 THE WESTWOOD FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- SMALLCAP EQUITY FUND INCOME FUND MIGHTY MITES(SM) FUND ------------------------- ------------------------- ------------------------ YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, ------------------------- ------------------------- ------------------------ 2005 2004 2005 2004 2005 2004 ----------- ----------- ----------- ----------- ----------- ---------- Ordinary income (inclusive of short-term capital gains) ..... -- -- $ 313,174 $ 388,106 $ 1,345,361 $ 322,208 Net long-term capital gains .................... -- -- 888,047 58,950 2,738,760 347,646 ----------- ----------- ----------- ----------- ----------- ---------- Total distributions paid ....................... -- -- $ 1,201,221 $ 447,056 $ 4,084,121 $ 669,854 =========== =========== =========== =========== =========== ========== PROVISION FOR INCOME TAXES. The Funds intend to continue to qualify as regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). It is the Funds' policy to comply with the requirements of the Code applicable to regulated investment companies and to distribute substantially all of the Funds' net investment company taxable income and net capital gains. Therefore, no provision for Federal income taxes is required. As of September 30, 2005, the components of accumulated earnings/(losses) on a tax basis were as follows: INTERMEDIATE SMALLCAP MIGHTY EQUITY BALANCED BOND EQUITY INCOME MITES(SM) FUND FUND FUND FUND FUND FUND ------------ ------------ ------------ ------------ ----------- ------------ Undistributed ordinary income .................. $ 391,082 $ 131,253 $ 11,088 -- $ 255,787 -- Undistributed long-term capital gain ........... -- 9,714,779 6,369 -- 3,607,312 $ 4,991,966 Capital loss carryforward ...................... (4,052,930) -- -- $ (9,321,962) -- -- Unrealized appreciation/(depreciation) ......... 33,667,649 18,424,950 65,711 1,082,148 2,939,150 12,151,430 Post-October currency losses ................... -- -- -- -- -- (2,076) ------------ ------------ ------------ ------------ ----------- ------------ Total accumulated income/(loss) ................ $ 30,005,801 $ 28,270,982 $ 83,168 $ 8,239,814 $ 6,802,249 $ 17,141,320 ============ ============ ============ ============ =========== ============ At September 30, 2005, the difference between book and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax basis deferral of losses on wash sales. Additionally, Mighty Mites(SM) has a basis adjustment due to an investment in a publicly traded limited partnership. The Equity Fund has capital loss carryforwards for Federal income tax purposes of $2,643,258 and $1,409,672 available through September 2011 and 2012, respectively. The SmallCap Equity Fund has capital loss carryforwards for Federal income tax purposes of $4,476,476 and $4,845,486 available through September 2010 and 2011, respectively. These loss carryforwards are available to reduce future required distributions of net capital gains to shareholders. During the fiscal year ended September 30, 2005 the Equity Fund, Balanced Fund and SmallCap Equity Fund utilized capital loss carryforwards of $24,706,242, $3,379,553 and $1,983,541, respectively. Under the current tax law, capital losses related to securities realized after October 31 and prior to the Funds' fiscal year end may be deferred as occurring on the first day of the following year. For the fiscal year ended September 30, 2005 the Funds had no capital losses to defer. The following summarizes the tax cost of investments and foreign currency and related unrealized appreciation/depreciation at September 30, 2005: INTERMEDIATE SMALLCAP MIGHTY EQUITY BALANCED BOND EQUITY INCOME MITES(SM) FUND FUND FUND FUND FUND FUND ------------- ------------- ------------ ----------- ------------ ------------ Aggregate cost of investments ................ $ 146,619,477 $ 132,537,745 $ 10,560,129 $ 7,350,239 $ 12,773,811 $ 35,075,693 ============= ============= ============ =========== ============ ============ Gross unrealized appreciation ................ $ 36,506,244 $ 20,083,495 $ 146,256 $ 1,227,317 $ 3,119,907 $ 16,076,026 Foreign currency unrealized appreciation ..... -- -- -- -- -- 32 Gross unrealized depreciation ................ (2,838,595) (1,658,545) (80,545) (145,169) (180,757) (3,924,628) ------------- ------------- ------------ ----------- ------------ ------------ Net unrealized appreciation .................. $ 33,667,649 $ 18,424,950 $ 65,711 $ 1,082,148 $ 2,939,150 $ 12,151,430 ============= ============= ============ =========== ============ ============ CONCENTRATION RISK. The Income Fund invests a substantial portion of its assets in REITS; therefore it may be more affected by economic developments in the real estate industry than would a general equity fund. 35 THE WESTWOOD FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 3. INVESTMENT ADVISORY AGREEMENTS. The Funds have entered into an investment advisory agreement (the "Advisory Agreement") with the Adviser which provides that the Funds will pay the Adviser a fee, computed daily and paid monthly, at the annual rate of 1.00% for the Equity, SmallCap Equity, Income and Mighty Mites(SM) Funds, 0.75% for the Balanced Fund, and 0.60% for the Intermediate Bond Fund, of the value of the Fund's average daily net assets. In accordance with the Advisory Agreement, the Adviser provides a continuous investment program for the Funds' portfolios, oversees the administration of all aspects of the Funds' business and affairs and pays the compensation of all Officers and Trustees of the Funds who are affiliated persons of the Adviser. The Adviser has contractually agreed to waive its investment advisory fee and/or reimburse expenses to the Intermediate Bond, SmallCap Equity, Income and Mighty Mites(SM) Funds in the event annual expenses of such Funds exceed certain prescribed limits. Such fee waiver/reimbursement arrangement will continue until at least September 30, 2006. This reimbursement agreement ended on September 30, 2005 for the Mighty Mites(SM) Fund. For the year ended September 30, 2005, the Adviser was entitled to fees of $1,774,591, $1,106,760, $63,574, $99,807, $175,413 and $492,179 for the Equity, Balanced, Intermediate Bond, SmallCap Equity, Income and Mighty Mites(SM) Funds, respectively. For the year ended September 30, 2005, the Adviser waived fees or reimbursed expenses in the amounts of $79,099, $81,296, $137,126 and $118,942 for the Intermediate Bond, SmallCap Equity, Income and Mighty Mites(SM) Funds, respectively. The Intermediate Bond, SmallCap Equity, Income and Mighty Mites(SM) Funds are obliged to repay the Adviser for a period of two fiscal years following the fiscal year in which the Adviser reimbursed the Fund only to the extent that the operating expenses of the Fund fall below the applicable expense limitation for Class AAA of 1.00%, 1.50%, 1.50% and 1.50%, respectively, and for Class A of 1.10%, 1.75%, 1.75% and 1.75%, respectively, and for Class B and Class C of 1.75%, 2.25%, 2.25% and 2.25%, respectively of average daily net assets, the annual limitation under the Advisory Agreement. As of September 30, 2005, the cumulative unreimbursed amounts which may be recovered by the Adviser within the next two fiscal years are $159,055, $160,765, $184,101 and $219,966 for the Intermediate Bond, SmallCap Equity, Income and Mighty Mites(SM) Funds, respectively. The Funds, with the exception of the Mighty Mites(SM) Fund, have also entered into a sub-advisory agreement with Westwood Management Corp. (the "Sub-Adviser") whereby the Adviser pays the Sub-Adviser the greater of $150,000 per year on an aggregate basis for the Funds or a fee of 35% of net revenues to the Adviser from the Funds. For the year ended September 30, 2005, the Adviser informed the Funds that it paid collectively to the Sub-Adviser fees of $766,282 for the Equity, Balanced, Intermediate Bond, SmallCap Equity and Income Funds. 4. DISTRIBUTION PLAN. The Funds' Board has adopted a distribution plan (the "Plan") for each class of shares pursuant to Rule 12b-1 under the 1940 Act. Gabelli & Company, Inc. ("Gabelli & Company"), an affiliate of the Adviser, serves as distributor of the Funds. Under the Class AAA, Class A, Class B and Class C Share Plans, payments are authorized to Gabelli & Company at annual rates of 0.25%, 0.50% (for the Intermediate Bond Fund at an annual rate of 0.35%), 1.00% and 1.00%, respectively, of the average daily net assets of those classes, the annual limitations under each Plan. Such payments are accrued daily and paid monthly. 5. PORTFOLIO SECURITIES. Purchases and proceeds from the sales of securities for the year ended September 30, 2005, other than short-term securities, are as follows: PURCHASES SALES PURCHASES SALES (EXCLUDING U.S. (EXCLUDING U.S. OF U.S. OF U.S. GOVERNMENT GOVERNMENT GOVERNMENT GOVERNMENT SECURITIES) SECURITIES) SECURITIES SECURITIES --------------- --------------- ------------ ------------ Equity Fund ............. $ 104,703,396 $ 142,098,476 -- -- Balanced Fund ........... 53,063,954 59,525,536 $ 21,818,582 $ 16,215,891 Intermediate Bond Fund .. 885,184 986,944 3,932,438 2,063,865 SmallCap Equity Fund .... 10,671,019 16,318,398 -- -- Income Fund ............. 9,581,319 12,467,361 -- -- Mighty Mites(SM) Fund ... 