U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
Post-Effective Amendment No.
(Check appropriate box or boxes)
THE GANNETT WELSH & KOTLER FUNDS
(Exact Name of Registrant as Specified in Charter)
222 Berkeley Street
Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 236-8900
T. Williams Roberts III
Gannett Welsh & Kotler, Inc.
222 Berkeley Street
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copies to:
John F. Splain, Esq.
MGF Service Corp.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective.
No filing fee is required because an indefinite number of shares of
beneficial interest are being registered pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. Pursuant to Rule 429, this
Registration Statement relates to shares for which a registration statement on
Form N-1A has been filed.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
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THE GANNETT WELSH & KOTLER FUNDS
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A)
UNDER THE SECURITIES ACT OF 1933
Information Statement and
Form N-14 Item No. Prospectus Caption
PART A
Item 1. Beginning of Registration Prospectus Cover
Statement and Outside
Front Cover Page of
Prospectus
Item 2. Beginning and Outside Back Table of Contents
Cover Page of Prospectus
Item 3. Fee Table, Synopsis Expense Information; Summary;
Information, and Risk Risk Factors
Factors
Item 4. Information About the The Plan; Tax Consequences;
Transaction Reasons for the Exchange and
Benefits to Limited Partners;
Differences in Rights;
Capitalization; Expenses
Item 5. Information About the Summary; The Fund;
Registrant Prospectus of Registrant*
Item 6. Information About the Summary; The Partnership
Company Being Acquired
Item 7. Voting Information Certain Affiliations;
Voting Information
Item 8. Interest of Certain Certain Affiliations; Financial
Persons and Experts Statements and Experts;
Legal Matters
Item 9. Additional Information Not Applicable
Required for Reoffering
by Persons Deemed to be
Underwriters
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Statement of Additional
Part B Information Caption
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. Additional Information Statement of Additional
About the Registrant Information of Registrant*
Item 13. Additional Information Not Applicable
About the Company Being
Acquired
Item 14. Financial Statements Statement of Additional
Information of Registrant*;
Financial Statements of
GW&K Equity Fund, L.P.;
Pro Forma Financial
Information
Part C
The information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C to this Registration Statement.
* Incorporated herein by reference to the Registration Statement of
Registrant on Form N-1A (File No. 333-06039).
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GSD, INC.
222 Berkeley Street, Boston, Massachusetts 02116
Re: Conversion of GW&K Equity Fund, L.P. to the GW&K Equity Fund
December __, 1996
PLEASE READ THIS LETTER . . . IMPORTANT DOCUMENTS ENCLOSED.
Dear GW&K Equity Fund, L.P. limited partner:
Our plan to convert the GW&K Equity Fund, L.P. (the "Partnership") into
a no-load mutual fund, which we wrote to you about in May, has reached the final
stage. We are writing to you now about the important vote which we need to
complete the process.
GSD, Inc., the general partner of the Partnership, is proposing to
exchange, on a tax free basis, all of the assets of the Partnership for shares
of the GW&K Equity Fund (the "Fund"), a series of The Gannett Welsh & Kotler
Funds (the "Exchange"). After the Exchange, the Partnership will dissolve and
limited partners of the Partnership will become shareholders of the Fund. The
investment portfolio will be managed by us in substantially the same manner as
the Partnership's assets have been managed. Gannett Welsh & Kotler, Inc. will
bear all expenses incurred in connection with the Exchange.
As a shareholder of the Fund, you will be able to redeem shares on each
business day at their net asset value. Currently, as you know, limited partners
may only redeem shares quarterly. You may also receive income from the
portfolio, add to your investment at any time in any amount, and establish other
accounts at the proposed $2,000 minimum.
The Exchange will be accomplished without any adverse tax consequences
to you, as described in the attached Prospectus/Information Statement and
accompanying materials. These documents provide other important information
about the Fund and its proposed operations, including the investment management
fees payable by the Fund.
As a limited partner of the Partnership, you are entitled to vote on the
Exchange. Please take a few minutes to consider the enclosed materials and then
exercise your right to vote by completing, dating and signing the enclosed
voting instruction form. A self-addressed, postage-paid envelope has been
enclosed for your convenience. It is very important that you vote and that your
voting instructions be received by GSD, Inc. not later than December , 1996.
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GSD, Inc. recommends that you vote in favor of the Exchange. You should
know that, as long as we receive a vote of 67% of the shares of limited
partnership interest in favor of the Exchange, all partners will have their
assets exchanged into shares of the Fund and the Partnership will dissolve. If
you have any questions about the Exchange or the enclosed materials, please call
any of your contacts at GW&K. We have enjoyed our relationship during the
Partnership's existence and we look forward to serving you even better with the
Fund.
Sincerely,
GSD, Inc.
Harold G. Kotler
President
Edward B. White
Portfolio Manager
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PROSPECTUS/INFORMATION STATEMENT DATED DECEMBER __, 1996
Acquisition of the assets of
GW&K EQUITY FUND, L.P.
222 Berkeley Street
Boston, Massachusetts 02116
Telephone: 617/236-8900
By and in exchange for the shares of
THE GW&K EQUITY FUND
(a series of The Gannett Welsh & Kotler Funds)
222 Berkeley Street
Boston, Massachusetts 02116
Telephone: 617/236-8900
The Prospectus/Information Statement relates to the proposed transfer
of substantially all of the properties and assets of GW&K Equity Fund, L.P. (the
"Partnership"), a limited partnership formed under the laws of the State of
Delaware, to the GW&K Equity Fund (the "Fund"), a series of The Gannett Welsh &
Kotler Funds (the "Trust"), a business trust organized under the laws of the
Commonwealth of Massachusetts, in exchange for shares of beneficial interest, no
par value (the "Shares"), of the Fund (the "Exchange"). The Shares received in
the Exchange will be distributed by the Partnership to its partners in
liquidation of the Partnership, after which the Partnership will be dissolved.
As a result of the Exchange, each partner of the Partnership will become a
shareholder of the Fund, receiving Shares that will have a value equal to the
value of the partner's interest in the Partnership on the business day
immediately preceding the date of the Exchange.
Limited partners of the Partnership (the "Limited Partners") as of the
close of business on September 30, 1996 will be entitled to vote on the
Exchange, and a voting instruction form accompanies this Prospectus/Information
Statement for this purpose.
The Trust is registered with the Securities and Exchange Commission as
an open-end management investment company. The Fund has an investment objective
of long-term total return. This Prospectus/Information Statement sets forth
concisely the information about the Fund that Limited Partners of the
Partnership should know before approving the Exchange or investing in the Fund
and should be retained for future reference. The Prospectus of the Fund and a
Statement of Additional Information relating to the Fund and the Exchange, dated
December __, 1996, accompany this Prospectus/Information Statement and are
incorporated by reference into it.
This Prospectus/Information Statement and accompanying materials are
expected to be sent to Limited Partners on or about December __, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Page
Expense Information . . . . . . . . . . . . . . . . . . . 2
Summary . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . 9
The Plan . . . . . . . . . . . . . . . . . . . . . . . . . 9
Reasons for the Exchange and Benefits
to Limited Partners. . . . . . . . . . . . . . . . . . . 10
Tax Consequences . . . . . . . . . . . . . . . . . . . . . 11
Differences in Rights. . . . . . . . . . . . . . . . . . . 13
Capitalization . . . . . . . . . . . . . . . . . . . . . . 15
The Fund . . . . . . . . . . . . . . . . . . . . . . . . . 16
The Partnership. . . . . . . . . . . . . . . . . . . . . . 16
Voting Information . . . . . . . . . . . . . . . . . . . . 16
Certain Affiliations . . . . . . . . . . . . . . . . . . . 17
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 17
Financial Statements . . . . . . . . . . . . . . . . . . . 18
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . 18
Exhibit A -- Agreement and Plan
of Exchange. . . . . . . . . . . . . . . . . . . . . . . 19
EXPENSE INFORMATION
The The
Shareholder Transaction Expenses Partnership Fund
Sales Load Imposed on Purchases . . . . . . . . None None
Sales Load Imposed on Reinvested Dividends. . . None None
Exchange Fee. . . . . . . . . . . . . . . . . . None None
Redemption Fees . . . . . . . . . . . . . . . . None None*
* A wire transfer fee is charged in the case of redemptions made by wire.
Such fee is subject to change and is currently $8. See "How to Redeem
Shares" in the Fund's Prospectus, which accompanies this
Prospectus/Information Statement.
The The
Annual Fund Operating Expenses Partnership Fund
(as a percentage of average net assets) (Pro Forma)
Management Fees After Waivers . . . . . . . . .63% .75%(A)
12b-1 Fees. . . . . . . . . . . . . . . . . . None .00%(B)
Other Expenses. . . . . . . . . . . . . . . . .18% .50%
----- -----
Total Fund Operating Expenses After Waivers . .81% 1.25%(C)
===== =====
(A) Absent waivers of management fees, such fees would be 1.00%.
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(B) The Fund may incur 12b-1 fees of up to .25% per annum. Long-term
shareholders may pay more than the economic equivalent of the maximum
front-end sales loads permitted by the National Association of
Securities Dealers.
(C) Absent waivers of management fees, total operating expenses would be
1.50%.
The purpose of this table is to assist the investor in understanding the various
costs and expenses that an investor in the Fund and the Partnership will bear
directly or indirectly. The percentages expressing annual fund operating
expenses for the Fund are based on estimated amounts for the current fiscal
year. The percentages expressing annual fund operating expenses for the
Partnership are based on amounts incurred during the year ended December 31,
1995. THE EXAMPLE BELOW SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Example
You would pay the following
expenses on a $1,000
investment, assuming
(1) 5% annual return and The The
(2) redemption at the end Partnership Fund
of each time period:
1 Year $ 8 $13
3 Years 26 40
SUMMARY
The following is a summary of certain information contained elsewhere
in this Prospectus/Information Statement or in the Agreement and Plan of
Exchange attached as Exhibit A and is qualified by reference to the more
complete information contained in this Prospectus/Information Statement and
Exhibit A.
Key Features of the Exchange
This Prospectus/Information Statement is being furnished to Limited
Partners in connection with the solicitation by GSD, Inc. (the "General
Partner"), as the general partner of the Partnership, of their votes for the
approval or disapproval of the Exchange, to be conducted pursuant to an
Agreement and Plan of Exchange (the "Plan") between the Partnership, the General
Partner, the Trust and Gannett Welsh & Kotler, Inc. (the "Adviser"), the
investment adviser to both the Fund and Partnership. The Plan provides for the
effectuation of the Exchange, in which substantially all of the properties and
assets of the Partnership will be transferred to the
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Fund in exchange for the Shares at net asset value. The Partnership intends to
distribute the Shares received in the Exchange to its partners (i.e., the
General Partner and the Limited Partners) as a step in the complete liquidation
and dissolution of the Partnership. The Partnership will retain assets
sufficient, in the judgment of the Partnership, to pay the Partnership's debts,
obligations and liabilities. The terms and conditions under which the Exchange
will be consummated are set forth in the Plan, a copy of which is attached as
Exhibit A to this Prospectus/Information Statement.
Approval of the Exchange requires the affirmative vote of the Limited
Partners holding 67% of the shares of limited partnership interest of the
Partnership. If approval of the Exchange is not received prior to December __,
1996 (or such later date as the Partnership and the Trust may agree upon), the
General Partner intends to continue to operate the Partnership as a limited
partnership in a manner similar to that in which the Partnership has operated in
the past. The Plan does not provide for appraisal rights for Limited Partners
who do not approve the Exchange.
Comparison of the Partnership and the Fund
The Fund is a series of the Trust, a newly-formed open-end management
investment company. The Fund is designed as a successor investment vehicle to
the Partnership. The Fund has had no operations prior to the date of this
Prospectus/Information Statement, other than the sale of 4,941.5 shares at
$10.00 per share to Harold G. Kotler and 4,941.5 shares at $10.00 per share to
Edward B. White. The Adviser currently serves as investment adviser to the
Partnership and will serve as investment adviser to the Fund. The Adviser has
not previously provided investment advisory services to a registered investment
company. Shares of the Fund will be offered to the public, without the
imposition of a sales charge, on a continuous basis upon the completion of the
Exchange. The Fund will have substantially the same investment objective and
policies as the Partnership and will be operated in substantially the same
manner as the Partnership has been.
Shareholders of the Fund will acquire those rights incident to
shareholders of a Massachusetts business trust. For a discussion of such rights,
see "Differences in Rights -- The Fund." Shares of the Fund are transferable,
but have no preemptive, conversion or subscription rights. The Partnership is a
Delaware limited partnership formed as a private investment vehicle for a small
number of investors. The General Partner has complete control of the business of
the Partnership and Limited Partners take no part in the operation or management
of the Partnership. Limited Partners are not liable for the debts or obligations
of the Partnership in excess of the value of their investment.
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Investment Objective and Policies. The Partnership and the Fund have
the same investment objective -- long-term total return. In addition, in seeking
to achieve this objective, the Fund will employ investment policies that are
substantially similar to those employed by the Partnership. In general, the
Partnership has invested and the Fund may invest in a diversified portfolio of
equity securities which the Adviser believes are undervalued or attractively
valued. The Fund will be subject to certain restrictions on its investment
activities to which the Partnership is not subject. For example, the Fund is
required to make certain annual distributions of income and net realized capital
gains to shareholders in order to qualify as a regulated investment company. The
Fund may therefore need to maintain higher levels of cash reserves than does the
Partnership in order to meet this requirement. As a diversified fund, the Fund
must, with respect to 75% of its assets invest no more than 5% of its assets in
securities of one issuer. In addition, the Fund will be subject to the following
restrictions to which the Partnership is not subject:
1. Illiquid Investments. The Fund may invest no more than 15%
of the value of its net assets in illiquid securities.
2. Industry Concentration. The Fund may invest no more than
25% of its total assets in any particular industry.
3. Investment Companies. The Fund may not invest more than 5% of its
total assets in the securities of any single investment company or 10%
of its total assets in other investment companies in total. Nor may the
Fund hold more than 3% of the outstanding voting securities of any
single investment company.
4. Borrowing Money. The Fund may borrow money from banks, but
only provided that there is asset coverage of 300% for all
borrowings of the Fund.
5. Voting Securities of One Issuer. The Fund may not purchase
more than 10% of the outstanding voting securities of any one
issuer.
Although the Partnership enjoys greater flexibility in making
investments and is not subject to such restrictions, the Partnership has
followed investment guidelines in its operations that are similar to those that
will be followed by the Fund. (See "Investment Objective, Investment Policies
and Risk Considerations" in the Fund's Prospectus, which accompanies this
Prospectus/Information Statement.)
Fees and Expenses. The Partnership is managed by the General Partner, a
wholly owned subsidiary of the Adviser. The General Partner receives no fee for
its services to the Partnership. The Partnership retains the Adviser to act as
investment adviser to the Partnership. The Partnership pays the Adviser a
monthly fee at the annual rate of 1% of the Partnership's net asset value,
determined
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as of the close of business on the last business day of each month, up to $2
million, .75% of such net asset value from $2 million to $5 million and .50% of
such net asset value in excess of $5 million. For the fiscal years ended
December 31, 1995, 1994 and 1993, the Partnership paid the Adviser fees for
these services equalling $84,154, $75,210 and $72,501, respectively. The
Partnership also pays custody and transactional expenses, including brokerage
costs and interest charges with respect to transactions in securities, legal and
auditing fees and other miscellaneous operating costs. For the fiscal years
ended December 31, 1995, 1994 and 1993, the Partnership's aggregate expenses
(excluding advisory fees) totalled $24,363, $23,170 and $25,460, respectively.
The Fund will employ the Adviser as its investment adviser and will pay
the Adviser a monthly fee calculated at an annual rate of 1.00% of the Fund's
average daily net assets. In addition to fees for investment advice, the Fund
will pay all other expenses incurred in connection with the business of the
Fund, including fees and expenses in connection with membership in investment
company organizations, brokerage fees and commissions, legal and auditing
expenses, expenses of registering shares under federal and state securities
laws, insurance expenses, taxes or governmental fees, fees and expenses of its
custodian, transfer agent, administrator and accounting and pricing agent, fees
and expenses of members of the Board of Trustees who are not interested persons
of the Trust, the cost of preparing and distributing prospectuses, statements,
reports and other documents to shareholders, expenses of shareholders' meetings
and proxy solicitations, and such extraordinary or non-recurring expenses as may
arise, including expenses incurred by the Fund in connection with litigation to
which the Fund may be a party and indemnification of the Trust's officers and
Trustees with respect thereto.
After the Exchange, based upon the advisory fee schedules discussed
above, the Fund will pay higher advisory fees to the Adviser than the
Partnership has paid in the past. The following table sets forth the aggregate
amount of advisory fees and such advisory fees as a percentage of average net
assets incurred during the fiscal year ending December 31, 1995 by the
Partnership, the pro forma amounts that would have been incurred by the
Partnership had the Partnership operated as the Fund during that period, and the
amount and percentage increase that would have resulted. THE PRO FORMA ADVISORY
FEES OF THE FUND DO NOT REFLECT ANTICIPATED ADVISORY FEE WAIVERS BY THE ADVISER.
The
The Fund Percentage
Partnership (Pro Forma) Increase Increase
Advisory Fee $84,154 $133,244 $49,090 58%
Advisory Fee
(as a percentage
of average net assets) .63% 1.00% .37% 58%
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Despite the above increase, the advisory fee for the Fund remains
within the range of investment advisory fees paid by many mutual funds having
investment objectives and policies comparable to those of the Fund. The fee
increase is expected to help enhance the Adviser's ability to attract and retain
highly qualified investment professionals in a highly competitive investment
management environment, and thus address the expectations of the Board of
Trustees of the Trust regarding performance of the Fund. The costs of managing
the Fund will be higher and the Adviser will be subject to greater potential
liability due to the anticipated increase in the number of shareholders and
amount of assets. Also, the Adviser will be subject to increased regulatory
requirements under the Investment Company Act of 1940, as amended (the "1940
Act") and accountability and reporting requirements to the Board of Trustees of
the Trust.
Distribution and Purchase Procedures. The Partnership distributes
substantially all of its net investment income and realized net capital gains
quarterly. Limited Partners receive distributions in additional shares of
limited partnership interest, or, should they elect to do so, in cash within 120
days of the close of the Partnership's fiscal year. Limited Partners may
purchase shares of limited partnership interest at a price equal to the net
asset value per share as of the date of purchase. Such additional investments
may be made monthly in increments of not less than $25,000. Limited Partners may
not assign or otherwise transfer or encumber their interests in the Partnership
except by gift or by operation of law without the consent of the General
Partner.
The Fund expects to distribute all of its net investment income and net
realized capital gains on an annual basis. Unless the Fund is instructed
otherwise by a shareholder, dividends and distributions will be automatically
reinvested in additional Shares of the Fund at net asset value on the payment
date. Shares of the Fund are sold without a sales charge; however, the Fund may
directly incur or reimburse the Adviser for certain distribution-related
expenses pursuant to a Plan of Distribution adopted pursuant to Rule 12b-1 under
the 1940 Act (see the Fund's Prospectus under the heading "Distribution Plan").
Shares of the Fund may be purchased by mail or by wire on any day that the
Fund's net asset value is calculated. Shares of the Fund may be exchanged, at
net asset value, for shares of the GW&K Government Securities Fund, the other
series of the Trust, or the Short Term Government Income Fund, a series of
Midwest Trust. Such shares may also be re-exchanged for shares of the Fund at
net asset value. An exchange will result in a sale of fund shares, which may
cause the shareholder to recognize a capital gain or loss. For a discussion of
when the Fund's net asset value is
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calculated, see the Fund's Prospectus under the heading "Calculation of Share
Price." The minimum initial investment in the Fund after consummation of the
Exchange will be $2,000. While there is no minimum amount required for
subsequent investments, the Fund reserves the right to impose such a
requirement.
Redemption Procedures. Upon 10 business days written notice to the
General Partner, shares of limited partnership interest may be redeemed
quarterly by a Limited Partner at a price equal to the net asset value per share
as of the last business day of such calendar quarter. Subject to certain
limitations, redemptions will be made in cash or in portfolio securities of the
Partnership no later than seven business days after the effective date of the
redemption. If such a redemption lowers the value of such Limited Partner's
interest in the Partnership to less than $25,000, then such Limited Partner
shall be deemed to be withdrawing from the Partnership completely and shall be
paid an amount equal to the value of the total interest held in the Partnership
by such Limited Partner.
Shares of the Fund may be redeemed by a shareholder, at net asset
value, on any day that the New York Stock Exchange is open for business and on
any other day when there is sufficient trading in the Fund's investments that
its net asset value might be materially affected. Shares of the Fund may be
redeemed by mail or by placing a wire redemption request through a securities
dealer. Redemption proceeds will be paid by check or wired to the shareholder's
bank, but the Fund reserves the right to pay the proceeds of any redemption by
an unaffiliated shareholder in-kind to avoid excessive brokerage costs and if
the Fund's Board of Trustees determines that conditions exist that make payment
of redemption proceeds wholly in cash unwise or undesirable. No affiliated
person of the Trust, the Adviser or the General Partner or affiliated person of
any such person, will receive the proceeds of redemptions in-kind. If a
shareholder's account drops below $2,000 due to redemptions, the Fund reserves
the right, upon 60 days' prior written notice to the shareholder, to redeem the
Shares in that account at their net asset value. After notification to the
shareholder of the Fund's intention to close the account, the shareholder will
be given 60 days to increase the value of his or her account to the minimum
amount.
Tax Considerations of the Exchange
The Partnership and the Fund have received an opinion of counsel to the
effect, among other things, that no gain or loss will be recognized by the
Partnership, the Fund or the former partners of the Partnership as a result of
the Exchange, that a Limited Partner's basis for his or her Shares will be equal
to the Limited Partner's adjusted basis in his or her former
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interest in the Partnership minus the amount of cash he receives pursuant to
the liquidation of his or her limited partnership interest and that a Limited
Partner's holding period with respect to his or her Shares will include the
Partnership's holding period with respect to the Shares which, in turn, will
include the period of time during which the Partnership had held its portfolio
assets. See "Tax Consequences."
RISK FACTORS
Because of the similarity in investment objectives and policies between
the Partnership and the Fund, an investment in the Fund involves investment
risks that are substantially the same as those of the Partnership. These
investment risks, in general, are those typically associated with investing in a
managed portfolio of equity securities where a broad range of investment
techniques may be employed. Investments in equity securities are subject to
inherent market risks and fluctuations in value due to earnings, economic
conditions and other factors beyond the control of the Adviser. As a result, the
return and net asset value of the Fund will fluctuate. The Fund, like the
Partnership, will have considerable flexibility with respect to the kinds of
equity securities in which it may invest and the investment strategies it may
employ. Utilization of these strategies and investment in these kinds of
securities involve certain risks, which are described in the Fund's Prospectus.
Among the risks associated with an investment in the Partnership that
are not associated with an investment in the Fund are the limited liquidity of
shares of limited partnership interest, the lack of a market for those interests
and the limitations on transferability of those interests.
THE PLAN
The following summary of the important terms and conditions of the Plan
is qualified in its entirety by reference to the copy of the Plan attached as
Exhibit A. The Plan provides that, prior to the general offering of its Shares
to the public, the Fund will exchange Shares for substantially all of the
properties and assets of the Partnership. Prior to the Exchange, the Partnership
will dispose of any security if the acquisition of such security by the Fund
would result in a violation of the Fund's investment objective, policies or
restrictions. Securities will be acquired and will be valued by the Fund after
the Exchange at their current market prices in accordance with valuation methods
adopted by the Board of Trustees of the Trust and set forth in the Fund's
Prospectus. The Fund will not acquire any of the liabilities of the Partnership.
Accordingly, the Partnership will retain sufficient assets to pay its
outstanding liabilities, which the General Partner expects to be
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very small or nonexistent. After the Exchange, the Partnership will distribute
Shares to all its former partners, including the General Partner, along with any
cash proceeds received from the sale of portfolio securities not acquired by the
Fund. Subsequent to such distribution, the Partnership will be dissolved. The
dissolution of the Partnership is expected to occur on the same day as the
Exchange, but will occur in any event as soon as practicable after the Exchange.
Immediately following the Exchange, the former partners of the Partnership will
hold the only outstanding Shares of the Fund (other than Shares representing
$98,834 of initial capital contributed by Harold G. Kotler and Edward B. White).
Immediately after the Exchange has been completed, the Fund will commence a
continuous offering of its Shares to the public.
The Plan provides that the General Partner will indemnify the Fund
against losses and claims that may arise relating to the Exchange.