4,376,577 17,438,976 -- -- 36 THE WESTWOOD FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 6. TRANSACTIONS WITH AFFILIATES. During the year ended September 30, 2005, the Mighty Mites(SM) Fund paid brokerage commissions of $34,797 to Gabelli & Company. Gabelli & Company informed the Trust that it received commissions (sales charges and underwriting fees) from investors on sales and redemptions of Fund shares in the amount of $8,554. The cost of calculating each Fund's net asset value per share is a Fund expense pursuant to the Advisory Agreement. During the year ended September 30, 2005, the Equity, Balanced and Mighty Mites(SM) Funds reimbursed the Adviser $42,450, $42,450 and $19,950, respectively, in connection with the cost of computing the Fund's net asset value, which is included in miscellaneous expenses in the Statement of Operations. A reimbursement was not sought during the year ended September 30, 2005 for the Income Fund, Intermediate Bond Fund and SmallCap Equity Fund. SmallCap Equity Fund recorded a reimbursement from the Adviser during August 2004 in the amount of $51,180. This amount was paid in connection with losses incurred in the disposition of certain exchange traded funds which exceeded the Fund's investment restrictions. 7. SHARES OF BENEFICIAL INTEREST. The Funds currently offer four classes of shares -- Class AAA Shares, Class A Shares, Class B Shares, and Class C Shares. Class AAA Shares are offered only to investors who acquire them directly from Gabelli & Company or through selected broker/dealers without a sales charge. Class A Shares are subject to a maximum front-end sales charge of 4.00%. Class B Shares are subject to a contingent deferred sales charge ("CDSC") upon redemption within six years of purchase and automatically convert to Class A Shares after eight years from the original purchase. The applicable CDSC is equal to a declining percentage of the lesser of the net asset value per share at the date of original purchase or at the date of redemption, based on the length of time held. Class C Shares are subject to a 1% CDSC for one year after purchase. Class B Shares are available only through exchange of Class B Shares of other Funds distributed by Gabelli & Company. The Board has approved Class I Shares which have not been offered publicly. From August 1, 2004 to April 1, 2005, the Funds imposed a redemption fee on Class AAA, Class A, Class B and Class C Shares that were redeemed or exchanged within the sixtieth day after the date of a purchase. Effective April 1, 2005, the redemption fee was eliminated for all Funds except Mighty Mites(SM) Fund whose redemption fee was retained at 2.00% applicable to redemptions or exchanges within 7 days after the date of a purchase. The redemption fee is deducted from the proceeds otherwise payable to the redeeming shareholders and is retained by the Funds. The redemption fees retained by the Funds during the year ended September 30, 2005 amounted to $(1,224), $5,163, $(78), $(155), $6,511 and $22 for the Equity, Balanced, Intermediate Bond, SmallCap Equity, Income and Mighty Mites(SM) Funds, respectively. The redemption fee does not apply to shares purchased through programs that the Adviser determined to have appropriate short-term trading policies in place. Additionally, certain recordkeepers for qualified and non-qualified retirement plans that could not collect the redemption fee at the participant level due to systems limitations have received an extension to implement such systems. 37 THE WESTWOOD FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- Transactions in shares of beneficial interest were as follows: EQUITY FUND BALANCED FUND INTERMEDIATE BOND FUND --------------------------- -------------------------- ------------------------ YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, --------------------------- -------------------------- ------------------------ 2005 2004 2005 2004 2005 2004 ----------- ------------ ------------ ------------ ---------- ----------- CLASS AAA Shares sold .................................... 2,614,599 4,570,931 2,242,945 2,879,300 183,882 177,231 Shares issued upon reinvestment of dividends ... 163,156 274,221 171,183 224,878 32,898 25,093 Shares redeemed ................................ (5,914,467) (13,328,863) (2,955,568) (5,716,541) (131,846) (424,556) ----------- ------------ ------------ ------------ ---------- ---------- Net increase (decrease) in Class AAA shares .................................... (3,136,712) (8,483,711) (541,440) (2,612,363) 84,934 (222,232) =========== ============ ============ ============ ========== ========== CLASS A Shares sold .................................... 29,818 84,074 57,114 31,077 2,852 251 Shares issued upon reinvestment of dividends ... 856 3,690 4,182 6,537 257 251 Shares redeemed ................................ (184,155) (96,075) (80,170) (58,193) (4,564) (5,990) ----------- ------------ ------------ ------------ ---------- ---------- Net decrease in Class A shares .............. (153,481) (8,311) (18,874) (20,579) (1,455) (5,488) =========== ============ ============ ============ ========== ========== CLASS B Shares sold .................................... -- 828 -- 2,421 104 7,103 Shares issued upon reinvestment of dividends ... -- 46 31 183 554 408 Shares redeemed ................................ (1,360) (6,196) (3,427) (5,950) (6,562) (11,118) ----------- ------------ ------------ ------------ ---------- ---------- Net decrease in Class B shares .............. (1,360) (5,322) (3,396) (3,346) (5,904) (3,607) =========== ============ ============ ============ ========== ========== CLASS C Shares sold .................................... 278 1,131 18,332 85,453 -- -- Shares issued upon reinvestment of dividends ... 51 -- 174 552 -- 73 Shares redeemed ................................ (3,114) (1,094) (15,539) (55,549) -- (4,146) ----------- ------------ ------------ ------------ ---------- ---------- Net increase (decrease) in Class C shares ... (2,785) 37 2,967 30,456 -- (4,073) =========== ============ ============ ============ ========== ========== SMALLCAP EQUITY FUND INCOME FUND MIGHTY MITES(SM) FUND --------------------------- -------------------------- ------------------------ CLASS AAA Shares sold .................................... 167,006 1,764,700 294,028 526,666 70,495 3,529,295 Shares issued upon reinvestment of dividends ... -- -- 74,389 31,120 247,063 41,006 Shares redeemed ................................ (728,768) (2,354,722) (555,553) (564,612) (909,141) (4,006,222) ----------- ------------ ------------ ------------ ---------- ---------- Net decrease in Class AAA shares ............ (561,762) (590,022) (187,136) (6,826) (591,583) (435,921) =========== ============ ============ ============ ========== ========== CLASS A Shares sold .................................... 427 1,799 5,237 2,331 74 114 Shares issued upon reinvestment of dividends ... -- -- 212 45 219 28 Shares redeemed ................................ (4,228) -- (206) (2,910) (409) -- ----------- ------------ ------------ ------------ ---------- ---------- Net increase (decrease) in Class A shares ... (3,801) 1,799 5,243 (534) (116) 142 =========== ============ ============ ============ ========== ========== CLASS B Shares sold .................................... -- 41 -- -- -- 718 Shares issued upon reinvestment of dividends ... -- -- 6 3 2,143 430 Shares redeemed ................................ (1,353) (5,827) -- -- (2,562) (12,996) ----------- ------------ ------------ ------------ ---------- ---------- Net increase (decrease) in Class B shares ... (1,353) (5,786) 6 3 (419) (11,848) =========== ============ ============ ============ ========== ========== CLASS C Shares sold .................................... -- -- 533 -- 79 14,145 Shares issued upon reinvestment of dividends ... -- -- 30 8 1,809 122 Shares redeemed ................................ (1,100) (12,543) -- -- (2,579) (849) ----------- ------------ ------------ ------------ ---------- ---------- Net increase (decrease) in Class C shares ... (1,100) (12,543) 563 8 (691) 13,418 =========== ============ ============ ============ ========== ========== 38 THE WESTWOOD FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 8. OTHER MATTERS. Affiliates of the Adviser have received subpoenas from the Attorney General of the State of New York and the Securities and Exchange Commission (the "SEC") requesting information on mutual fund trading practices. GAMCO Investors, Inc., the Adviser's parent company, is responding to these requests for documents and testimony. On a separate matter, in September 2005, Gabelli Funds, LLC, an affiliate of the Adviser, was informed by the staff of the SEC that the staff may recommend to the Commission that an administrative remedy and a monetary penalty be sought from Gabelli Funds, LLC in connection with the actions of two of seven closed-end funds it manages relating to Section 19(a) and Rule 19a-1 of the 1940 Act. These provisions require registered investment companies to provide written statements to shareholders when a dividend is made from a source other than net investment income. While the two closed-end funds sent annual statements and provided other materials containing this information, the funds did not send written statements to shareholders with each distribution in 2002 and 2003. Gabelli Funds, LLC believes that all of the funds it advises are now in compliance. GAMCO Investors, Inc. believes that these matters would have no effect on the Funds nor any material adverse effect on the Adviser or its ability to manage the Funds. 9. INDEMNIFICATIONS. The Funds enter into contracts that contain a variety of indemnifications. The Funds' maximum exposure under these arrangements is unknown. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote. 39 THE WESTWOOD FUNDS FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period: OPERATING PERFORMANCE DISTRIBUTIONS TO SHAREHOLDERS -------------------------------------------- ---------------------------------------- NET REALIZED NET ASSET NET AND TOTAL NET VALUE, INVESTMENT UNREALIZED GAIN FROM NET REALIZED PERIOD ENDED BEGINNING INCOME (LOSS) ON INVESTMENT INVESTMENT GAIN ON TOTAL SEPTEMBER 30 OF PERIOD (LOSS)(b) INVESTMENTS OPERATIONS INCOME INVESTMENTS DISTRIBUTIONS - ---------------------- --------- ---------- --------------- ---------- ---------- ----------- ------------- EQUITY FUND CLASS AAA 2005 $ 9.32 $ 0.07 $ 1.79 $ 1.86 $ (0.10) -- $ (0.10) 2004 7.99 0.08 1.36 1.44 (0.11) -- (0.11) 2003 7.02 0.09 0.96 1.05 (0.08) -- (0.08) 2002 8.32 0.07 (1.32) (1.25) (0.05) -- (0.05) 2001 11.12 0.04 (1.52) (1.48) (0.01) $ (1.31) (1.32) CLASS A 2005 $ 9.28 $ 0.06 $ 1.75 $ 1.81 $ (0.04) -- $ (0.04) 2004 7.97 0.05 1.35 1.40 (0.09) -- (0.09) 2003 6.99 0.07 0.97 1.04 (0.06) -- (0.06) 2002 8.29 0.05 (1.32) (1.27) (0.03) -- (0.03) 2001 11.10 0.02 (1.52) (1.50) -- $ (1.31) (1.31) CLASS B 2005 $ 9.21 $ (0.00)(c) $ 1.75 $ 1.75 -- -- -- 2004 7.92 0.02 1.34 1.36 $ (0.07) -- $ (0.07) 2003 6.97 0.04 0.95 0.99 (0.04) -- (0.04) 2002 8.29 0.02 (1.32) (1.30) (0.02) -- (0.02) 2001(d) 9.65 (0.01) (1.35) (1.36) -- -- -- CLASS C 2005 $ 9.24 $ (0.01) $ 1.77 $ 1.76 $ (0.03) -- $ (0.03) 2004 7.89 0.01 1.34 1.35 -- -- -- 2003 6.98 0.04 0.96 1.00 (0.09) -- (0.09) 2002 8.28 0.01 (1.31) (1.30) -- -- -- 2001(e) 10.25 (0.01) (1.96) (1.97) -- -- -- RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA -------------------------------------------------------------------- NET NET ASSETS, ASSET VALUE, END OF NET PORTFOLIO PERIOD ENDED REDEMPTION END OF TOTAL PERIOD INVESTMENT OPERATING TURNOVER SEPTEMBER 30 FEES(b) PERIOD RETURN+ (IN 000'S) INCOME (LOSS) EXPENSES(a) RATE - ---------------------- ---------- ------------ ------- ----------- ------------- ---------- --------- EQUITY FUND CLASS AAA 2005 $ (0.00)(c) $ 11.08 20.0% $ 178,394 0.69% 1.51% 59% 2004 0.00(c) 9.32 18.1 179,407 0.90 1.50 44 2003 -- 7.99 15.1 221,635 1.19 1.48 50 2002 -- 7.02 (15.1) 231,197 0.84 1.46 84 2001 -- 8.32 (14.9) 265,855 0.45 1.43 87 CLASS A 2005 $ (0.00)(c) $ 11.05 19.6% $ 2,267 0.59% 1.76% 59% 2004 0.00)(c) 9.28 17.7 3,328 0.61 1.75 44 2003 -- 7.97 15.0 2,923 0.94 1.73 50 2002 -- 6.99 (15.4) 1,808 0.59 1.71 84 2001 -- 8.29 (15.1) 2,096 0.20 1.68 87 CLASS B 2005 $ (0.00)(c) $ 10.96 19.0% $ 30 (0.01)% 2.26% 59% 2004 0.00(c) 9.21 17.2 38 0.21 2.25 44 2003 -- 7.92 14.3 74 0.44 2.23 50 2002 -- 6.97 (15.7) 53 0.09 2.21 84 2001(d) -- 8.29 (14.1) 27 (0.30)(f) 2.18(f) 87 CLASS C 2005 $ (0.00)(c) $ 10.97 19.1% $ 149 (0.06)% 2.26% 59% 2004 0.00(c) 9.24 17.1 152 0.11 2.25 44 2003 -- 7.89 14.4 129 0.44 2.23 50 2002 -- 6.98 (15.7) 33 0.09 2.21 84 2001(e) -- 8.28 (19.2) 4 (0.30)(f) 2.18(f) 87 - ---------- + 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. Total return for the period of less than one year is not annualized. (a) The ratios do not include a reduction of expenses for custodian fee credits on cash balances maintained with the custodian. Including such custodian fee credits, the expense ratios would be 1.49% (Class AAA), 1.74% (Class A), and 2.24% (Class B and Class C) for the periods ended September 30, 2005 and 2004; 1.47% (Class AAA), 1.72% (Class A) and 2.22% (Class B and Class C) for 2003; 1.43% (Class AAA), 1.68% (Class A) and 2.18% (Class B and Class C) for 2002; and 1.42% (Class AAA), 1.67% (Class A) and 2.17% (Class B and Class C) for 2001. (b) Per share data is calculated using the average shares outstanding method. (c) Amount represents less than $0.005 per share. (d) From March 27, 2001 through September 30, 2001, the period through which Class B Shares were continuously outstanding. (e) From February 13, 2001 through September 30, 2001, the period through which Class C Shares were continuously outstanding. (f) Annualized. See accompanying notes to financial statements. 40 THE WESTWOOD FUNDS FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period: OPERATING PERFORMANCE DISTRIBUTIONS TO SHAREHOLDERS -------------------------------------------- ------------------------------------------- NET REALIZED NET ASSET AND TOTAL NET VALUE, NET UNREALIZED GAIN FROM NET REALIZED PERIOD ENDED BEGINNING INVESTMENT (LOSS) ON INVESTMENT INVESTMENT GAIN ON TOTAL SEPTEMBER 30 OF PERIOD INCOME(b) INVESTMENTS OPERATIONS INCOME INVESTMENTS DISTRIBUTIONS - ---------------------- --------- ---------- --------------- ---------- ---------- ----------- ------------- BALANCED FUND CLASS AAA 2005 $ 11.47 $ 0.20 $ 1.26 $ 1.46 $ (0.19) -- $ (0.19) 2004 10.51 0.21 0.97 1.18 (0.22) -- (0.22) 2003 9.65 0.21 0.87 1.08 (0.22) -- (0.22) 2002 10.40 0.24 (0.75) (0.51) (0.24) $ (0.00)(c) (0.24) 2001 12.40 0.26 (0.90) (0.64) (0.26) (1.10) (1.36) CLASS A 2005 $ 11.44 $ 0.17 $ 1.26 $ 1.43 $ (0.13) -- $ (0.13) 2004 10.48 0.18 0.97 1.15 (0.19) -- (0.19) 2003 9.62 0.19 0.86 1.05 (0.19) -- (0.19) 2002 10.37 0.21 (0.75) (0.54) (0.21) $ (0.00)(c) (0.21) 2001 12.36 0.23 (0.89) (0.66) (0.23) (1.10) (1.33) CLASS B 2005 $ 11.43 $ 0.11 $ 1.26 $ 1.37 $ (0.04) -- $ (0.04) 2004 10.48 0.13 0.96 1.09 (0.14) -- (0.14) 2003 9.63 0.14 0.86 1.00 (0.15) -- (0.15) 2002 10.40 0.17 (0.77) (0.60) (0.17) $ (0.00)(c) (0.17) 2001(d) 11.35 0.08 (0.95) (0.87) (0.08) -- (0.08) CLASS C 2005 $ 11.45 $ 0.11 $ 1.26 $ 1.37 $ (0.04) -- $ (0.04) 2004 10.49 0.13 0.97 1.10 (0.14) -- (0.14) 2003 9.62 0.14 0.87 1.01 (0.14) -- (0.14) 2002 10.40 0.19 (0.79) (0.60) (0.18) $ (0.00)(c) (0.18) 2001(e) 10.17 0.00(c) 0.23 0.23 -- -- -- RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA --------------------------------------------------------------------- NET NET ASSETS, ASSET VALUE, END OF NET PORTFOLIO PERIOD ENDED REDEMPTION END OF TOTAL PERIOD INVESTMENT OPERATING TURNOVER SEPTEMBER 30 FEES(b) PERIOD RETURN+ (IN 000'S) INCOME EXPENSES(a) RATE - ---------------------- ---------- ------------ ------- ----------- ------------- ---------- ---------- BALANCED FUND CLASS AAA 2005 $ 0.00(c) $ 12.74 12.8% $ 144,572 1.67% 1.25% 56% 2004 0.00(c) 11.47 11.3 136,400 1.92 1.23 41 2003 -- 10.51 11.2 152,409 2.10 1.23 56 2002 -- 9.65 (5.1) 150,915 2.25 1.22 78 2001 -- 10.40 (5.8) 154,179 2.23 1.17 81 CLASS A 2005 $ 0.00(c) $ 12.74 12.6% $ 5,658 1.42% 1.50% 56% 2004 0.00(c) 11.44 11.0 5,298 1.66 1.48 41 2003 -- 10.48 11.0 5,070 1.85 1.48 56 2002 -- 9.62 (5.4) 5,761 2.00 1.47 78 2001 -- 10.37 (6.0) 6,472 1.98 1.42 81 CLASS B 2005 $ 0.00(c) $ 12.76 12.0% $ 138 0.93% 2.00% 56% 2004 0.00(c) 11.43 10.4 163 1.18 1.98 41 2003 -- 10.48 10.4 184 1.35 1.98 56 2002 -- 9.63 (5.9) 113 1.50 1.97 78 2001(d) -- 10.40 (7.7) 2 1.48(f) 1.92(f) 81 CLASS C 2005 $ 0.00(c) $ 12.78 12.0% $ 982 0.92% 2.00% 56% 2004 0.00(c) 11.45 10.5 846 1.19 1.98 41 2003 -- 10.49 10.5 456 1.35 1.98 56 2002 -- 9.62 (5.9) 284 1.50 1.97 78 2001(e) -- 10.40 2.3 7 1.48(f) 1.92(f) 81 - ---------- + 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. Total return for the period of less than one year is not annualized. (a) The ratios do not include a reduction of expenses for custodian fee credits on cash balances maintained with the custodian. Including such custodian fee credits, the expense ratios would be 1.22% (Class AAA), 1.47% (Class A) and 1.97% (Class B and Class C) for the periods ended September 30, 2005 and 2004; 1.20% (Class AAA), 1.45% (Class A) and 1.95% (Class B and Class C) for 2003; 1.17% (Class AAA), 1.42% (Class A) and 1.92% (Class B and Class C) for 2002; and 1.15% (Class AAA), 1.40% (Class A) and 1.90% (Class B and Class C) for 2001. (b) Per share data is calculated using the average shares outstanding method. (c) Amount represents less than $0.005 per share. (d) From March 27, 2001 through September 30, 2001, the period through which Class B Shares were continuously outstanding. (e) From September 25, 2001 through September 30, 2001, the period through which Class C Shares were continuously outstanding. (f) Annualized. See accompanying notes to financial statements. 41 THE WESTWOOD FUNDS FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period: OPERATING PERFORMANCE DISTRIBUTIONS TO SHAREHOLDERS ----------------------------------------- ---------------------------------------- NET REALIZED NET ASSET AND TOTAL NET VALUE, NET UNREALIZED GAIN FROM NET REALIZED PERIOD ENDED BEGINNING INVESTMENT (LOSS) ON INVESTMENT INVESTMENT GAIN ON TOTAL SEPTEMBER 30 OF PERIOD INCOME(c) INVESTMENTS OPERATIONS INCOME INVESTMENTS DISTRIBUTIONS - ---------------------- --------- ---------- --------------- ---------- ---------- ----------- ------------- INTERMEDIATE BOND FUND CLASS AAA 2005 $ 11.18 $ 0.34 $ (0.16) $ 0.18 $ (0.34) $ (0.09) $ (0.43) 2004 11.31 0.33 (0.12) 0.21 (0.33) (0.01) (0.34) 2003 11.30 0.31 -- 0.31 (0.30) -- (0.30) 2002 10.82 0.45 0.48 0.93 (0.45) -- (0.45) 2001 10.08 0.51 0.74 1.25 (0.51) -- (0.51) CLASS A 2005 $ 11.18 $ 0.33 $ (0.16) $ 0.17 $ (0.33) $ (0.09) $ (0.42) 2004 11.31 0.32 (0.12) 0.20 (0.32) (0.01) (0.33) 2003 11.30 0.30 0.01 0.31 (0.30) -- (0.30) 2002 10.82 0.44 0.48 0.92 (0.44) -- (0.44) 2001(d) 10.55 0.09 0.27 0.36 (0.09) -- (0.09) CLASS B 2005 $ 11.18 $ 0.26 $ (0.16) $ 0.10 $ (0.26) $ (0.09) $ (0.35) 2004 11.30 0.25 (0.11) 0.14 (0.25) (0.01) (0.26) 2003 11.29 0.23 -- 0.23 (0.22) -- (0.22) 2002 10.82 0.37 0.47 0.84 (0.37) -- (0.37) 2001(e) 10.53 0.22 0.29 0.51 (0.22) -- (0.22) CLASS C(g) 2005 $ 11.17 $ 0.27 $ (0.12) $ 0.15 $ (0.41) $ (0.09) $ (0.50) 2004 11.30 0.25 (0.09) 0.16 (0.28) (0.01) (0.29) 2003 11.29 0.22 0.01 0.23 (0.22) -- (0.22) 2002(h) 10.84 0.35 0.45 0.80 (0.35) -- (0.35) RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA --------------------------------------------------------------------------- OPERATING OPERATING EXPENSES EXPENSES NET NET ASSETS, NET OF BEFORE ASSET VALUE, END OF NET WAIVERS/ WAIVERS/ PORTFOLIO PERIOD ENDED REDEMPTION END OF TOTAL PERIOD INVESTMENT REIMBURSE- REIMBURSE- TURNOVER SEPTEMBER 30 FEES(c) PERIOD RETURN+ (IN 000'S) INCOME MENTS(a) MENTS(b) RATE - ---------------------- ---------- ------------ ------- ----------- ---------- ---------- ---------- --------- INTERMEDIATE