Unless postponed by the mutual agreement of the Partnership and the
Fund, the Exchange is expected to occur on or about December __, 1996, on the
basis of the net asset value of interests in the Partnership as of 4:00 p.m.,
Eastern time, on the business day immediately preceding the Exchange. The
Exchange will not be effected until certain conditions are satisfied, including
(1) that the Exchange has been approved by the Limited Partners and (2) that an
order of the Securities and Exchange Commission (the "Commission") permitting
the Exchange has been received. The Fund has applied to the Commission for such
order because the acquisition by the Fund of Partnership assets in exchange for
Shares of the Fund could be viewed as a sale to the Fund of securities by an
"affiliated person" (as such term is defined in the 1940 Act) of the Fund in
violation of the 1940 Act.
The Plan may be amended at any time prior to the Exchange.
REASONS FOR THE EXCHANGE AND BENEFITS TO LIMITED PARTNERS
The effect of the Exchange will be to establish the Fund as a successor
investment vehicle to the Partnership.
Reasons for the Exchange. The Exchange is being proposed primarily for
two reasons. First, the Exchange will permit Limited Partners to pursue as
shareholders of the Fund substantially the same investment objective and
policies in a fund with the potential to grow and increase its assets by the
continuous distribution of its shares. The Partnership was formed as a private
investment vehicle for a small number of investors. It was not registered as an
investment company under the 1940 Act in reliance on an exemption contained in
the 1940 Act for issuers whose outstanding securities are beneficially owned by
not more than 100 persons and which are not making or proposing to make a public
offering of their securities. As a
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general rule, partnerships are less expensive to form than registered investment
companies and enjoy somewhat greater investment flexibility than registered
investment companies. As of June 30, 1996, 98 persons have been admitted to the
Partnership as Limited Partners. Once the number of Limited Partners reaches
100, the Partnership's growth in asset size depends on whether existing Limited
Partners make additional capital contributions. In contrast to the Partnership,
the Fund, as a series of a registered investment company, is not subject to any
limitation on the number of its shareholders. Because the Partnership has proven
to be more popular than originally anticipated and because of continuing
investor interest in the Partnership, conversion of the Partnership into a
registered investment company is desirable.
Second, it is expected that the Fund will be simpler to operate in
certain respects than the Partnership. As a partnership, the Partnership must
allocate profits and losses among partners taking the holding period of
Partnership assets as well as the holding period of interests in the Partnership
into account. These allocation calculations, which are quite complicated, will
not apply to the Fund, which is able to use the simpler allocation rules under
Subchapter M of the Internal Revenue Code of 1986 (the "Code").
Benefits to Limited Partners. Immediately after the Exchange, Limited
Partners will hold Shares representing a pro rata interest in substantially the
same pool of assets as they previously had held as Limited Partners of the
Partnership. Of course, the Fund's assets and portfolio of investments will
change over time due to investment decisions made by the Adviser and redemptions
and new purchases of Shares. Certain immediate benefits are expected to accrue
to Limited Partners as shareholders of the Fund. As shareholders of the Fund,
Limited Partners will enjoy greater liquidity and a greater ability to transfer
their investment than they had as Limited Partners of the Partnership.
Additional benefits may accrue to Limited Partners as the Fund's net assets
increase. Although the Fund's expenses are expected to be higher as a percentage
of its net assets than the Partnership's had been, the pro rata portion of the
Fund's expenses to be borne by each Limited Partner may decrease and certain
economies of scale may be realized as fixed costs are spread over a larger asset
base as a result of the continuous public offering of Shares after the Exchange.
For a discussion of certain tax benefits that may accrue to Limited Partners as
a result of the Exchange, see "Tax Consequences."
TAX CONSEQUENCES
The Fund and the Partnership have received an opinion of counsel
stating that the Exchange will have the following tax consequences to the Fund
and the Partnership: (1) no gain or loss will be recognized by the Partnership
on the transfer of its portfolio securities to the Fund in exchange for Shares
(Code
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Section 351(a)); (2) no gain or loss will be recognized by the Fund upon receipt
of the Partnership's portfolio securities in exchange for Shares (Code Section
1032(a)); (3) the basis to the Fund of the transferred portfolio securities will
be the same as the basis of these securities held by the Partnership immediately
prior to the Exchange (Code Section 362(a)); (4) the basis of Shares received by
the Partnership will be equal to the basis of the assets exchanged for them
(Code Section 358(a)); (5) the holding period of the portfolio securities
received by the Fund will be the same as the holding period of the securities in
the hands of the Partnership immediately prior to the Exchange (Code Section
1223(2)); and (6) the holding period of the Shares to be received by the
Partnership will include the period during which the Partnership assets
exchanged therefor were held, provided that such assets were held as capital
assets, or were property described in Code Section 1231, on the date of the
Exchange (Code Section 1223(1)).
The Fund and the Partnership have also received an opinion of counsel
stating that the Exchange will have the following federal income tax
consequences to Limited Partners: (1) the distribution of the Shares and cash
(if any) from the Partnership to a Limited Partner, which will be in liquidation
of the Limited Partner's interest in the Partnership, will not cause a taxable
gain or loss to be recognized by the Limited Partner (Code Section 731(a)); (2)
a Limited Partner's basis for his or her Shares will be equal to the Limited
Partner's adjusted basis in his or her former interest in the Partnership minus
the amount of cash he or she received pursuant to the liquidation of his or her
limited partnership interest (Code Section 732(b)); and (3) a Limited Partner's
holding period with respect to his or her Shares will include the Partnership's
holding period with respect to the Shares which, in turn, will include the
period of time during which the Partnership had held its portfolio assets (Code
Sections 735(b) and 1223).
To the extent that the Fund does not acquire certain of the
Partnership's portfolio securities and that the Partnership sells any of these
portfolio securities prior to the Exchange, such sales may result in a taxable
gain or loss being realized by the Limited Partners. Any cash received pursuant
to these sales and distributed to the Limited Partners will not, as a general
rule, result in any additional tax liability.
The Partnership's current tax year will end upon the Partnership's
termination. If a Limited Partner is not a calendar year taxpayer, the
termination of the Partnership might cause a Limited Partner to pay a greater
amount of federal income tax in his current fiscal year than such Limited
Partner would have paid if the Partnership had not terminated.
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The Exchange may result in adverse tax consequences under certain
circumstances to either Limited Partners or to investors who acquire shares of
the Fund in the continuous offering of the Fund's shares after the Exchange. As
a result of the Exchange, the Fund may acquire securities that have appreciated
in value or depreciated in value from the date they were acquired. For example,
if the Exchange had taken place on June 30, 1996, the Fund would have acquired
securities having an unrealized capital gain equal to approximately $6.2 million
(representing approximately 34% of the Partnership's net assets on that date).
If appreciated securities were to be sold after the Exchange, the amount of the
gain would be taxable to new shareholders as well as to Limited Partners. The
effect of this for new shareholders would be to tax them on a distribution that
represents a return of the purchase price of their Shares rather than an
increase in the value of their investment. The effect on Limited Partners would
be to reduce their potential liability for tax on capital gains by spreading it
over a larger asset base. The opposite may occur if the Fund acquires securities
having an unrealized capital loss. In that case, Limited Partners will be unable
to utilize the loss to offset gains, but, because the Exchange will not result
in any gains, the inability of Limited Partners to utilize unrealized losses
will have no immediate tax effect. For new shareholders, to the extent that
unrealized losses are realized by the Fund, new shareholders may benefit by any
reduction in net tax liability attributable to the losses. The General Partner
cannot predict whether securities acquired in the Exchange will have unrealized
gains or losses on the date of the Exchange. Consistent with its duties as
investment adviser, the Adviser will, however, consider the possible tax
consequences to investors when making decisions to sell portfolio assets,
including the impact of realized capital gains on shareholders of the Fund.
LIMITED PARTNERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
EFFECT OF THE PROPOSED EXCHANGE IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES AND
REGARDING THE CONSEQUENCES OF THE EXCHANGE UNDER STATE AND LOCAL LAW.
DIFFERENCES IN RIGHTS
The Fund. The Fund has been organized as a series of the Trust, an
unincorporated business trust under the laws of the Commonwealth of
Massachusetts, pursuant to an Agreement and Declaration of Trust dated April 24,
1996, as amended from time to time (the "Trust Agreement"). Subsequent to the
Exchange, the former partners of the Partnership will acquire those rights
incident to shareholders of a Massachusetts business trust. Shareholders of the
Fund are entitled to one vote for each full Share held and fractional votes for
fractional Shares held. There will normally be no meetings of shareholders for
the
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purpose of electing Trustees of the Trust unless and until such time as less
than a majority of the Trustees holding office have been elected by
shareholders. Shares of the Fund are transferable, but have no preemptive,
conversion or subscription rights. Shares do not have cumulative voting rights.
The Trustees shall promptly call and give notice of a meeting of shareholders
for the purpose of voting upon removal of any Trustee when requested to do so in
writing by shareholders holding 10% or more of the Trust's outstanding shares.
The Fund will comply with the provisions of Section 16(c) of the 1940 Act in
order to facilitate communications among shareholders. In the interest of
economy and convenience, certificates representing the Shares are not physically
issued.
Under Massachusetts law, under certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of the Trust as does a partner of a partnership.
However, numerous investment companies registered under the 1940 Act have been
formed as Massachusetts business trusts and the Trust is not aware of any
instance where such a result has occurred. In addition, the Trust Agreement
disclaims shareholder liability for acts or obligations of the Trust and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Trust or the Trustees. The Trust
Agreement also provides for the indemnification, out of the Trust property, for
all losses and expenses of any shareholder held personally liable for the
obligations of the Trust. Moreover, it provides that the Trust will, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Trust and satisfy any judgment thereon. As a result,
and particularly because the Trust assets are readily marketable and ordinarily
substantially exceed liabilities, management believes that the risk of
shareholder liability is slight and limited to circumstances in which the Trust
itself would be unable to meet its obligations. Management believes that, in
view of the above, the risk of personal liability is remote.
Shareholders of the Fund are entitled to dividends declared beginning
on the day a purchase has been credited to their account. The Fund will declare
and pay dividends from its net investment income and its net realized capital
gains annually. If a shareholder redeems all the Shares in his or her account,
all dividends declared up to and including the date of redemption are paid with
the proceeds of the redemption.
The Partnership. Partners in the Partnership receive at the end of each
calendar quarter and on the last business day prior to the admission of any
person as a partner, the distribution of any profit in shares of limited
partnership interest or cash, or a combination of shares and cash, as elected by
the partner.
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Limited Partners may withdraw from the Partnership by redeeming their shares of
limited partnership interest on the last business day of any calendar quarter
provided notice is received by the General Partner at least 10 business days
prior to such date. The General Partner, as the general partner of the
Partnership, has complete control of the business of the Partnership and Limited
Partners take no part in the operation or management of the Partnership. Limited
Partners are not liable for the debts or obligations of the Partnership in
excess of the value of their investment. However, when Limited Partners receive
a return of their contribution to the capital of the Partnership, they remain
liable for the amount necessary for the Partnership to discharge its liability
to creditors who extended credit or whose claims arose before such return of
capital was made. No substantive changes in the Agreement of Limited Partnership
may be made without the approval of the General Partner and of the holders of
67% of the shares of limited partnership interest issued and outstanding but,
otherwise, the Limited Partners have no voting rights. Without the consent of
the partner affected, no amendment may be made to the Agreement of Limited
Partnership that would increase the liability or obligations of or reduce the
right to share in the Partnership's cash flow, net proceeds, or profits, losses
and credits of any Partner. Limited Partners may not sell, pledge, assign or
otherwise transfer any or all of their shares of limited partnership interest
except by gift or by operation of law without the consent of the General
Partner.
CAPITALIZATION
The following unaudited table sets forth (1) as of June 30, 1996 the
capitalization of the Partnership, (2) as of October 17, 1996 the capitalization
of the Fund and (3) the pro forma capitalization of the Fund as adjusted showing
the effect of the Exchange had it occurred on June 30, 1996.
The The The Fund
Partnership Fund as Adjusted
Total Net Assets $18,188,881(1) $98,834 $18,287,715
Shares of
Beneficial Interest
Outstanding 352 9,883 1,828,772(2)
Net Asset Value
Per Share $ 51,368(1) $ 10.00 $ 10.00
(1) Reflects retention by the Partnership of assets to provide for payment
of liabilities. Had the Exchange been consummated on June 30, 1996,
assets having a value of approximately $11,142 would have been retained
for this purpose.
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(2) No assurances can be given as to how many Shares the Partnership will
receive in the Exchange, and the table above should not be relied upon
to reflect the number of Shares that will actually be received in the
Exchange for distribution to partners of the Partnership.
THE FUND
Information concerning the operations and management of the Fund,
including a discussion of the risks associated with investing in the Fund, is
incorporated by reference into this Prospectus/Information Statement from its
current Prospectus and Statement of Additional Information, which accompany this
Prospectus/Information Statement.
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, and in accordance with those laws will,
upon the commencement of its investment operations, file reports, proxy
statements and other information with the Commission. Reports, proxy statements
and other information filed by the Fund may be inspected and copied at the
public reference facilities of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. Copies of such material may
also be obtained from the Public Reference Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C.
20549, at prescribed rates.
THE PARTNERSHIP
The Partnership was organized by the General Partner in 1991 as a
limited partnership under the laws of the State of Delaware. The Partnership is
an investment partnership whose investment objective is long-term total return.
In order to achieve this objective, investments are made principally in equity
securities of businesses which are believed to be selling below intrinsic value.
The Adviser is retained by the General Partner to make all investment decisions
on behalf of the Partnership.
Mr. Edward B. White, an officer and a principal of the General Partner
and of the Adviser since 1989, is the portfolio manager of the Partnership.
Mr. White also will be the portfolio manager of the Fund.
VOTING INFORMATION
Voting instructions from Limited Partners are being solicited by the
General Partner, as general partner of the Partnership. The Adviser will pay all
costs incurred in soliciting Limited Partner votes. The solicitations will be
made primarily by mail, but solicitations may also be made by
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telephone, telegraph or personal interviews conducted by employees of the
Adviser. Approval of the Exchange requires the affirmative vote of the Limited
Partners holding 67% of the shares of limited partnership interest of the
Partnership. Voting instructions must be received by the General Partner on or
before December __, 1996, and may be revoked by written notice received by the
General Partner before that date. The Plan does not provide for appraisal rights
for Limited Partners who do not approve the Exchange.
As of the close of business on October 31, 1996, Richard B. Cohen, 637
Washington Street, Brookline, Massachusetts 02146, owned of record 5.60% of the
limited partnership interests of the Partnership. No other person owned of
record and, according to information available to the Partnership, no other
person owned beneficially, 5% or more of the limited partnership interests of
the Partnership.
The General Partner intends to vote FOR the Exchange. The Adviser, the
sole shareholder of the Fund on the date of this Prospectus/Information
Statement, will not vote on the Exchange.
CERTAIN AFFILIATIONS
As of the date of this Prospectus/Information Statement, Harold G.
Kotler and Edward B. White held beneficially and of record all of the
outstanding Shares of the Fund; as such, they may be deemed to control the Fund.
Mr. Kotler and Mr. White are both principals of the Adviser and of the General
Partner. After the Exchange, assuming the Limited Partners approve the Exchange,
Mr. Kotler's percentage ownership of the Fund will equal approximately .27%, Mr.
White's percentage ownership will equal approximately .27%, and the General
Partner's percentage ownership of the Fund will equal approximately .49%. As
stated above, the General Partner is the sole general partner of the Partnership
and retains the Adviser as investment adviser to the Partnership. The Adviser
will also serve as investment adviser to the Fund. All of the principals of the
General Partner are principals of the Adviser. Various persons who serve as
officers or directors of the Adviser and/or the General Partner will serve as
officers or trustees of the Trust. To the knowledge of the General Partner, no
Limited Partner affiliated with the General Partner, the Adviser or the Trust
owns of record or beneficially 5% or more of the limited partnership interests
of the Partnership.
EXPENSES
The Adviser will pay all of the expenses incurred by the Partnership
and the Fund in connection with the organization of the Fund and in connection
with the Exchange, including the costs
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of transferring portfolio securities to the Fund's custodian and costs of
issuing Shares in the Exchange. The Adviser will also assume all the legal fees
and expenses incurred in connection with this Prospectus/Information Statement
and in obtaining the opinion of counsel as to certain tax matters, described
above under "Tax Consequences."
FINANCIAL STATEMENTS
The audited financial statements of the Partnership included in the
Statement of Additional Information have been examined by Schneider, Schneider &
Associates, P.C., certified public accountants, with offices at 35 Braintree
Hill Office Park, Braintree, Massachusetts 02184. The statement of assets and
liabilities of the Fund as of October 17, 1996, incorporated by reference into
the Statement of Additional Information, has been examined by Arthur Andersen
LLP, certified public accountants, with offices at 425 Walnut Street,
Cincinnati, Ohio 45202. The statements examined by Schneider, Schneider &
Associates, P.C. and Arthur Andersen LLP have been incorporated herein by
reference in reliance upon their reports given on their authority as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of Shares in the Exchange
and concerning the tax consequences of the Exchange will be passed upon for the
Fund by Sullivan & Worcester LLP, One Post Office Square, Boston, Massachusetts
02109 and 1025 Connecticut Avenue, N.W., Washington, D.C. 20036.
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EXHIBIT A
AGREEMENT AND PLAN OF EXCHANGE
AGREEMENT AND PLAN OF EXCHANGE, dated December ___, 1996 among GW&K
Equity Fund, L.P. (the "Partnership"), a Delaware limited partnership, The
Gannett Welsh & Kotler Funds (the "Trust"), a Massachusetts business trust and
the issuer of shares of beneficial interest of the GW&K Equity Fund (the
"Fund"), GSD, Inc., the general partner of the Partnership (the "General
Partner"), a Massachusetts corporation, and Gannett Welsh & Kotler, Inc. (the
"Adviser"), a Massachusetts corporation, each with its principal office and
place of business at 222 Berkeley Street, Boston, Massachusetts 02116.
WHEREAS, the General Partner, as general partner of the Partnership,
and the Board of Trustees of the Trust have determined that it is in the best
interests of the Partnership and the Fund, respectively, that substantially all
of the assets of the Partnership be acquired by the Fund pursuant to this
Agreement and in accordance with the applicable statutes of the Commonwealth of
Massachusetts and the State of Delaware; and
WHEREAS, the Partnership, the Trust, the General Partner and the
Adviser desire to enter into a Plan of Exchange;
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the Partnership, the Trust, the General Partner and the Adviser agree
as follows:
PLAN OF EXCHANGE
The exchange will be comprised of the acquisition by the Fund of
substantially all of the properties and assets of the Partnership in exchange
for shares of beneficial interest, no par value, of the Fund (the "Fund
Shares"), and the subsequent distribution to the partners of the Partnership,
including the General Partner (together, the "Partners"), in the complete
liquidation and dissolution of the Partnership, of all of the Fund Shares
received in exchange for their interests in the Partnership ("Partnership
Interests"), all upon and subject to the terms hereinafter set forth. Upon such
distribution of the Fund Shares, each Partner will be entitled to receive that
portion of such shares that the Partnership Interests owned by such Partner
prior to the exchange bears to the number of outstanding Partnership Interests
of all Partners on the same date. Any assets retained by the Partnership in
excess of amounts needed to pay or provide for its liabilities will be
distributed to the Partners of record as of the Exchange Date (as defined in
Section 6 of the Agreement set forth below).
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AGREEMENT
In consideration of the covenants and agreements herein contained, the
Partnership, the Trust, the General Partner and the Adviser agree as follows:
1. Representations and Warranties of the Partnership. The
Partnership represents and warrants to and agrees with the Trust
and the Adviser that:
(a) The Partnership is a limited partnership duly formed and validly
existing under the laws of the State of Delaware and has power to own
all of its properties and assets and, subject to the approval of its
limited partners (the "Limited Partners"), to carry out this Agreement.
(b) Except as shown on the financial statements of the Partnership for
the six months ended June 30, 1996 and as incurred in the ordinary
course of the Partnership's business since June 30, 1996, the
Partnership has no known liabilities of a material amount, contingent
or otherwise, and there are no material legal, administrative or other
proceedings pending or, to the knowledge of the General Partner,
threatened against the Partnership.
(c) At both the Valuation Time (as defined in Section 3(d) hereof) and
the Exchange Date, the Partnership will have full right, power and
authority to sell, assign, transfer and deliver the assets and
properties to be transferred by it hereunder. Upon such transfer as
contemplated by this Agreement, the Fund will acquire such assets
subject to no encumbrances, liens, security interests and without any
restrictions upon the transfer thereof (other than encumbrances, liens,
security interests or restrictions created by the Trust).
(d) No registration under the Securities Act of 1933, as amended (the
"1933 Act"), of any of the securities to be transferred by the
Partnership hereunder would be required if they were, as of the time of
such transfer, the subject of a public distribution by the Partnership.
2. Representations and Warranties of the Trust. The Trust represents
and warrants to and agrees with the Partnership and the Adviser that:
(a) The Trust is an unincorporated voluntary association duly
established and validly existing in conformity with the laws of the
Commonwealth of Massachusetts and has power to carry on its business as
it is now being conducted and to carry out this Agreement.
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(b) The Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment
company; and such registration has not been revoked or rescinded and is
in full force and effect.
(c) At the Exchange Date, the Fund Shares to be issued to the
Partnership will have been duly authorized and, when issued and
delivered pursuant to this Agreement, will be legally and validly
issued and will be fully paid and nonassessable; and no shareholder of
the Fund will have any preemptive right of subscription or purchase in
respect thereof.
3. Transfer of Assets. (a) Subject to the requisite approval of the
Limited Partners and to the terms and conditions contained herein, the Trust
agrees that the Fund will acquire from the Partnership, and the Partnership
agrees to transfer to the Fund, on the Exchange Date, all of the securities and
cash of the Partnership (subject to the retention by the Partnership of assets
sufficient, in the judgment of the General Partner, to pay the Partnership's
debts, obligations and liabilities and any assets which the Fund is not
permitted, or which it has reasonably determined to be unsuitable for it, to
acquire) in exchange for that number of the Fund Shares provided in Section 4
hereof. The Partnership as soon as practicable after the Exchange Date will
distribute all the Fund Shares received by it to the Partners in exchange for
their Partnership Interests. Any assets retained by the Partnership, after
paying or providing for the payment of all of its liabilities, shall be
distributed by the Partnership or its agent to the Partners of record as of the
Exchange Date.
(b) The Partnership will pay or cause to be paid to the Fund any interest or
dividends received on or after the Exchange Date with respect to securities
transferred to the Fund hereunder. The Partnership will transfer to the Fund any
distributions, rights, stock dividends or other securities received by the
Partnership after the Exchange Date as distributions on or with respect to the
securities transferred, which shall be deemed included in assets transferred to
the Fund on the Exchange Date and shall not be separately valued unless the
securities in respect of which such distribution is made shall have gone "ex"
such distribution prior to the Valuation Time. Notwithstanding the foregoing,
the Fund shall not be entitled to receive any interest or dividends or other
distributions on securities not transferred to the Fund hereunder.
(c) The Fund shall not assume, and shall not be obligated to assume, any
liabilities (absolute or contingent) of the Partnership.
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(d) The Valuation Time shall be 4:00 p.m., Eastern time, on December __, 1996
(the "Valuation Date"), or such earlier or later date and time as may be
mutually agreed upon by the Partnership and the Trust (the "Valuation Time").
4. Shares Issued in Exchange for Assets and Valuation. Full Fund shares
and, to the extent necessary, a fractional Fund Share of an aggregate net asset
value equal to the value of the assets of the Partnership acquired shall be
issued by the Fund in exchange for such assets of the Partnership. Value in all
cases shall be determined as of the Valuation Time. The value of the assets of
the Partnership to be acquired by the Fund and the net asset value per share of
the Fund Shares shall be determined in accordance with the procedures for
determining the value of the Fund's assets set forth in the Trust's Declaration
of Trust and in the Fund's prospectus that forms part of the Trust's
Registration Statement on Form N-1A under the caption "Calculation of Share
Price." The Fund shall issue the Fund Shares to the Partnership. In lieu of
delivering certificates for the Fund Shares, the Fund shall credit the Fund
Shares to the Partnership's account on the stock record books of the Fund and
shall deliver a confirmation thereof to the Partnership. The Partnership shall
then deliver written instructions to the Fund's transfer agent to set up
accounts for the Partners on the stock record books of the Fund.
5. Limited Partners' Approval. The Partnership agrees as soon as is
practicable after the effective date of the Trust's Registration Statement on
Form N-14 that it will solicit the approval of the Limited Partners of this
Agreement and the transactions contemplated hereby.