BOND FUND CLASS AAA 2005 $ (0.00)(i) $ 10.93 1.7% $ 10,272 3.10% 1.04% 1.79% 33% 2004 0.00(i) 11.18 2.0 9,553 2.97 1.02 1.76 32 2003 -- 11.31 2.8 12,174 2.70 1.06 1.57 73 2002 -- 11.30 8.9 15,157 4.06 1.05 1.69 46 2001 -- 10.82 12.7 8,140 4.90 1.07 2.02 77 CLASS A 2005 $ (0.00)(i) $ 10.93 1.6% $ 58 3.00% 1.14% 1.88% 33% 2004 0.00(i) 11.18 1.8 75 2.88 1.12 1.86 32 2003 -- 11.31 2.8 138 2.60 1.16 1.67 73 2002 -- 11.30 8.8 56 3.96 1.15 1.79 46 2001(d) -- 10.82 3.4 93 4.80(f) 1.17(f) 2.12(f) 77 CLASS B 2005 $ (0.00)(i) $ 10.93 0.9% $ 381 2.34% 1.79% 2.53% 33% 2004 0.00(i) 11.18 1.3 456 2.23 1.77 2.51 32 2003 -- 11.30 2.1 502 1.95 1.81 2.32 73 2002 -- 11.29 8.0 229 3.31 1.80 2.44 46 2001(e) -- 10.82 4.9 23 4.15(f) 1.82(f) 2.77(f) 77 CLASS C(g) 2005 $ (0.00)(i) $ 10.82 1.4% $ 0.1 2.50% 1.79% 2.90% 33% 2004 0.00(i) 11.17 1.5 0 2.21 1.77 2.51 32 2003 -- 11.30 2.1 46 1.95 1.81 2.32 73 2002(h) -- 11.29 7.6 50 3.31(f) 1.80(f) 2.44(f) 46 - ---------- + 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. Total return for the period of less than one year is not annualized. (a) The ratios do not include a reduction of expenses for custodian fee credits on cash balances maintained with the custodian. Including such custodian fee credits, the expense ratios for Class AAA, Class A, Class B, and Class C, would be 1.00%, 1.10%, 1.75% and 1.75%, respectively, for each period. (b) 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. (c) Per share data is calculated using the average shares outstanding method. (d) From July 26, 2001 through September 30, 2001, the period through which Class A Shares were continuously outstanding. (e) From March 27, 2001 through September 30, 2001, the period through which Class B Shares were continuously outstanding. (f) Annualized. (g) Class C Shares were outstanding for the periods March 21, 2001 through March 26, 2001 and July 18, 2001 through July 24, 2001. Financial Highlights are not presented for Class C Shares for these periods as the information is not considered meaningful. (h) From October 22, 2001 through September 30, 2002, the period through which Class C Shares were continuously outstanding. (i) Amount represents less than $0.005 per share. See accompanying notes to financial statements. 42 THE WESTWOOD FUNDS FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period: OPERATING PERFORMANCE DISTRIBUTIONS TO SHAREHOLDERS ------------------------------------- -------------------------------------------- NET REALIZED AND IN EXCESS NET ASSET UNREALIZED TOTAL NET OF NET VALUE, NET GAIN FROM REALIZED REALIZED PERIOD ENDED BEGINNING INVESTMENT (LOSS) ON INVESTMENT GAIN ON GAIN ON TOTAL SEPTEMBER 30 OF PERIOD LOSS(c) INVESTMENTS OPERATIONS INVESTMENTS INVESTMENTS DISTRIBUTIONS - ------------ --------- ---------- ------------ ---------- ----------- ----------- ------------- SMALLCAP EQUITY FUND CLASS AAA 2005 $ 9.08 $ (0.01) $ 2.22 $ 2.21 -- -- -- 2004 8.18 (0.10) 1.00 0.90 -- -- -- 2003 7.49 (0.08) 0.77 0.69 -- -- -- 2002 8.86 (0.09) (1.28) (1.37) -- -- -- 2001 22.10 (0.16) (8.12) (8.28) $ (4.53) $ (0.43)(e) $ (4.96) CLASS A 2005 $ 9.07 $ (0.04) $ 2.22 $ 2.18 -- -- -- 2004 8.18 (0.12) 1.01 0.89 -- -- -- 2003 7.51 (0.10) 0.77 0.67 -- -- -- 2002(g) 9.91 (0.09) (2.31) (2.40) -- -- -- CLASS B 2005 $ 8.86 $ (0.08) $ 2.15 $ 2.07 -- -- -- 2004 8.03 (0.17) 1.00 0.83 -- -- -- 2003 7.41 (0.13) 0.75 0.62 -- -- -- 2002 8.83 (0.16) (1.26) (1.42) -- -- -- 2001(d) 10.41 (0.10) (1.48) (1.58) -- -- -- CLASS C 2005 $ 8.99 $ (0.13) $ 2.01 $ 1.88 -- -- -- 2004 8.15 (0.17) 1.01 0.84 -- -- -- 2003 7.47 (0.10) 0.78 0.68 -- -- -- 2002(g) 9.91 (0.11) (2.33) (2.44) -- -- -- RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA ------------------------------------------------------------------------------- OPERATING OPERATING NET NET EXPENSES EXPENSES ASSET ASSETS, NET OF BEFORE VALUE, END OF NET WAIVERS/ WAIVERS/ PORTFOLIO PERIOD ENDED REDEMPTION END OF TOTAL PERIOD INVESTMENT REIMBURSE- REIMBURSE- TURNOVER SEPTEMBER 30 FEES(c) PERIOD RETURN+ (IN 000'S) LOSS MENTS(a) MENTS(b) RATE - ------------ ---------- ------- ------- ---------- ---------- ---------- ---------- --------- SMALLCAP EQUITY FUND CLASS AAA 2005 $ (0.00)(i) $ 11.29 24.3% $ 8,702 (0.10)% 1.56% 2.37% 108% 2004 0.00(i) 9.08 11.0(h) 12,106 (1.11) 1.51 2.12 260 2003 -- 8.18 9.2 15,721 (1.03) 1.53 1.99 329 2002 -- 7.49 (15.5) 16,212 (0.98) 1.56 1.76 202 2001 -- 8.86 (43.2) 21,768 (1.27) 1.59 1.74 184 CLASS A 2005 $ (0.00)(i) $ 11.25 24.0% $ 131 (0.35)% 1.81% 2.69% 108% 2004 0.00(i) 9.07 10.9(h) 140 (1.31) 1.76 2.37 260 2003 -- 8.18 8.9 112 (1.28) 1.78 2.24 329 2002(g) -- 7.51 (24.2) 71 (1.23)(f) 1.80(f) 2.01(f) 202 CLASS B 2005 $ (0.00)(i) $ 10.93 23.4% $ 10 (0.81)% 2.31% 3.17% 108% 2004 0.00(i) 8.86 10.3(h) 20 (1.93) 2.26 2.87 260 2003 -- 8.03 8.4 65 (1.78) 2.28 2.74 329 2002 -- 7.41 (16.1) 31 (1.73) 2.30 2.51 202 2001(d) -- 8.83 (15.2) 31 (2.02)(f) 2.34(f) 2.49(f) 184 CLASS C 2005 $ (0.00)(i) $ 10.87 20.9% $ 0.1 (1.40)% 2.31% 2.73% 108% 2004 0.00(i) 8.99 10.3(h) 10.0 (1.98) 2.26 2.87 260 2003 -- 8.15 9.1 111.0 (1.78) 2.28 2.74 329 2002(g) -- 7.47 (24.6) 0.1 (1.73)(f) 2.30(f) 2.51(f) 202 - ---------- + 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. Total return for the period of less than one year is not annualized. (a) The ratios do not include a reduction of expenses for custodian fee credits on cash balances maintained with the custodian. Including such custodian fee credits, the expense ratios for Class AAA, Class A, Class B, and Class C would be 1.50%, 1.75%, 2.25% and 2.25%, respectively, for each period. (b) 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. (c) Per share data is calculated using the average shares outstanding method. (d) From March 27, 2001 through September 30, 2001, the period through which Class B Shares were continuously outstanding. (e) Return of Capital. (f) Annualized. (g) From November 26, 2001 through September 30, 2002, the period through which Class A Shares and Class C Shares were continuously outstanding. (h) Total return excluding the effect of the reimbursement from the Fund's Adviser of $51,180 for the year ended September 30, 2004 was 10.6%, 10.5%, 10.0% and 9.9% for Class AAA, Class A, Class B and Class C, respectively. The Adviser fully reimbursed the Fund for a loss on a transaction exceeding the Fund's investment restrictions, which otherwise would have reduced total return by 0.4%, 0.4%, 0.3% and 0.4% for Class AAA, Class A, Class B and Class C, respectively. (i) Amount represents less than $0.005 per share. See accompanying notes to financial statements. 43 THE WESTWOOD FUNDS FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period: OPERATING PERFORMANCE DISTRIBUTIONS TO SHAREHOLDERS ---------------------------------------- ---------------------------------------- NET REALIZED AND NET ASSET NET UNREALIZED TOTAL NET VALUE, INVESTMENT GAIN FROM NET REALIZED PERIOD ENDED BEGINNING INCOME (LOSS) ON INVESTMENT INVESTMENT GAIN ON TOTAL SEPTEMBER 30 OF PERIOD (LOSS)(d) INVESTMENTS OPERATIONS INCOME INVESTMENTS DISTRIBUTIONS - ---------------------- --------- ---------- ------------ ---------- ---------- ----------- ------------- INCOME FUND CLASS AAA 2005 $ 14.12 $ 0.28 $ 3.12 $ 3.40 $ (0.27) $ (0.73) $ (1.00) 2004 11.87 0.33 2.30 2.63 (0.33) (0.05) (0.38) 2003 10.03 0.38 1.85 2.23 (0.39) -- (0.39) 2002 9.76 0.43 0.31 0.74 (0.47) -- (0.47) 2001 9.10 0.40 0.62 1.02 (0.36) -- (0.36) CLASS A 2005 $ 14.33 $ 0.29 $ 3.13 $ 3.42 $ (0.26) $ (0.73) $ (0.99) 2004 12.00 0.51 2.12 2.63 (0.26) (0.04) (0.30) 2003 10.04 0.38 1.85 2.23 (0.27) -- (0.27) 2002 9.76 0.41 0.30 0.71 (0.43) -- (0.43) 2001(e) 9.24 0.02 0.70 0.72 (0.20) -- (0.20) CLASS B 2005 $ 14.33 $ 0.18 $ 3.16 $ 3.34 $ (0.08) $ (0.73) $ (0.81) 2004 12.04 0.25 2.35 2.60 (0.27) (0.04) (0.31) 2003 10.07 0.27 1.91 2.18 (0.21) -- (0.21) 2002(f) 9.90 0.36 0.22 0.58 (0.41) -- (0.41) CLASS C 2005 $ 14.66 $ 0.25 $ 3.17 $ 3.42 $ (0.09) $ (0.73) $ (0.82) 2004 12.32 0.24 2.41 2.65 (0.27) (0.04) (0.31) 2003 10.26 0.32 1.99 2.31 (0.25) -- (0.25) 2002(f) 9.90 0.09 0.49 0.58 (0.22) -- (0.22) RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA ---------------------------------------------------------------------------- OPERATING OPERATING NET NET EXPENSES EXPENSES ASSET ASSETS, NET NET OF BEFORE VALUE, END OF INVESTMENT WAIVERS/ WAIVERS/ PORTFOLIO PERIOD ENDED REDEMPTION END OF TOTAL PERIOD INCOME REIMBURSE- REIMBURSE- TURNOVER SEPTEMBER 30 FEES(d) PERIOD RETURN+ (IN 000'S) (LOSS) MENTS(a) MENTS(b) RATE - ---------------------- ---------- ---------- ------- ---------- ---------- ---------- ---------- --------- INCOME FUND CLASS AAA 2005 $ 0.01 $ 16.53 24.9% $ 16,182 1.83% 1.62% 2.40% 58% 2004 0.00(g) 14.12 22.5 16,472 2.51 1.54 1.85 28 2003 -- 11.87 22.8 13,923 3.70 1.56 2.05 33 2002 -- 10.03 7.5 9,122 4.42 1.59 2.61 47 2001 -- 9.76 11.4 3,526 4.27 1.64 4.51 64 CLASS A 2005 $ 0.00(g) $ 16.76 24.6% $ 93 1.87% 1.87% 3.03% 58% 2004 0.00(g) 14.33 22.2 5 3.96 1.79 2.10 28 2003 -- 12.00 22.6 10 3.45 1.81 2.30 33 2002 -- 10.04 7.2 3 4.17 1.84 2.86 47 2001(e) -- 9.76 7.8 3 4.02(c) 1.90(c) 4.77(c) 64 CLASS B 2005 $ 0.00(g) $ 16.86 23.9% $ 2 1.14% 2.37% 3.18% 58% 2004 0.00(g) 14.33 21.8 2 1.86 2.29 2.60 28 2003 -- 12.04 22.0 2 2.95 2.31 2.80 33 2002(f) -- 10.07 5.8 10 3.67(c) 2.34(c) 3.36(c) 47 CLASS C 2005 $ 0.00(g) $ 17.26 23.9% $ 16 1.56% 2.37% 3.41% 58% 2004 0.00(g) 14.66 21.7 5 1.79 2.29 2.60 28 2003 -- 12.32 22.8 4 2.95 2.31 2.80 33 2002(f) -- 10.26 5.8 0.1 3.67(c) 2.34(c) 3.36(c) 47 - --------------- + 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. Total return for the period of less than one year is not annualized. (a) The ratios do not include a reduction of expenses for custodian fee credits on cash balances maintained with the custodian. Including such custodian fee credits, the expense ratios for Class AAA, Class A, Class B and Class C would be 1.50%, 1.75%, 2.25% and 2.25%, respectively, for each period. (b) 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. (c) Annualized. (d) Per share data is calculated using the average shares outstanding method. (e) From May 9, 2001 through September 30, 2001, the period through which Class A Shares were continuously outstanding. (f) From November 26, 2001 through September 30, 2002, the period through which Class B and C Shares were continuously outstanding. (g) Amount represents less than $0.005 per share. See accompanying notes to financial statements. 