6. Delivery of Assets; Exchange Date. Delivery of the assets of the
Partnership to be transferred and the Fund Shares to be issued shall be made on
the next full business day following the Valuation Time, or such other date and
time agreed to by the Partnership and the Trust, the date and time upon which
such delivery is to take place being referred to herein as the "Exchange Date."
Assets transferred shall be delivered on the Exchange Date to Investors Bank &
Trust Company, the Fund's custodian (the "Custodian"), for the account of the
Fund, with all securities not in bearer form duly endorsed, or accompanied by
duly endorsed separate assignments or stock powers, in proper form for transfer,
with signatures guaranteed, and with all necessary state stock transfer stamps,
sufficient to transfer good and marketable title thereto (including all accrued
interest and dividends and rights pertaining thereto) to the Custodian for the
account of the Fund free and clear of all liens, encumbrances, rights,
restrictions and claims. Securities held at the Depository Trust Company need
not be delivered to the Custodian. All cash delivered shall be in the form of
currency and immediately available funds payable to the order of the Custodian
for the account of the Fund.
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7. The Trust's Conditions Precedent. The obligations of the Trust
hereunder shall be subject to the following conditions:
(a) That the Partnership shall have furnished to the Trust a statement
of the Partnership's net assets, including a list of securities owned
by the Partnership with their respective tax costs and values
determined as provided in Section 4 hereof, all as of the Valuation
Time.
(b) That as of the Valuation Time and as of the Exchange Date all
representations and warranties of the Partnership made in this
Agreement are true and correct as if made at and as of each such date,
and the Partnership has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior
to such dates.
8. The Partnership's Conditions Precedent. The obligations of the
Partnership hereunder shall be subject to the condition that as of the Valuation
Time and as of the Exchange Date all representations and warranties of the Trust
and the Adviser made in this Agreement are true and correct as if made at and as
of each such date, and that the Trust and the Adviser have each complied with
all of the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such dates.
9. The Adviser's Conditions Precedent. The obligations of the Adviser
hereunder shall be subject to the condition that as of the Valuation Time and as
of the Exchange Date all representations and warranties of the Trust and the
Partnership made in this Agreement are true and correct as if made at and as of
each such date, and that the Trust and the Partnership have each complied with
all of the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such dates.
10. The Trust's, the Partnership's and the Adviser's Conditions
Precedent. The obligations of the Trust, the Partnership and the Adviser
hereunder shall be subject to the following conditions:
(a) That this Agreement and the transactions contemplated hereby shall
have been approved by the affirmative vote of the Limited Partners
holding 67% of the shares of limited partnership interest of the
Partnership.
(b) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
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(c) That the Trust's Registration Statements on Form N-1A and Form N-14
(together, the "Registration Statements") shall have become effective
under the 1933 Act, and no stop order suspending such effectiveness
shall have been issued and no proceedings for that purpose shall have
been instituted or, to the knowledge of the Partnership, shall be
contemplated by the Commission.
11. Obligations of the General Partner. The General Partner agrees
with the Partnership, the Trust and the Adviser as follows:
The General Partner will indemnify and hold harmless the Trust against
any and all expenses, losses, claims, damages and liabilities at any
time imposed upon or reasonably incurred by it in connection with,
arising out of or resulting from any claim, action, suit or proceeding
in which it may be involved or threatened by reason of (i) any
additional taxes owed by or claimed to be owed by the Trust, the
Partnership or the Limited Partners as a result of the transactions
contemplated hereby that are not disclosed in the Trust's Registration
Statement on Form N-14 or (ii) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statements,
or any amendment or supplement thereto, or arising out of or based upon
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, including without limitation any amounts paid
by the Trust in a reasonable compromise or settlement of any such
claim, action, suit or proceeding or threatened claim, action, suit or
proceeding made with the consent of the General Partner. The Trust will
notify the General Partner in writing within ten (10) days of the
receipt by the Trust of any notice of legal process of any suit brought
against or claim made against the Trust as to any matters covered by
this Section 10(b). The General Partner shall be entitled to
participate at its expense in the defense of any claim, suit, action or
proceeding covered by this Section 10(b), or, if it so elects, to
assume at its expense by counsel satisfactory to the Trust the defense
of any such claim, suit, action or proceeding, and if the General
Partner elects to assume such defense, the Trust shall be entitled to
participate in the defense of any such claim, suit, action or
proceeding at its own expense. The General Partner's obligation under
this Section 10(b) to indemnify and hold harmless the Trust shall
constitute a guarantee of payment so that the General Partner will pay
in the first instance any expenses, losses, claims, damages and
liabilities required to be paid by it under this Section 10(b) without
the necessity of the Trust's first paying the same.
- 24 -
<PAGE>
12. Obligations of the Adviser. The Adviser agrees with the Partnership
and the Trust and the General Partner that, whether or not the transactions
contemplated hereby are consummated, the Adviser agrees to pay all expenses
incurred (including but not limited to printing expenses, brokerage commissions,
mailing costs and fees and disbursements of counsel and accountants) by the
Partnership, the Trust and the General Partner in connection with the exchange.
13. Broker or Finder's Fee. The Partnership, the Trust and the
Adviser each represent that there is no person who has dealt with it and who
by reason of such dealings is entitled to any finder's or other similar fee or
commission arising out of the transactions contemplated by this Agreement.
14. Termination of Agreement. This Agreement may be terminated and the
exchange contemplated hereby abandoned at any time (whether before or after the
approval thereof by the Limited Partners) prior to the Exchange Date by mutual
consent of the General Partner, the Adviser and the Board of Trustees of the
Trust evidenced by appropriate resolutions.
In the event of the termination of this Agreement and abandonment of
the exchange contemplated hereby pursuant to the provisions of Section 3(a)
hereof or of this Section 12, this Agreement shall become void and have no
effect, without any liability on the part of any party hereto or the trustees,
officers or shareholders of the Trust, the Limited Partners or the directors,
officers or shareholders of the General Partner or the Adviser in respect of
this Agreement, except the obligation of the Adviser to pay expenses.
15. Waiver. At any time prior to the Exchange Date, the General
Partner, the Adviser or the Board of Trustees of the Trust may (a) extend the
time for the performance of any of the obligations or other acts of the other;
(b) waive any inaccuracy in the representations of the other; and (c) waive
compliance by the other with any of the agreements or conditions set forth
herein. Any agreement on behalf of either to any such extension or waiver shall
be valid only if set forth in an instrument in writing duly executed and
delivered on behalf of such party.
16. No Survival of Representations. None of the representations and
warranties included or provided for herein shall survive the Exchange Date.
17. Agreement Entire; Governing Law. Except as provided herein, this
Agreement supersedes all previous correspondence or oral communications between
the parties regarding the exchange, constitutes the only understanding with
respect to the exchange, may not be changed except by an agreement signed by
each party and shall be construed in accordance with and governed by the
- 25 -
<PAGE>
laws of the Commonwealth of Massachusetts; provided, however, that the due
authorization, execution and delivery of this Agreement with respect to any
party shall be construed in accordance with and governed by the laws of the
jurisdiction of formation, organization or incorporation of such party.
18. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be deemed to be
an original.
19. Limitation of Liability. A copy of the Declaration of Trust of the
Trust is on file with the Secretary of the Commonwealth of Massachusetts and the
City of Boston, and notice is hereby given that this instrument is executed on
behalf of the Trustees of the Trust as Trustees and not individually, and that
the obligations of this instrument are not binding upon any of the Trustees or
the beneficiaries individually but binding only upon the assets and property of
the Trust.
- 26 -
<PAGE>
IN WITNESS WHEREOF, each of the Partnership, the Trust, the General
Partner and the Adviser has caused this Agreement and Plan of Exchange to be
executed and attested on its behalf by its duly authorized representatives and
its seal, if any, to be affixed hereto, all as of the 2nd day of December, 1996.
GW&K EQUITY FUND, L.P.
By: GSD, Inc.
Attest:/s/ T. Williams Roberts By: /s/ Harold G. Kotler
President
THE GANNETT WELSH & KOTLER FUNDS
Attest:/s/ T. Williams Roberts By: /s/ Harold G. Kotler
President
GSD, INC.
Attest:/s/ T. Williams Roberts By: /s/ Harold G. Kotler
President
GANNETT WELSH & KOTLER, INC.
Attest:/s/ T. Williams Roberts By: /s/ Harold G. Kotler
President
- 27 -
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
December __, 1996
Acquisition of the assets of GW&K EQUITY FUND, L.P.
222 Berkeley Street
Boston, Massachusetts 02116
By and in exchange for the shares of
GW&K EQUITY FUND
(a series of The Gannett Welsh & Kotler Funds)
222 Berkeley Street
Boston, Massachusetts 02116
This Statement of Additional Information, relating specifically to the
proposed transfer of all of the assets of GW&K Equity Fund, L.P. (the
"Partnership") to the GW&K Equity Fund (the "Fund"), a series of The Gannett
Welsh & Kotler Funds (the "Trust"), in exchange for shares of the Fund, consists
of this cover page and the following described documents, each of which is
attached hereto and incorporated herein by reference:
1. Audited Financial Statements of the Partnership for the
years ended December 31, 1995 and 1994.
2. Financial Statements (Unaudited) of the Partnership for
the six months ended June 30, 1996.
3. Pro Forma Financial Information.
This Statement of Additional Information is not a prospectus. A
Prospectus/Information Statement dated December __, 1996 relating to the
above-referenced matter may be obtained from the Trust without charge by writing
or calling the Trust at the address and telephone number listed above. This
Statement of Additional Information relates to, and should be read in
conjunction with, such Prospectus/Information Statement. A Statement of
Additional Information relating to the Fund dated December __, 1996 is
incorporated by reference into this Statement of Additional Information.
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
YEARS ENDED DECEMBER 31, 1995 AND 1994
SCHNEIDER, SCHNEIDER & ASSOCIATES, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
YEARS ENDED DECEMBER 31, 1995 AND 1994
CONTENTS
Page
Independent auditor's report 1
Financial statements:
Statements of assets, liabilities and
partners' interest in net assets 2
Investments in securities (December 31, 1995) 3-6
Statements of operations 7
Statements of changes in partners' interest
in net assets 8
Notes to financial statements 9-11
<PAGE>
SCHNEIDER, SCHNEIDER & ASSOCIATES, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
35 BRAINTREE HILL OFFICE PARK PAUL D. SCHNEIDER, CPA
BRAINTREE, MASSACHUSETTS 02184 GERALD R. SCHNEIDER, CPA
-----
TEL. (617) 843-6601
FAX (617) 849-6772 BRIAN G. OSGANIAN, ESQ.
DIRECTOR OF TAXATION
B. BURTON SCHNEIDER, CPA
Independent Auditors' Report
To the Partners of
GW&K Equity Fund, L.P.
(a Limited Partnership)
Boston, Massachusetts
We have audited the accompanying statements of assets, liabilities and
partners' interests in net assets of GW&K Equity Fund, L.P. (a Limited
Partnership) as of December 31, 1995 and 1994, including the schedule of
investments in securities as of December 31, 1995, and the related statements of
operations and changes in partners' interests in net assets for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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. Our procedures included
confirmation of securities owned as of December 31, 1995 and 1994, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of GW&K Equity Fund,
L.P. (a Limited Partnership) as of December 31, 1995 and 1994, the results of
its operations and changes in partners' interests in net assets for the years
then ended, in conformity with generally accepted accounting principles.
January 15, 1996 /s/ Schneider, Schneider & Associates, P.C.
1
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS'
INTEREST IN NET ASSETS
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
---------- --------
Cash and cash equivalents $ 318,194 $ 127,166
Investments in securities (Notes 2 and 4) 15,167,381 11,256,951
Investment income receivable 20,532 21,742
----------- -----------
$15,506,107 $11,405,859
=========== ===========
LIABILITIES AND PARTNERS' INTEREST IN NET ASSETS
Liabilities:
Due to investment advisor (Note 5) $ 7,919 $ 6,211
Accrued custodial fees 2,100 2,100
----------- -----------
Total liabilities 10,019 8,311
Partners' interest in net assets (Note 6) 15,496,088 11,397,548
----------- -----------
$15,506,107 $11,405,859
=========== ===========
See notes to financial statements.
2
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
INVESTMENTS IN SECURITIES - DECEMBER 31, 1995
Market
Shares Value
------ ------
COMMON STOCKS (93.5% of net assets)
- -----------------------------------
DOMESTIC (92%)
ENERGY (6.8%):
- -------------
AES Corp. 11,266 $ 268,976
Camco International Inc. 10,000 280,000
Questar Corp. 13,000 435,500
AES China Generating Co. Class 9,000 72,000
-----------
Total energy 1,056,476
FINANCE (10.4%):
- ---------------
Cincinnati Financial Corp. 4,160 271,440
Citicorp 3,600 242,100
Comerica, Inc. 5,600 224,000
Criimi Mae, Inc. 15,500 129,813
Donaldson, Lufkin & Jenrette 8,000 250,000
General Re Corp. 1,500 232,500
Health & Retirement Properties Trust 16,100 261,625
-----------
Total finance 1,611,478
TECHNOLOGY (18.8%):
- ------------------
Bay Networks Inc. 10,050 413,306
Cognex Corp. 38,000 1,320,500
Compaq Computer Corp. 5,100 244,800
Loral Corporation 9,200 325,450
SDL Inc. 10,800 259,200
Xerox Corp. 2,500 342,500
-----------
Total technology 2,905,756
See notes to financial statements.
3
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
INVESTMENTS IN SECURITIES - December 31, 1995
Market
Shares Value
------ ------
UTILITIES (5.1%):
- ----------------
AT&T Corporation 5,000 323,750
Houston Industries Inc. 10,000 242,500
Worldcom Inc. 6,400 225,600
-----------
Total utilities 791,850
INDUSTRIAL (5.9%):
- -----------------
Boeing Co. 4,000 313,500
Dames & Moore Inc. 11,000 133,375
General Electric Co. 3,000 216,000
Hughes Electronics 5,200 255,450
-----------
Total industrial 918,325
BASIC INDUSTRY (5.6%):
- ---------------------
Dow Chemical Corp. 3,100 217,775
Huntco Inc. Class A 11,000 169,125
Ionics Inc. 8,000 348,000
Universal Forest Products 14,500 134,125
-----------
Total basic industry 869,025
CONSUMER CYCLICAL (20.8%):
- -------------------------
Burlington Industries Equity Inc. 14,400 189,000
Devry, Inc. 34,000 918,000
Dewolfe Companies Inc. Com 26,700 153,525
Eastman Kodak 4,000 268,000
Extended Stay America 1,000 27,500
May Department Stores Co. 5,000 210,625
See notes to financial statements.
4
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
INVESTMENTS IN SECURITIES - December 31, 1995
Market
Shares Value
------ ------
CONSUMER CYCLICAL: (Continued)
- -----------------
Nutramax Prods. Inc. 16,500 148,500
Readers Digest Assn. Inc. Class A 3,500 179,375
Readers Digest Assn. Inc. Class B 1,100 51,975
Savoy Pictures Entertainment, Inc. 25,000 157,825
Sears Roebuck & Co. 8,500 331,500
Standard Pacific Corp. New Com 22,000 140,250
Staffing Resources (Note 4) 30,000 442,500
-----------
Total consumer cyclical 3,218,575
CONSUMER NONCYCLICAL (18.6%):
- ----------------------------
Advantage Health Corp. 8,000 349,000
American Medical Response 7,800 253,500
Chiron 1,883 208,071
Darden Restaurants 9,000 106,875
General Mills, Inc. 2,000 115,500
Healthcare Compare Corp. 6,000 261,000
Medaphis Corp. 7,000 259,000
Merck & Co. 4,500 295,313
Pepsico Inc. 6,000 335,250
Pfizer Inc. 6,000 378,000
San Filippo, John B & Son Inc. 13,300 123,025
Panamerican Beverages Inc. Class A 6,100 195,200
-----------
Total consumer noncyclical 2,879,734
-----------
Total Domestic (Cost $9,512,264) 14,251,219
FOREIGN, NETHERLANDS (1.5%)
ENERGY (1.5%)
------
Royal Dutch Petroleum(NY Gldr 5)(cost $143,801) 1,700 239,912
-----------
Total common stocks (cost $9,656,065) $14,491,131
===========
See notes to financial statements.
5
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
INVESTMENTS IN SECURITIES - DECEMBER 31, 1995
SECURITIES, OTHER:
- -----------------
Face Value/ Market
CONVERTIBLE CORPORATE BONDS (.6%): Units Value
- --------------------------------- ----------- ------
Alliance Gaming 7.50%,9/15/2003(Cost $143,000) 150,000 $ 86,250
-----------
PARTNERSHIP UNITS (3.8%):
- ------------------------
Endless Video Partnership (Note 4) 1 unit 220,000
Cedar Fair, L.P. Dep Units 10,000 units 370,000
-----------
Total Partnership units (Cost $461,810) 590,000
-----------
TOTAL INVESTMENTS (COST $10,260,875)
(97.9% OF NET ASSETS) $15,167,381
===========
See notes to financial statements.
6
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 *
---------- ---------
Investment income:
Dividends $ 237,100 $300,432
Interest income 62,080 39,796
---------- ---------
299,180 340,228
---------- --------
Expenses:
Investment advisory fees (Note 5) 84,154 75,210
Professional and custodial fees 22,968 21,612
Foreign taxes and other 1,395 1,558
----------- ---------
108,517 98,380
---------- ---------
Investment income, net 190,663 241,848
---------- --------
Realized and unrealized gain (loss) on investments (Note 2):
Realized gain (loss) on investments, net 857,880 ( 140,967)
Unrealized gain (loss) on investments, net 3,522,609 ( 622,816)
---------- --------
Gain (loss) on investments, net 4,380,489 ( 763,783)
---------- --------
Increase (decrease) in net assets resulting
from operations $4,571,152 ($521,935)
========== ========
*Reclassified for comparative purposes.
See notes to financial statements.
7
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' INTEREST IN NET ASSETS
YEAR ENDED DECEMBER 31, 1995 AND 1994
General Limited Limited Partners
Partner Partners Total Units Per Unit
------- -------- ----- ----- --------
1994
------
Partners' interest in net
assets, January 1, 1994 $32,110 11,849,734 $11,881,844 343.8129 $34,466
=======
Capital contributions - 525,000 525,000 15.2332
Results of operations ( 5,219) ( 516,716) ( 521,935)
Capital distributions - ( 487,361) ( 487,361)( 15.1451)
------- ----------- ----------- --------
Partners' interest in net
assets, December 31, 1994 $26,891 $11,370,657 $11,397,548 343.9010 $33,064
=======
1995
------
Capital contributions - $ 1,650,000 $ 1,650,000 43.1521
Results of operations $45,712 4,525,440 4,571,152
Capital distributions - ( 2,122,612) ( 2,122,612)( 54.3557)
Partners' interest in net
assets, December 31, 1995 $72,603 $15,423,485 $15,496,088 332.6974 $46,359
======= =========== =========== ======== =======
See notes to financial statements.
8
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of operations:
The Partnership is a Delaware Limited Partnership formed for the purpose
of investing the funds of its partners in securities.
Valuation of securities:
Quoted market values are determined by using the closing market price on
the date of determination for marketable equity securities. Securities
that are not traded on active markets are valued based on managements'
estimates. The increase or decrease in value of all securities from
cost to market results in a net unrealized gain or loss.
Realized gain or loss:
Realized gain or loss from security transactions is computed on the
specific identification method.
Use of estimates:
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reporting
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses. Significant
estimates used in preparing these financial statement include those
assumed in computing the market value for securities not traded on
active markets. It is at least reasonably possible that the estimates
will change within the next year.
Cash equivalents:
Cash equivalents includes money market funds.
Income taxes:
Noprovision for federal and state income taxes is included in the
accompanying financial statements because these taxes, if any, are the
responsibility of the individual partners.
9
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
2. INVESTMENTS IN SECURITIES:
Investments in securities, at market, includes unrealized gains and
losses, which are summarized as follows:
1995 1994
---------- ---------
Investments in securities, at cost $10,260,875 $9,873,055
Gross unrealized losses ( 505,230) ( 781,269)
Gross unrealized gains 5,411,736 2,165,165
----------- ----------
Investments in securities, at market $15,167,381 $11,256,951
=========== ===========
3. INVESTMENT TRANSACTIONS:
Purchase and sales of investment securities (excluding short term
securities) were $4,689,000 and $4,653,000, respectively, in 1995, and
$4,030,312 and $3,476,000, respectively, in 1994.
Sales of U.S. government securities were $519,000 for the year ending
December 31, 1995. Purchases of U.S. government securities were
$414,000 for the year ending December 31, 1994.
4. RESTRICTED SECURITIES:
The securities of Staffing Resources and Endless Video Partnership, in
which the Partnership has investments with a value of $442,500 and
$220,000, respectively, are not traded on any active markets.
Accordingly, the investments have been valued by management based on
factors such as sales of similar investments. In addition, certain
restrictions are placed on the sale of these investments.
5. INVESTMENT ADVISORY FEE:
The Partnership incurred investment advisory fees of $84,154 and $75,210
for the services of the investment advisor during 1995 and 1994,
respectively. The investment advisor is a corporation of which the
general partner is an affiliated entity.
The investment advisory agreement requires an annual fee from the
Partnership, which is to be paid monthly in arrears. This fee on an
annual basis is equal to 1% of the Partnership's net assets up to $2
million, .75% of the next $3 million and .5% of the amount over $5
million.
10
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
6. PARTNERS' INTEREST IN NET ASSETS:
Each partner is entitled to withdraw all or part of their interest in
the Partnership. A partner shall give written notice to the
Partnership of their intention to withdraw at least 10 business days
before the end of any quarter.
7. INCOME TAXES:
For income tax reporting purposes, to the individual partners, the
Partnership does not report any unrealized gains or losses on
securities, while the accompanying financial statements reflect net
unrealized gains or losses. As a result, for financial statement
reporting purposes, the net carrying value of marketable equity
securities is greater than its income tax basis by $4,906,506 and
$1,383,896 at December 31, 1995 and 1994, respectively.
8. GENERAL PARTNER:
The general partner of the Partnership, GSD, Inc., is allocated 1% of
all net profits or losses incurred.
11
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
SIX MONTHS ENDED JUNE 30, 1996
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
SIX MONTHS ENDED JUNE 30, 1996
CONTENTS
Page
Financial statements:
Statement of assets, liabilities and
partners' interest in net assets........................ 3
Investments in securities (June 30, 1996)................ 4
Statement of operations.................................. 8
Statement of changes in partners' interest
in net assets........................................... 9
Notes to financial statements............................ 10
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
STATEMENT OF ASSETS, LIABILITIES AND PARTNERS'
INTEREST IN NET ASSETS
(Unaudited)
JUNE 30, 1996
ASSETS
June 30,
1996
-----------
Cash and cash equivalents $ 931,929
Investments in securities (Notes 2 and 4) 17,251,631
Investment income receivable 16,463
-----------
$18,200,023
===========
LIABILITIES AND PARTNERS' INTEREST IN NET ASSETS
Liabilities:
Due to investment advisor (Note 5) $ 9,042
Accrued custodial fees 2,100
-----------
Total liabilities 11,142
Partners' interest in net assets (Note 6) 18,188,881
-----------
$18,200,023
===========
See notes to financial statements.
3
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
INVESTMENTS IN SECURITIES
(Unaudited)
JUNE 30, 1996
Market
Shares Value
------ ------
COMMON STOCKS (91.0% of net assets)
- -----------------------------------
DOMESTIC (89.6%)
ENERGY (7.2%):
- --------------
AES Corp. 12,266 $ 346,514
Camco International Inc. 10,500 355,688
Questar Corp. 13,000 442,000
AES China Generating Co. Class A 16,500 174,290
----------
Total energy 1,318,492
FINANCE (9.8%):
- --------------
Capital One Financial 7,700 219,450
Cincinnati Financial Corp. 4,368 250,614
Citicorp 3,600 297,900
Criimi Mae, Inc. 20,000 220,000
Donaldson, Lufkin & Jenrette 8,000 248,000
General Re Corp. 1,700 258,825
Health & Retirement Properties Trust 17,000 293,250
----------
Total finance 1,788,039
TECHNOLOGY (11.5%):
- ------------------
Bay Networks Inc. 13,000 334,750
Cognex Corp. 38,000 612,750
Compaq Computer Corp. 6,000 294,750
SDL Inc. 16,200 449,550
Xerox Corp. 7,500 401,250
----------
Total technology 2,093,050
See notes to financial statements.