44 THE WESTWOOD FUNDS FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period: OPERATING PERFORMANCE DISTRIBUTIONS TO SHAREHOLDERS ---------------------------------------- ---------------------------------------- NET REALIZED AND NET ASSET NET UNREALIZED TOTAL NET VALUE, INVESTMENT GAIN FROM NET REALIZED PERIOD ENDED BEGINNING INCOME (LOSS) ON INVESTMENT INVESTMENT GAIN ON TOTAL SEPTEMBER 30 OF PERIOD (LOSS)(e) INVESTMENTS OPERATIONS INCOME INVESTMENTS DISTRIBUTIONS - ---------------------- --------- ---------- ------------ ---------- ---------- ----------- ------------- MIGHTY MITES(SM) FUND CLASS AAA 2005 $ 15.07 $ (0.02) $ 2.97 $ 2.95 -- $ (1.29) $ (1.29) 2004 13.42 (0.03) 1.84 1.81 -- (0.16) (0.16) 2003 11.29 (0.03) 2.25 2.22 $ (0.04) (0.05) (0.09) 2002 10.99 0.03 0.37 0.40 (0.10) -- (0.10) 2001 14.00 0.12 (0.59) (0.47) (0.08) (2.46) (2.54) CLASS A 2005 $ 15.08 $ (0.06) $ 2.97 $ 2.91 -- $ (1.29) $ (1.29) 2004 13.46 (0.06) 1.84 1.78 -- (0.16) (0.16) 2003 11.36 (0.05) 2.26 2.21 $ (0.06) (0.05) (0.11) 2002(h) 10.97 (0.01) 0.40 0.39 -- -- -- 2001 14.00 0.09 (0.59) (0.50) (0.07) (2.46) (2.53) CLASS B 2005 $ 14.82 $ (0.14) $ 2.92 $ 2.78 -- $ (1.29) $ (1.29) 2004 13.30 (0.14) 1.82 1.68 -- (0.16) (0.16) 2003 11.24 (0.11) 2.22 2.11 -- (0.05) (0.05) 2002 10.96 (0.02) 0.34 0.32 $ (0.04) -- (0.04) 2001(f) 11.92 0.00(d) (0.96) (0.96) -- -- -- CLASS C 2005 $ 14.77 $ (0.14) $ 2.90 $ 2.76 -- $ (1.29) $ (1.29) 2004 13.25 0.02 1.66 1.68 -- (0.16) (0.16) 2003 11.19 (0.12) 2.23 2.11 -- (0.05) (0.05) 2002 10.98 (0.06) 0.37 0.31 $ (0.10) -- (0.10) 2001(g) 12.25 0.00(d) (1.27) (1.27) -- -- -- RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA ------------------------------------------------------------------------------- OPERATING OPERATING NET NET EXPENSES EXPENSES ASSET ASSETS, NET NET OF BEFORE VALUE, END OF INVESTMENT WAIVERS/ WAIVERS/ PORTFOLIO PERIOD ENDED REDEMPTION END OF TOTAL PERIOD INCOME REIMBURSE- REIMBURSE- TURNOVER SEPTEMBER 30 FEES(e) PERIOD RETURN+ (IN 000'S) (LOSS) MENTS(a) MENTS(b) RATE - ---------------------- ---------- ------------ ------- ----------- ------------ ---------- ---------- --------- MIGHTY MITES (SM) FUND CLASS AAA 2005 $ 0.00(d) $ 16.73 20.4% $ 46,497 (0.13)% 1.50% 1.74% 9% 2004 0.00(d) 15.07 13.6 50,805 (0.20) 1.50 1.66 36 2003 -- 13.42 19.8 51,138 (0.21) 1.50 1.66 14 2002 -- 11.29 3.6 31,103 0.27 1.50 1.78 18 2001 -- 10.99 (2.8) 17,404 0.98 1.52 2.20 66 CLASS A 2005 $ 0.00(d) $ 16.70 20.1% $ 41 (0.41)% 1.75% 2.00% 9% 2004 0.00(d) 15.08 13.3 39 (0.42) 1.75 1.91 36 2003 -- 13.46 19.7 33 (0.46) 1.75 1.91 14 2002(h) -- 11.36 3.6 1 0.02 1.75 2.03 18 2001 -- 10.97 (3.1) 47 0.73 1.77 2.45 66 CLASS B 2005 $ 0.00(d) $ 16.31 19.6% $ 433 (0.89)% 2.25% 2.49% 9% 2004 0.00(d) 14.82 12.7 400 (0.95) 2.25 2.41 36 2003 -- 13.30 18.9 517 (0.96) 2.25 2.41 14 2002 -- 11.24 2.9 4 (0.48) 2.25 2.53 18 2001(f) -- 10.96 (8.1) 4 0.23(c) 2.27(c) 2.95(c) 66 CLASS C 2005 $ 0.00(d) $ 16.24 19.5% $ 327 (0.91)% 2.25% 2.49% 9% 2004 0.00(d) 14.77 12.7 308 (0.89) 2.25 2.41 36 2003 -- 13.25 19.0 99 (0.96) 2.25 2.41 14 2002 -- 11.19 2.8 59 (0.48) 2.25 2.53 18 2001(g) -- 10.98 (10.4) 19 0.23(c) 2.27(c) 2.95(c) 66 - ----------- + 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. Total return for the period of less than one year is not annualized. (a) The ratios do not include a reduction of expenses for custodian fee credits on cash balances maintained with the custodian. Including such custodian fee credits, the expense ratios for Class AAA, Class A, Class B, and Class C would be 1.50%, 1.75%, 2.25% and 2.25%, respectively, for fiscal years ended September 30, 2001, 2002 and 2003. (b) 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. (c) Annualized. (d) Amount represents less than $0.005 per share. (e) Per share data is calculated using the average shares outstanding method. (f) From June 6, 2001 through September 30, 2001, the period through which Class B Shares were continuously outstanding. (g) From August 3, 2001 through September 30, 2001, the period through which Class C Shares were continuously outstanding. (h) From November 26, 2001 through September 30, 2002, the period through which Class A Shares were continuously outstanding. From October 1, 2001 through November 25, 2001, no Class A Shares were outstanding. See accompanying notes to financial statements. 45 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Shareholders of The Westwood Funds: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Westwood Equity Fund, Westwood Balanced Fund, Westwood Intermediate Bond Fund, Westwood SmallCap Equity Fund, Westwood Income Fund, and Westwood Mighty Mites(SM) Fund (constituting The Westwood Funds, formerly the Gabelli Westwood Funds, hereafter referred to as the "Funds") at September 30, 2005, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP NEW YORK, NY NOVEMBER 18, 2005 - -------------------------------------------------------------------------------- 2005 TAX NOTICE TO SHAREHOLDERS (UNAUDITED) U.S. GOVERNMENT INCOME: The percentage of the ordinary income dividend paid by the Equity Fund, Balanced Fund, Intermediate Bond Fund, SmallCap Equity Fund, Income Fund and Mighty Mites(SM) Fund (collectively, the "Funds") during fiscal 2005 which was derived from U.S. Treasury securities was 0.45%, 32.75%, 17.43%, 0%, 0.11% and 0%, respectively. Such income is exempt from state and local tax in all states. However, many states, including New York and California, allow a tax exemption for a portion of the income earned only if a mutual fund has invested at least 50% of its assets at the end of each quarter of the Fund's fiscal year in U.S. Government securities. The Funds did not meet this strict requirement in 2005. Due to the diversity in state and local tax law, it is recommended that you consult your personal tax advisor for the applicability of the information provided as to your specific situation. WESTWOOD EQUITY FUND; WESTWOOD INCOME FUND 100% and 94% of the ordinary income dividend qualifies for the dividend received deduction available to corporations and 100% and 23.37% of the ordinary income distribution was qualified dividend income for the Equity Fund and Income Fund, respectively. The Income Fund paid to shareholders, on December 20, 2004, a long-term capital gain totaling $0.73 per share. WESTWOOD BALANCED FUND 34.08% of the ordinary income dividend qualifies for the dividend received deduction available to corporations and 35.21% of the ordinary income distribution was qualified dividend income. WESTWOOD INTERMEDIATE BOND FUND None of the ordinary income dividend qualifies for the dividend received deduction available to corporations and none of the ordinary income distribution was qualified dividend income. The Fund paid to shareholders, on December 20, 2004, a long-term capital gain totaling $0.0907 per share. MIGHTY MITES(SM) FUND 74.54% of the ordinary income dividend qualifies for the dividend received deduction available to corporations. The Fund paid to shareholders, on December 20, 2004, a long-term capital gain totaling $0.85 per share. QUALIFIED DIVIDEND INCOME An estimate of qualified dividend income of $3,952,598, $2,043,145 and $132,899 was received by the Equity Fund, Balanced Fund and Income Fund, respectively, through September 30, 2005 that qualifies for a reduced tax rate pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003. - -------------------------------------------------------------------------------- 46 THE WESTWOOD FUNDS BOARD CONSIDERATION AND RE-APPROVAL OF ADVISORY AND SUB-ADVISORY AGREEMENT (UNAUDITED) In determining whether to approve the continuance of each of the Agreements, the Board considered the following information in the recent semiannual period: 1) THE NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISER AND THE SUB-ADVISER. The Board reviewed in detail the nature and extent of the services provided by the Adviser and the Sub-Adviser under the Agreements and the quality of those services over the past year. The Board noted that these services included managing the investment program of the Funds, including the purchase and sale of portfolio securities, as well as the provision of general corporate services. The Board considered that the Adviser also provided, at its expense, office facilities for use by the Funds and supervisory personnel responsible for supervising the performance of administrative, accounting and related services including, for each Fund, net asset value determinations, yield calculations and monitoring to assure compliance with stated investment policies and restrictions under the 1940 Act and related securities regulations. The Board noted that, in addition to managing the investment program for the Funds, the Adviser provided certain non-advisory and compliance services, including services under the Funds' Rule 38a-1 compliance program. The Board also considered that the Adviser and Sub-Adviser paid for all compensation of officers and Trustees of the Funds that were affiliated with the Adviser or Sub-Adviser and that the Adviser further provided a substantial