4
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
INVESTMENTS IN SECURITIES (Continued)
(Unaudited)
JUNE 30, 1996
Market
Shares Value
------ ------
UTILITIES (5.0%):
- ----------------
AT&T Corporation 5,000 310,000
Houston Industries, Inc. 10,000 246,250
Worldcom Inc. 6,400 354,400
----------
Total utilities 910,650
INDUSTRIAL (7.7%):
- ------------------
Boeing Co. 4,000 348,500
Dames & Moore Inc. 11,000 133,375
General Electric Co. 3,000 260,250
General Motors Corp. 5,200 312,650
Republic Industries Inc. 12,000 349,500
----------
Total industrial 1,404,275
BASIC INDUSTRY (6.0%):
- ---------------------
Dow Chemical Corp. 3,100 235,600
Huntco Inc. Class A 12,000 222,000
Ionics Inc. 8,000 376,000
Universal Forest Products 24,000 249,000
----------
Total basic industry 1,082,600
CONSUMER CYCLICAL (24.3%):
- --------------------------
Burlington Industries Equity Inc. 14,400 203,400
Darden Restaurants 2,200 23,650
Devry Inc. 34,000 1,530,000
Dewolfe Companies Inc. Com 26,700 163,538
Eastman Kodak 4,000 311,000
Extended Stay America 7,900 248,850
May Department Stores Co. 5,000 218,750
See notes to financial statements.
5
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
INVESTMENTS IN SECURITIES (Continued)
(Unaudited)
JUNE 30, 1996
Market
Shares Value
------ ------
CONSUMER CYCLICAL: (Continued)
- -----------------
Readers Digest Assn. Inc. Class A 3,500 148,750
Readers Digest Assn. Inc. Class B 2,100 82,687
Savoy Pictures Entertainment, Inc. 25,000 134,375
Sears Roebuck & Co. 8,500 413,312
Standard Pacific Corp. New Com 25,000 181,250
Staffing Resources (Note 4) 30,000 750,000
----------
Total consumer cyclical 4,409,562
CONSUMER NONCYCLICAL (18.1%):
- ----------------------------
American Medical Response 7,800 274,950
Chiron 1,883 184,534
Entremed 4,500 67,500
General Mills, Inc. 3,500 191,188
Healthsouth Corp. 11,014 396,504
Healthcare Compare Corp. 6,000 292,500
Medaphis Corp. 8,000 318,000
Merck & Co. 4,500 290,812
Pepsico Inc. 12,000 426,000
Pfizer Inc. 6,000 428,250
San Filippo, John B & Son Inc. 17,200 105,350
Panamerican Beverages Inc. Class A 7,000 313,250
----------
Total consumer noncyclical 3,288,838
----------
Total Domestic (Cost $10,345,716) 16,295,506
FOREIGN, NETHERLANDS (1.4%)
ENERGY (1.4%)
-------------
Royal Dutch Petroleum (NY Gldr 5)
(cost $143,801) 1,700 261,375
----------
Total common stocks (cost $10,489,517) $16,556,881
===========
See notes to financial statements.
6
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
INVESTMENTS IN SECURITIES (Continued)
(Unaudited)
JUNE 30, 1996
Face Value/ Market
Units Value
---------- ------
SECURITIES, OTHER:
- ------------------
CONVERTIBLE CORPORATE BONDS (.6%):
- ---------------------------------
Alliance Gaming 7.50%, 9/15/2003
(Cost $143,000) 150,000 $ 111,000
----------
PARTNERSHIP UNITS (3.2%):
- ------------------------
Endless Video Partnership (Note 4) 1 unit 210,000
Cedar Fair, L.P. Dep Units 10,000 units 373,750
----------
Total Partnership units (Cost $431,811) 583,750
----------
TOTAL INVESTMENTS (COST $11,064,328)
(94.8% OF NET ASSETS) $17,251,631
===========
See notes to financial statements.
7
<PAGE>
GW&K EQUITY FUND, L.P.
(A Limited Partnership)
STATEMENT OF OPERATIONS
(Unaudited)
SIX MONTHS ENDED JUNE 30, 1996
Investment income:
Dividends $ 127,035
Interest income 21,180
----------
148,215
----------
Expenses:
Investment advisory fees (Note 5) 51,240
Professional and custodial fees 12,375
Foreign taxes and other 828
----------
64,443
----------
Investment income, net 83,772
----------
Realized and unrealized gain on investments (Note 2):
Realized gain on investments, net 406,340
Unrealized gain on investments, net 1,250,799
----------
Gain on investments, net 1,657,139
----------
Increase in net assets resulting from operations $1,740,911
==========
See notes to financial statements.
8
<PAGE>
GW&K EQUITY FUND, L.P.
(A Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' INTEREST IN NET ASSETS
(Unaudited)
SIX MONTHS ENDED JUNE 30, 1996
General Limited Limited Partners
Partner Partners Total Units Per Unit
------- ----------- ------- ------- --------
Partners' interest in net
assets, January 1, 1996 $72,603 $15,423,485 $15,496,088 332.6974 $46,359
=======
Capital contributions - 998,241 998,241 20.6363
Results of operations 17,445 1,723,466 1,740,911
Capital distributions - ( 46,359) ( 46,359) 1.0000
------- --------- --------- --------
Partners' interest in net
assets, June 30, 1996 $90,048 $18,098,833 $18,188,881 352.3337 $51,368
======= =========== =========== ======== =======
See notes to financial statements.
9
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SIX MONTHS ENDED JUNE 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of operations:
The Partnership is a Delaware Limited Partnership formed for the purpose
of investing the funds of its partners in securities.
Valuation of securities:
Quoted market values are determined by using the closing market price on
the date of determination for marketable equity securities. Securities
that are not traded on active markets are valued based on management's
estimates. The increase or decrease in value of all securities from cost
to market results in a net unrealized gain or loss.
Realized gain or loss:
Realized gain or loss from security transactions is computed on the
specific identification method.
Use of estimates:
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reporting amounts
of assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses. Significant
estimates used in preparing these financial statements include those
assumed in computing the market value for securities not traded on active
markets. It is at least reasonably possible that the estimates will
change within the next year.
Cash equivalents:
Cash equivalents includes money market funds.
Income taxes:
No provision for federal and state income taxes is included in the
accompanying financial statements because these taxes, if any, are the
responsibility of the individual partners.
10
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
SIX MONTHS ENDED JUNE 30, 1996
2. INVESTMENTS IN SECURITIES:
Investments in securities, at market, includes unrealized gains and
losses, which are summarized as follows:
Investments in securities, at cost $11,064,328
Gross unrealized losses 6,648,371
Gross unrealized gains (461,068)
------------
Investments in securities, at market $17,251,631
============
3. INVESTMENT TRANSACTIONS:
Purchase and sales of investment securities (excluding short term
securities) were $1,598,446 and $1,171,335, respectively, for the six
months ended June 30, 1996.
4. RESTRICTED SECURITIES:
The securities of Staffing Resources and Endless Video Partnership, in
which the Partnership has investments with a value of $750,000 and
$210,000, respectively, are not traded on any active markets.
Accordingly, the investments have been valued by management based on
factors such as sales of similar investments. In addition, certain
restrictions are placed on the sale of these investments.
5. INVESTMENT ADVISORY FEE:
The Partnership incurred investment advisory fees of $51,240 for the
services of the investment advisor during the six months ended June 30,
1996. The investment advisor is a corporation of which the general
partner is an affiliated entity.
The investment advisory agreement requires an annual fee from the
Partnership, which is to be paid monthly in arrears. This fee on an
annual basis is equal to 1% of the Partnership's net assets up to $2
million, .75% of the next $3 million and .5% of the amount over $5
million.
11
<PAGE>
GW&K EQUITY FUND, L.P.
(a Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
SIX MONTHS ENDED JUNE 30, 1996
6. PARTNERS' INTEREST IN NET ASSETS:
Each partner is entitled to withdraw all or part of their interest in the
Partnership. A partner shall give written notice to the Partnership of
their intention to withdraw at least 10 business days before the end of
any quarter.
7. INCOME TAXES:
For income tax reporting purposes, to the individual partners, the
Partnership does not report any unrealized gains or losses on securities,
while the accompanying financial statements reflect net unrealized gains
or losses. As a result, for financial statement reporting purposes, the
net carrying value of marketable equity securities is greater than its
income tax basis by $6,187,303 at June 30, 1996.
8. GENERAL PARTNER:
The general partner of the Partnership, GSD, Inc., is allocated 1% of all
net profits or losses incurred.
12
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The accompanying pro forma statement of operations for the year ended
December 31, 1995 has been derived from audited financial statements of the GW&K
Equity Fund, L.P. (the "Partnership"). The accompanying pro forma statement of
operations for the period ended June 30, 1996 was derived from unaudited
financial information supplied by the Partnership. The pro forma information
should be read in conjunction with the Partnership's historical financial
statements included in this Statement Additional Information.
The pro forma statements of operations are not necessarily indicative of
either the results of operations that might have occurred had the Partnership
been operated as the GW&K Equity Fund (the "Fund") or of future operations of
the Fund.
<PAGE>
GW&K EQUITY FUND, L.P.
PRO FORMA STATEMENTS OF OPERATIONS
(Unaudited)
For the periods
January 1, 1995 to January 1, 1996 to
December 31, 1995 June 30, 1996
Historical Pro Forma Historical Pro Forma
---------- ---------- ---------- ----------
Realized and
unrealized gain
on investments $4,380,489 $4,380,489 $1,657,139 $1,657,139
Investment Income 299,180 299,180 148,215 148,215
---------- ---------- ---------- ----------
4,679,669 4,679,669 1,805,354 1,805,354
---------- ---------- ---------- ----------
Expenses
Advisory fee (after waivers)(1) 84,154 49,795 51,240 43,424
Professional & custodial fees 22,968 25,500 12,375 12,750
Foreign taxes and other 1,395 84,597 828 43,884
---------- ---------- ---------- ----------
Total expenses 108,517 159,892 64,443 100,058
---------- ---------- ---------- ----------
Net income $4,571,152 $4,519,777 $1,740,911 $1,705,296
========== ========== ========== ==========
(1)The pro forma advisory fees have been reduced to reflect advisory fee waivers
anticipated to be incurred by the Adviser in order to maintain the total expense
ratio of the Fund at 1.25% of average net assets.
See accompanying notes to pro forma statements of operations.
<PAGE>
GW&K EQUITY FUND, L.P.
Notes to Pro Forma Statements of Operations
(Unaudited)
1. GENERAL
The pro forma statements of operations give effect to the proposed
acquisition by the Fund, a series of The Gannett Welsh & Kotler Funds,
of all or substantially all of the assets of GW&K Equity Fund, L.P.
(the "Partnership"). Such acquisition will be accounted for using a
pooling-of-interests method of accounting. The acquisition would be
accomplished by the transfer of the assets of the Partnership in
exchange for shares of the Fund at net asset value and the immediate
distribution of the shares to partners of the Partnership.
GSD, Inc., the General Partner of the Partnership, will bear any costs
associated with the acquisition.
The pro forma statements of operations should be read in conjunction
with the historical financial statements of the Partnership included in
this Statement of Additional Information. Pro forma balance sheets,
statements of changes in net assets and supplementary data have not
been presented because they would not be significantly different from
the historical financial statements of the Partnership as a result of
the acquisition.
<PAGE>
PART C
OTHER INFORMATION
Item 15. Indemnification
The response to this item is incorporated herein by reference
to Item 27 of Part C of Registrant's Registration Statement on
Form N-1A (File No. 333-06039).
Item 16. Exhibits
1.(i) Agreement and Declaration of Trust of Registrant*
(ii) Amendment No. 1 to Agreement and Declaration of Trust*
2. Bylaws of Registrant*
3. Not Applicable
4. Form of Agreement and Plan of Exchange--Included herein
as Exhibit A to the Prospectus/Information Statement
5. Not Applicable
6. Form of Advisory Agreement with Gannett Welsh & Kotler,
Inc.*
7. Not Applicable
8. Not Applicable
9. Form of Custody Agreement with Investors Bank & Trust
Company*
10. Form of Plan of Distribution Pursuant to Rule 12b-1*
11. Opinion and consent of counsel as to the legality of
shares
12. Opinion and consent of counsel supporting tax matters
13.(i) Form of Administrative Services Agreement with MGF
Service Corp*
(ii) Form of Accounting Services Agreement with MGF Service
Corp*
(iii) Form of Transfer, Dividend Disbursing, Shareholder
Service and Plan Agency Agreement with MGF Service Corp*
14. Consent of Independent Auditors**
15. Not Applicable
<PAGE>
16. Not Applicable
17.(i) Rule 24f-2 declaration*
(ii) Voting Instruction Form
(iii) Financial Data Schedule for the GW&K Equity Fund*
* Incorporated herein by reference to the Registration
Statement of Registrant on Form N-1A (File No. 333-06039).
** Incorporated herein by reference to the initial Registration
Statement of Registrant on Form N-14 (File No. 333-12835).
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this Registration Statement by
any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed as a
part of an amendment to the Registration Statement and will
not be used until the amendment is effective, and that, in
determining any liability under the Securities Act of 1933,
each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and
the offering of the securities at that time shall be deemed to
be the initial bona fide offering of them.
(3) The undersigned Registrant agrees to file a post-effective
amendment on Form N-1A, updating its statement of assets and
liabilities, which need not be certified, and including a
schedule of its portfolio investments, within sixty days from
the effective date of Registrant's Registration Statement on
Form N-1A.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration
Statement has been signed on behalf of the Registrant in the City of Boston,
Commonwealth of Massachusetts on the 2nd day of October, 1996.
THE GANNETT WELSH & KOTLER FUNDS
By: /s/ Harold G. Kotler
Harold G. Kotler, President
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
/s/ Harold G. Kotler President October 2, 1996
Harold G. Kotler and Trustee
/s/ Benjamin H. Gannett Treasurer October 2, 1996
Benjamin H. Gannett and Trustee
/s/ Arlene Zoe-Aponte Gonzalez Trustee October 2, 1996
Arlene Zoe-Aponte Gonzalez
/s/ Morton S. Grossman Trustee October 2, 1996
Morton S. Grossman
/s/ Timothy P. Neher Trustee October 2, 1996
Timothy P. Neher
/s/ Josiah A. Spaulding, Jr. Trustee October 2, 1996
Josiah A. Spaulding, Jr.
/s/ Allan Tofias Trustee October 2, 1996
Allan Tofias
<PAGE>
INDEX TO EXHIBITS
(1) (i) Agreement and Declaration of Trust of Registrant*
(ii) Amendment No. 1 to Agreement and Declaration of
Trust*
(2) Bylaws of Registrant*
(4) Form of Agreement and Plan of Exchange--Included
herein as Exhibit A to the Prospectus/Information
Statement
(6) Form of Advisory Agreement with Gannett Welsh &
Kotler*
(9) Form of Custody Agreement with Investors Bank &
Trust Company*
(11) Opinion and consent of counsel as to the legality of
shares
(12) Opinion and consent of counsel supporting tax
matters
(13) (i) Form of Administrative Services Agreement with MGF
Service Corp*
(ii) Form of Accounting Services Agreement with MGF
Service Corp*
(iii) Form of Transfer, Dividend Disbursing, Shareholder
Service and Plan Agency Agreement with MGF Service
Corp*
(14) Consent of Independent Auditors**
(17) (i) Rule 24f-2 declaration*
(ii) Voting Instruction Form
(iii) Financial Data Schedule for the GW&K Equity Fund*
* Incorporated herein by reference to the Registration Statement
of Registrant on Form N-1A (File No. 333-06039).
** Incorporated herein by reference to the initial Registration
Statement of Registrant on Form N-14 (File No. 333-12835).
SULLIVAN & WORCESTER LLP
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, DC 20036
(202) 775-8190
FAX NO. 202-293-2275
IN BOSTON, MA IN NEW YORK CITY
ONE POST OFFICE SQUARE 767 THIRD AVENUE
BOSTON, MASSACHUSETTS 02109 NEW YORK, NEW YORK 10017
(617) 338-2800 (212) 486-8200
FAX NO. 617-338-2880 FAX NO. 212-758-2151
November 20, 1996
The Gannett Welsh & Kotler Funds
222 Berkeley Street
Boston, Massachusetts 02116
Ladies and Gentlemen:
We have been requested by The Gannett Welsh & Kotler Funds, a
Massachusetts business trust with transferable shares and currently consisting
of two series (the "Trust") established under a Declaration of Trust dated April
24, 1996 as amended (the "Declaration"), for our opinion with respect to certain
matters relating to the GW&K Equity Fund (the "Acquiring Fund"), a series of the
Trust. The Trust has previously filed a Registration Statement on Form N-14 and
is about to file an amendment to such Registration Statement for the purpose of
registering shares of the Trust under the Securities Act of 1933, as amended
(the "1933 Act"), in connection with the proposed acquisition by the Acquiring
Fund of substantially all of the assets of GW&K Equity Fund, L.P. (the "Acquired
Fund"), a limited partnership organized under the laws of the State of Delaware,
in exchange solely for shares of the Acquiring Fund and the assumption by the
Acquiring Fund of certain liabilities of the Acquired Fund pursuant to an
Agreement and Plan of Reorganization, the form of which is included in the Form
N-14 Registration Statement (the "Plan").
We have, as counsel to the Acquiring Fund and the trustees of the Trust
who are not "interested persons" of the Trust or its investment adviser, as such
term is defined in Section 2(a)(19) of the Investment Company Act of 1940, as
amended (the "1940 Act"), participated in various business and other proceedings
relating to the Trust. We have examined copies, either certified or otherwise
proved to be genuine to our satisfaction, of the Trust's Declaration and
By-Laws, and other documents relating to the Trust's organization, operation,
and proposed operation, including the proposed Plan and we have made such other
investigations as, in our judgement, are necessary or appropriate to enable us
to render the opinion expressed below.
<PAGE>
The Gannett, Welsh & Kotler Fund
November 20, 1996
Page 2
Based upon the foregoing, and assuming the approval by shareholders of
the Acquired Fund of certain matters scheduled for their consideration at a
meeting presently anticipated to be held on or before December 31, 1996, it is
our opinion that the shares of the Acquiring Fund currently being registered,
when issued in accordance with the Plan and the Trust's Declaration and By-Laws,
will be legally issued, fully paid and non-assessable by the Trust, subject to
compliance with the 1933 Act, the 1940 Act and applicable state laws regulating
the offer and sale of securities.
With respect to the opinion stated in the paragraph above, we note that
shareholders of a Massachusetts business trust may under certain circumstances
be subject to assessment at the instance of creditors to pay the obligations of
such trust in the event that its assets are insufficient for the purpose.
We hereby consent to the filing of this opinion with and as a part of
the Registration Statement on Form N-14 and to the reference to our firm under
the caption "Legal Matters" in the Prospectus/Proxy Statement filed as part of
the Registration Statement. In giving such consent, we do not thereby admit that
we come within the category of persons whose consent is required under Section 7
of the 1933 Act or the rules and regulations promulgated thereunder.
Very truly yours
\s\ Sullivan & Worcester LLP
Sullivan & Worcester LLP
SULLIVAN & WORCESTER LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 338-2800
FAX NO. 617-338-2880
IN WASHINGTON, D.C. IN NEW YORK CITY
1025 CONNECTICUT AVENUE, N.W 767 THIRD AVENUE
WASHINGTON, D.C. 20036 NEW YORK, NEW YORK 10017
(202) 775-8190 (212) 486-8200
FAX NO. 202-293-2275 FAX NO. 212-758-2151
October 28, 1996
GW&K Equity Fund, L.P.
GW&K Equity Fund, a portfolio of
The Gannett Welsh & Kotler Funds
222 Berkeley Street
Boston, MA 02116
Ladies and Gentlemen:
You have asked for our opinion as to certain federal income tax
consequences of the transfer of substantially all of the assets of GW&K Equity
Fund, L.P., a Delaware limited partnership (the "Partnership"), to GW&K Equity
Fund (the "Fund"), a separate portfolio of The Gannett Welsh & Kotler Funds, a
Massachusetts business trust which is registered as an open-end management
investment company under the United States Investment Company Act of 1940, as
amended (the "1940 Act"). The transfer and related transactions are fully
described in a Registration Statement filed with the United States Securities
and Exchange Commission on Form N-14 (the "Registration Statement") dated
September 27, 1996, and will be carried out pursuant to an Agreement and Plan of
Exchange between the Partnership and The Gannett Welsh & Kotler Funds on behalf
of the Fund (the "Transfer Agreement") which is included in the Registration
Statement. The facts are summarized below.
Facts. The Partnership was formed as a private investment vehicle for a
small number of investors. To date it has been exempt from registration under
the 1940 Act because it has fewer than one hundred partners. To accommodate
additional investors, the Partnership intends to transfer substantially all of
its assets to the Fund, which is effectively registered under the 1940 Act. The
Fund is newly formed and has no assets other than the seed money required under
the 1940 Act. The seed money is less than one percent of the value of the assets
to be transferred by the Partnership to the Fund. The Fund will be treated as a
separate corporation for federal income tax purposes pursuant to Section
851(h)(1) of the Internal Revenue Code of 1986, as amended (the "Code"). In
exchange for its assets, the Partnership will receive shares in the Fund of
equivalent value. The Partnership will distribute all such shares, and any
assets or cash not transferred to the Fund, to its partners in dissolution and
termination of the Partnership. The Fund will
<PAGE>
GW&K Equity Fund, L.P.
GW&K Equity Fund
October 28, 1996
Page 2
operate as an open-end investment company under the 1940 Act and will stand
ready to issue or redeem its shares at any time for their net asset value. As an
open-end fund, the Fund expects to issue additional shares for cash at some time
in the future. The Fund will pursue substantially the same investment policies
and objectives as the Partnership.
More than ninety percent of the assets of the Partnership consist of
publicly-traded corporate stocks. At June 30, 1996, the Partnership also owned
interests in one corporation whose stock is not publicly traded, and in two
operating partnerships. The Partnership owns less than ten percent of the
capital or profits interests in such partnerships and does not participate in
the management of such partnerships.
Discussion. Section 351 of the Code provides generally that no gain or
loss will be recognized on the transfer of assets to a corporation controlled by
the transferors. Section 351(e)(1) of the Code provides that gain or loss will
nevertheless be recognized if the transfer is to an investment company.
Regulations section 1.351-1(C) explains that gain or loss will be recognized
only if the transfer is to an investment company and diversification results.
Regulations section 1.351-1(c)(6) indicates that no diversification results (and
so the general rule of Code section 351 applies) if each transferor transfers a
diversified portfolio of securities. The test for diversification is the test
set out in section 368(a)(2)(F)(ii) of the Code, with some modification, and the
portfolio of the Partnership meets this test. Accordingly, the transfer by the
Partnership is not within the scope of section 351(e)(1) even though the Fund is
an investment company.
In situation 1 of Rev. Rul. 84-111, 1984-2 C.B. 88, a partnership
transferred all of its assets to a new corporation in exchange for all of the
stock of the new corporation, and then distributed all of that stock to its
partners in dissolution and termination of the partnership. The Ruling holds
that the transaction is tax free under section 351, and that distribution of the
shares by the partnership to its partners does not result in failure of control
of the transferee by the transferor as required by section 351.
Section 731(C) of the Code provides that under certain circumstances
marketable securities are treated as if they were money for purposes of
determining the tax consequences of a distribution by a partnership to a
partner. If the shares of the Fund were treated as money, the distribution of
those shares to partners of the Partnership might result in tax to the partners.
For two reasons, the distribution of shares of the Fund to
<PAGE>
GW&K Equity Fund, L.P.
GW&K Equity Fund
October 28, 1996
Page 3
partners of the Partnership will not result in tax to the
partners.
First, marketable securities owned by an "investment partnership" are
not treated as money. The term "investment partnership" is defined to some
extent in Code section 731(c)(3)(C) and more fully in Proposed Regulation
section 1.731- 2(e). A partnership is an investment partnership if, among other
things, it has never been engaged in a trade or business and substantially all
of its assets consist of money, corporate stock, evidences of indebtedness, and
certain other assets. A partnership is not engaged in the business of another
partnership in which it owns an interest if it does not participate in the
management of that other partnership and owns less than ten percent of the
capital or profits interest in that other partnership. Proposed Regulation
section 1.731-2(e)(3). The Partnership meets these criteria with respect to its
interests in other partnerships, and so is not considered to have carried on a
trade or business by reason of its investment in them. The Proposed Regulation
defines "substantially all" to mean at least ninety percent of the assets of an
entity. Proposed Regulation section 1.731-2(c)(2). Under this test,
substantially all of the assets of the Partnership consist of money, corporate
stock, and evidences of indebtedness. Therefore the Partnership is an investment
partnership for purposes of section 731(C) of the Code.
Second, even if the Partnership were not an investment