level of services to shareholders of the Funds who had invested through various programs offered by third party financial intermediaries ("Participating Organizations"). The Board evaluated these factors based on its direct experience with the Adviser and Sub-Adviser and in consultation with Fund counsel. The Board noted that the Adviser had engaged, at its expense, PFPC, Inc. to assist it in performing certain of its administrative functions. The Board concluded that the nature and extent of the services provided was reasonable and appropriate in relation to the advisory fee, that the level of services provided by the Adviser, either directly or through PFPC, Inc, and by the Sub-Adviser, had not diminished over the past year and that the quality of service continued to be high. The Board reviewed the personnel responsible for providing services to the Funds and concluded, based on their experience and interaction with the Adviser and Sub-Adviser, that (i) the Adviser and Sub-Adviser were able to retain quality personnel, (ii) the Adviser, Sub-Adviser and their agents exhibited a high level of diligence and attention to detail in carrying out their advisory and administrative responsibilities under the Agreements, (iii) the Adviser and Sub-Adviser were responsive to requests of the Board, (iv) the scope and depth of the Adviser's and Sub-Adviser's resources were adequate, and (v) the Adviser and Sub-Adviser had kept the Board apprised of developments relating to each Fund and the industry in general. The Board also focused on the Adviser's reputation and long-standing relationship with the Funds. The Board also believed that the Adviser had devoted substantial resources and made substantial commitments to address new regulatory compliance requirements applicable to the Funds. 2) THE PERFORMANCE OF THE FUNDS, THE ADVISER AND THE SUB-ADVISER. The Board reviewed the investment performance of each Fund, on an absolute basis, as compared to its Lipper peer group of other SEC registered funds, and against each Fund's broad-based securities market benchmarks as reflected in each Fund's prospectus and annual report. The Board also considered rankings and ratings of the Funds issued by Lipper over the short, intermediate and long term. The Board considered each Fund's one, three, five and, where available, ten year average annual total return for the periods ended 06/30/05, but placed greater emphasis on a Fund's longer term performance. The peer groups considered by the Board were developed by the Adviser from information supplied by Lipper and were comprised of funds of comparable size within the same Lipper peer group category (the "Peer Group"). Each Fund's performance against the Peer Group was considered by the Board as providing an objective comparative benchmark against which the Fund's performance could be assessed. The Board considered these comparisons as helpful in their assessment as to whether the Adviser was obtaining for the Funds' shareholders the total return performance that was available in the marketplace, given each Fund's investment objectives, strategies, limitations, and restrictions. In connection with its assessment of the performance of the Adviser and the Sub-Adviser, the Board considered the Adviser's and Sub-Adviser's financial condition and whether they had the resources necessary to continue to carry out their functions under the Agreements. The Board concluded that the Adviser and Sub-Adviser had the financial resources necessary to continue to perform their obligations under the Agreements and to continue to provide the high quality services that it has provided to the Funds to date. 47 3) THE COST OF THE ADVISORY SERVICES AND THE PROFITS TO THE ADVISER AND ITS AFFILIATES FROM THE RELATIONSHIP WITH THE FUNDS. In connection with the Board's consideration of the Agreements, the Board considered a number of factors. First, the Board compared the level of the advisory fee for each Fund against the advisory fee charged by funds in the Peer Group. The Board also considered comparative non-management fee expenses and comparative total fund expenses of the Funds and each Peer Group. The Board considered this information as useful in assessing whether the Adviser and Sub-Adviser were providing services at a cost that was competitive with other similar funds. In assessing this information, the Board considered both the comparative contract rates as well as the level of the advisory fees after waivers and/or reimbursements. The Board noted that four of the Funds operated pursuant to a Waiver and Expense Reimbursement Agreement with the Adviser wherein the Adviser had agreed to waive a portion of its fee or reimburse a Fund for a portion of its expenses necessary to limit the Fund's total operating expenses to the level set forth in the Fund's prospectus. The Board considered that the Waiver and Expense Reimbursement Agreement would not be extended for the Mighty Mites(SM) Fund and noted that both the advisory fees and the operating expenses of the Funds were within the range of fees charged by the Peer Group. The Trustees also reviewed the fees charged by the Adviser and Sub-Adviser to provide similar advisory services to other registered investment companies with similar investment objectives and to separate accounts, noting that in some cases the fees charged by the Adviser or Sub-Adviser were higher and in other cases lower, than the fees charged to the Funds. In evaluating this information, the Board considered the difference in services provided by the Adviser and Sub-Adviser to these other accounts. In particular, the Board considered the differences in risks involved in managing separate accounts and the Funds from a compliance and regulatory perspective. The Board also considered an analysis prepared by the Adviser of the estimated profitability to the Adviser of its relationship with the Fund and reviewed with the Adviser its cost allocation methodology in connection with its profitability. In this regard, the Board reviewed Pro-forma Income Statements of the Adviser for the year ended December 31, 2004. The Board considered one analysis for the Adviser as a whole, and a second analysis for the Adviser with respect to each of the Funds. With respect to the Fund analysis, the Board received an analysis based on each Fund's average net assets during the period as well as a pro-forma analysis of profitability at higher asset levels. The Board concluded that the profitability of the Funds to the Adviser under either analysis was not excessive. 4) THE EXTENT TO WHICH ECONOMIES OF SCALE WILL BE REALIZED AS THE FUNDS GROW AND WHETHER FEE LEVELS REFLECT THOSE ECONOMIES OF SCALE. With respect to the Board's consideration of economies of scale, the Board discussed with the Adviser whether economies would be realized by it in its management of the Funds at higher asset levels. The Board also reviewed data from the Peer Group to assess whether the Peer Group funds had advisory fee breakpoints and, if so, at what asset levels. The Board also assessed whether certain of the Adviser's costs would increase if asset levels rise. The Board concluded that under foreseeable conditions, they were unable to assess at this time whether economies of scale would be realized if the Funds were to experience significant asset growth. In the event there were to be significant asset growth in the Funds, the Board determined to reassess whether the advisory fee appropriately took into account any economies of scale that had been realized as a result of that growth. 5) OTHER FACTORS. In addition to the above factors, the Board also discussed other benefits received by the Adviser and Sub-Adviser from their management of the Funds, including the use of soft-dollars by the Sub-Adviser. The Board considered that the Adviser did not use soft dollars in connection with its management of the Fund. Based on a consideration of all these factors in their totality, the Board of Trustees, including all of the disinterested Trustees, determined that each Fund's advisory fee and, except with respect to the Mighty Mites(SM) Fund, sub-advisory agreement was fair and reasonable with respect to the quality of services provided and in light of the other factors described above that the Board deemed relevant. The Board based its decision on evaluations of all these factors as a whole and did not consider any one factor as all-important or controlling. 48 THE WESTWOOD FUNDS ADDITIONAL FUND INFORMATION (UNAUDITED) - -------------------------------------------------------------------------------- The business and affairs of the Trust are managed under the direction of the Trust's Board of Trustees. Information pertaining to the Trustees and officers of the Trust is set forth below. The Trust's Statement of Additional Information includes additional information about The Westwood Funds' Trustees and is available, without charge, upon request, by calling 1-800-GABELLI (1-800-422-3554) or by writing to The Westwood Funds at One Corporate Center, Rye, NY 10580-1422. TERM OF NUMBER OF NAME, POSITION(S) OFFICE AND FUNDS IN FUND ADDRESS(1) LENGTH OF COMPLEX OVERSEEN PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS AND AGE TIME SERVED(2) BY TRUSTEE DURING PAST FIVE YEARS HELD BY TRUSTEE(3) - ------------------------ -------------- ---------------- ----------------------------------- ---------------------------------- INTERESTED TRUSTEES(4): KARL OTTO POHL(5) Since 1994 35 Member of the Shareholder Committee Director of GAMCO Investors, Inc. Trustee of Sal Oppenheim Jr. & Cie (private (investment management); Age: 75 investment bank); Former President Chairman, InCentive Capital and of the Deutsche Bundesbank and InCentive Asset Management Chairman of its Central Bank (Zurich); Director at Sal Council (1980-1991) Oppenheim Jr. & Cie, Zurich NON-INTERESTED TRUSTEES: ANTHONY J. COLAVITA Since 1994 37 Partner in the law firm of Anthony -- Trustee J. Colavita, P.C. Age: 69 JAMES P. CONN Since 1994 14 Former Managing Director and Chief Director of LaQuinta Corp. Trustee Investment Officer of Financial (hotels) and First Republic Bank Age: 67 Security Assurance Holdings Ltd. (1992-1998) WERNER J. ROEDER, M.D. Since 1994 26 Medical Director of Lawrence -- Trustee Hospital and practicing private Age: 65 physician SALVATORE J. ZIZZA Since 2004 25 Chairman, Hallmark Electrical Director of Hollis Eden Trustee Supplies Corp. Pharmaceuticals; Director of Earl Age: 59 Scheib, Inc. (automotive services) OFFICERS: BRUCE N. ALPERT Since 1994 -- Director and President of Gabelli -- President Advisers, Inc. Executive Vice and Treasurer President and Chief Operating Age: 53 Officer of Gabelli Funds, LLC since 1988 and an officer of all of the registered investment companies in the Gabelli Fund complex. JAMES E. MCKEE Since 1995 -- Vice President, General Counsel and -- Secretary Secretary of GAMCO Investors, Inc. Age: 42 since 1999 and GAMCO Asset Management Inc. since 1993; Secretary of all of the registered investment companies advised by Gabelli Advisers, Inc. and Gabelli Funds, LLC PETER D. GOLDSTEIN Since 2004 -- Director of Regulatory Affairs for -- Chief Compliance Officer GAMCO Investors, Inc. since 2004; Age: 52 Chief Compliance Officer of all of the registered investment companies in the Gabelli Fund complex; Vice President of Goldman Sachs Asset Management (2000-2004); Deputy General Counsel of GAMCO Investors, Inc. (1998-2000) - ---------- (1) Address: One Corporate Center, Rye, NY 10580-1422, unless otherwise noted. (2) Each Trustee will hold office for an indefinite term until the earliest of (i) the next meeting of shareholders, if any, called for the purpose of considering the election or re-election of such Trustee and until the election and qualification of his or her successor, if any, elected at such meeting, or (ii) the date a Trustee resigns or retires, or a Trustee is removed by the Board of Trustees or shareholders, in accordance with the Company's Amended By-Laws and Amended and Restated Declaration of Trust. (3) This column includes only directorships of companies required to report to the SEC under the Securities Exchange Act of 1934 (i.e. public companies) or other investment companies registered under the 1940 Act. (4) "Interested person" of the Company as defined in the Investment Company Act of 1940. Mr. Otto Pohl is considered an "interested person" because of his affiliation with the parent company of the Funds' investment adviser. (5) Effective November 15, 2005, Mr. Pohl resigned from the Board of Trustees and now serves as Trustee Emeritus. 49 - -------------------------------------------------------------------------------- WESTWOOD FUNDS AND YOUR PERSONAL PRIVACY - -------------------------------------------------------------------------------- WHO ARE WE? The Westwood Funds are investment companies registered with the Securities and Exchange Commission under the Investment Company Act of 1940. We are managed by Gabelli Advisers, Inc., which is affiliated with GAMCO Investors, Inc. GAMCO Investors, Inc. is a publicly-held company that has subsidiaries that provide investment advisory or brokerage services for a variety of clients. WHAT KIND OF NON-PUBLIC INFORMATION DO WE COLLECT ABOUT YOU IF YOU BECOME A WESTWOOD FUNDS CUSTOMER? If you apply to open an account directly with us, you will be giving us some non-public information about yourself. The non-public information we collect about you is: o INFORMATION YOU GIVE US ON YOUR APPLICATION FORM. This could include your name, address, telephone number, social security number, bank account number, and other information. o INFORMATION ABOUT YOUR TRANSACTIONS WITH US, ANY TRANSACTIONS WITH OUR AFFILIATES AND TRANSACTIONS WITH THE ENTITIES WE HIRE TO PROVIDE SERVICES TO YOU. This would include information about the shares that you buy or redeem, and the deposits and withdrawals that you make. If we hire someone else to provide services--like a transfer agent--we will also have information about the transactions that you conduct through them. WHAT INFORMATION DO WE DISCLOSE AND TO WHOM DO WE DISCLOSE IT? We do not disclose any non-public personal information about our customers or former customers to anyone, other than our affiliates, our service providers who need to know such information and as otherwise permitted by law. If you want to find out what the law permits, you can read the privacy rules adopted by the Securities and Exchange Commission. They are in volume 17 of the Code of Federal Regulations, Part 248. The Commission often posts information about its regulations on its web site, www.sec.gov. WHAT DO WE DO TO PROTECT YOUR PERSONAL INFORMATION? We restrict access to non-public personal information about you to the people who need to know that information in order to provide services to you or the Fund and to ensure that we are complying with the laws governing the securities business. We maintain physical, electronic, and procedural safeguards to keep your personal information confidential. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GABELLI FAMILY OF FUNDS - -------------------------------------------------------------------------------- VALUE __________________________________________________________________________ GABELLI ASSET FUND Seeks to invest primarily in a diversified portfolio of common stocks selling at significant discounts to their private market value. The Fund's primary objective is growth of capital. (MULTICLASS) PORTFOLIO MANAGER: MARIO J. GABELLI, CFA GABELLI BLUE CHIP VALUE FUND Seeks long term growth of capital through investment primarily in the common stocks of established companies which are temporarily out of favor. The fund's objective is to identify a catalyst or sequence of events that will return the company to a higher value. (MULTICLASS) PORTFOLIO MANAGER: BARBARA MARCIN, CFA WESTWOOD EQUITY FUND Seeks to invest primarily in the common stock of well-seasoned companies that have recently reported positive earnings surprises and are trading below Westwood's proprietary growth rate estimates. The Fund's primary objective is capital appreciation. (MULTICLASS) PORTFOLIO MANAGER: SUSAN M. BYRNE FOCUSED VALUE __________________________________________________________________ GABELLI VALUE FUND Seeks to invest in securities of companies believed to be undervalued. The Fund's primary objective is long-term capital appreciation. (MULTICLASS) PORTFOLIO MANAGER: MARIO J. GABELLI, CFA SMALL CAP VALUE ________________________________________________________________ GABELLI SMALL CAP FUND Seeks to invest primarily in common stock of smaller companies (market capitalizations less than $1 billion) believed to have rapid revenue and earnings growth potential. The Fund's primary objective is capital appreciation. (MULTICLASS) PORTFOLIO MANAGER: MARIO J. GABELLI, CFA WESTWOOD SMALLCAP EQUITY FUND Seeks to invest primarily in smaller capitalization equity securities - market caps of $2.5 billion or less. The Fund's primary objective is long-term capital appreciation. (MULTICLASS) TEAM MANAGED GABELLI WOODLAND SMALL CAP VALUE FUND Seeks to invest primarily in the common stocks of smaller companies (market capitalizations less than $1.5 billion) believed to be undervalued with shareholder oriented management teams that are employing strategies to grow the company's value. The Fund's primary objective is capital appreciation. (MULTICLASS) PORTFOLIO MANAGER: ELIZABETH M. LILLY, CFA GROWTH _________________________________________________________________________ GABELLI GROWTH FUND Seeks to invest primarily in large cap stocks believed to have favorable, yet undervalued, prospects for earnings growth. The Fund's primary objective is capital appreciation. (MULTICLASS) PORTFOLIO MANAGER: HOWARD F. WARD, CFA GABELLI INTERNATIONAL GROWTH FUND Seeks to invest in the equity securities of foreign issuers with long-term capital appreciation potential. The Fund offers investors global diversification. (MULTICLASS) PORTFOLIO MANAGER: CAESAR BRYAN AGGRESSIVE GROWTH ______________________________________________________________ GABELLI GLOBAL GROWTH FUND Seeks capital appreciation through a disciplined investment program focusing on the globalization and interactivity of the world's marketplace. The Fund invests in companies at the forefront of accelerated growth. The Fund's primary objective is capital appreciation. (MULTICLASS) TEAM MANAGED MICRO-CAP ______________________________________________________________________ WESTWOOD MIGHTY MITES(SM) FUND Seeks to invest in micro-cap companies that have market capitalizations of $300 million or less. The Fund's primary objective is long-term capital appreciation. (MULTICLASS) TEAM MANAGED EQUITY INCOME __________________________________________________________________ GABELLI EQUITY INCOME FUND Seeks to invest primarily in equity securities with above market average yields. The Fund pays monthly dividends and seeks a high level of total return with an emphasis on income. (MULTICLASS) PORTFOLIO MANAGER: MARIO J. GABELLI, CFA WESTWOOD BALANCED FUND Seeks to invest in a balanced and diversified portfolio of stocks and bonds. The Fund's primary objective is both capital appreciation and current income. (MULTICLASS) CO-PORTFOLIO MANAGERS: SUSAN M. BYRNE MARK FREEMAN, CFA WESTWOOD INCOME FUND Seeks to provide a high level of current income as well as long-term capital appreciation by investing in income producing equity and fixed income securities. (MULTICLASS) PORTFOLIO MANAGER: SUSAN M. BYRNE SPECIALTY EQUITY _______________________________________________________________ GABELLI GLOBAL CONVERTIBLE SECURITIES FUND Seeks to invest principally in bonds and preferred stocks which are convertible into common stock of foreign and domestic companies. The Fund's primary objective is total return through a combination of current income and capital appreciation. (MULTICLASS) TEAM MANAGED GABELLI GLOBAL OPPORTUNITY FUND Seeks to invest in common stock of companies which have rapid growth in revenues and earnings and potential for above average capital appreciation or are undervalued. The Fund's primary objective is capital appreciation. (MULTICLASS) TEAM MANAGED SECTOR _________________________________________________________________________ GABELLI GLOBAL TELECOMMUNICATIONS FUND Seeks to invest in telecommunications companies throughout the world - targeting undervalued companies with strong earnings and cash flow dynamics. The Fund's primary objective is capital appreciation. (MULTICLASS) TEAM MANAGED GABELLI GOLD FUND Seeks to invest in a global portfolio of equity securities of gold mining and related companies. The Fund's objective is long-term capital appreciation. Investment in gold stocks is considered speculative and is affected by a variety of world-wide economic, financial and political factors. (MULTICLASS) PORTFOLIO MANAGER: CAESAR BRYAN GABELLI UTILITIES FUND Seeks to provide a high level of total return through a combination of capital appreciation and current income. (MULTICLASS) TEAM MANAGED MERGER AND ARBITRAGE ___________________________________________________________ GABELLI ABC FUND Seeks to invest in securities with attractive opportunities for appreciation or investment income. The Fund's primary objective is total return in various market conditions without excessive risk of capital loss. (NO-LOAD) PORTFOLIO MANAGER: MARIO J. GABELLI, CFA CONTRARIAN _____________________________________________________________________ GABELLI MATHERS FUND Seeks long-term capital appreciation in various market conditions without excessive risk of capital loss. (CLASS AAA-NO-LOAD) PORTFOLIO MANAGER: HENRY VAN DER EB, CFA COMSTOCK CAPITAL VALUE FUND Seeks capital appreciation and current income. The Fund may use either long or short positions to achieve its objective. (MULTICLASS) PORTFOLIO MANAGER: MARTIN WEINER, CFA COMSTOCK STRATEGY FUND The Fund emphasizes investments in debt securities, which maximize total return in light of credit risk, interest rate risk, and the risk associated with the length of maturity of the debt instrument. (MULTICLASS) PORTFOLIO MANAGER: MARTIN WEINER, CFA QUANTITATIVE ___________________________________________________________________ NED DAVIS RESEARCH ASSET ALLOCATION FUND Seeks to achieve returns greater then the weighted composite benchmark consisting of 60% in the S&P 500 Index and 40% in the Lehman Long Term U.S. Government Bond Index through a flexible asset allocation strategy. The Fund's primary objective is capital appreciation. (MULTICLASS) TEAM MANAGED FIXED INCOME ___________________________________________________________________ WESTWOOD INTERMEDIATE BOND FUND Seeks to invest in a diversified portfolio of bonds with various maturities. The Fund's primary objective is total return. (MULTICLASS) PORTFOLIO MANAGER: MARK FREEMAN, CFA CASH MANAGEMENT-MONEY MARKET ___________________________________________________ GABELLI U.S. TREASURY MONEY MARKET FUND Seeks to invest exclusively in short-term U.S. Treasury securities. The Fund's primary objective is to provide high current income consistent with the preservation of principal and liquidity. (NO-LOAD) PORTFOLIO MANAGER: JUDITH A. RANERI AN INVESTMENT IN THE ABOVE MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND. THE GLOBAL FUNDS INVEST IN FOREIGN SECURITIES WHICH INVOLVE RISKS NOT ORDINARILY ASSOCIATED WITH INVESTMENTS IN DOMESTIC ISSUES, INCLUDING CURRENCY FLUCTUATION, ECONOMIC AND POLITICAL RISKS. TO RECEIVE A PROSPECTUS, CALL 800-GABELLI (422-3554). INVESTORS SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS AND CHARGES AND EXPENSES OF THE FUND CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION ABOUT THIS AND OTHER MATTERS AND SHOULD BE READ CAREFULLY BEFORE INVESTING. THE WESTWOOD FUNDS ================== One Corporate Center Rye, New York 10580-1422 GENERAL AND ACCOUNT INFORMATION: 800-GABELLI [800-422-3554] fax: 914-921-5118 website: www.gabelli.com e-mail: info@gabelli.com Board of Trustees KARL OTTO POHL WERNER J. ROEDER, MD FORMER PRESIDENT MEDICAL DIRECTOR DEUTCHE BUNDESBANK LAWRENCE HOSPITAL ANTHONY J. COLAVITA SALVATORE J. ZIZZA ATTORNEY-AT-LAW CHAIRMAN ANTHONY J. COLAVITA, P.C. HALLMARK ELECTRICAL SUPPLIES CORP. JAMES P. CONN FORMER CHIEF INVESTMENT OFFICER FINANCIAL SECURITY ASSURANCE HOLDINGS LTD. Officers BRUCE N. ALPERT JAMES E. McKEE PRESIDENT AND TREASURER SECRETARY PETER D. GOLDSTEIN CHIEF COMPLIANCE OFFICER INVESTMENT ADVISER ------------------ Gabelli Advisers, Inc. INVESTMENT SUB-ADVISER ---------------------- Westwood Management Corp. DISTRIBUTOR ----------- Gabelli & Company, Inc. CUSTODIAN --------- The Bank of New York LEGAL COUNSEL ------------- Paul, Hastings, Janofsky & Walker LLP - -------------------------------------------------------------------------------- This report is submitted for the information of the shareholders of The Westwood Funds. It is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. - -------------------------------------------------------------------------------- GABWWQ305SR ITEM 2. CODE OF ETHICS. (a) The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. (c) There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. (d) The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item's instructions. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. As of the end of the period covered by the report, the registrant's board of directors has determined that James P. Conn is qualified to serve as an audit committee financial expert serving on its audit committee and that he is "independent." ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. AUDIT FEES (a) The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $ 142,850 in 2005 and $133,450 in 2004. AUDIT-RELATED FEES (b) The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item are $0 in 2005 and $0 in 2004. TAX FEES (c) The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning are $20,400 in 2005 and $19,080 in 2004. Tax fees represent tax compliance services provided in connection with the review of the Registrant's tax returns. ALL OTHER FEES (d) The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are $0 for 2005 and $0 for 2004. (e)(1) Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. Pre-Approval Policies and Procedures. The Audit Committee ("Committee") of the registrant is responsible for pre-approving (i) all audit and permissible non-audit services to be provided by the independent auditors to the registrant and (ii) all permissible non-audit services to be provided by the independent auditors to the Adviser, Gabelli Advisers, Inc., and any affiliate of Gabelli Funds, LLC ("Gabelli") that provides services to the registrant (a "Covered Services Provider") if the independent auditors' engagement is related directly to the operations and financial reporting of the registrant. The Committee may delegate its responsibility to pre-approve any such audit and permissible non-audit services to the Chairperson of the Committee, and the Chairperson must report to the Committee, at its next regularly scheduled meeting after the Chairperson's pre-approval of such services, his or her decision(s). The Committee may also establish detailed pre-approval policies and procedures for pre-approval of such services in accordance with applicable laws, including the delegation of some or all of the Committee's pre-approval responsibilities to the other persons (other than Gabelli or the registrant's officers). Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the registrant, Gabelli and any Covered Services Provider constitutes not more than 5% of the total amount of revenues paid by the registrant to its independent auditors during the fiscal year in which the permissible non-audit services are provided; (ii) the permissible non-audit services were not recognized by the registrant at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee or Chairperson prior to the completion of the audit. (e)(2) The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows: (b) N/A (c) 100% (d) N/A (f) The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was zero percent (0%). (g) The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant was $0 in 2005 and $0 in 2004. (h) The registrant's audit committee of the board of directors has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant's board of trustees, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101), or this Item. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. (a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. (a)(3) Not applicable. (b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (registrant) The Westwood Funds ------------------------------------------------------------------- By (Signature and Title)* /s/ Bruce N. Alpert ------------------------------------------------------- Bruce N. Alpert, Principal Executive Officer Date December 8, 2005 ---------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ Bruce N. Alpert ------------------------------------------------------- Bruce N. Alpert, Principal Executive Officer and Principal Financial Officer Date December 8, 2005 ---------------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature.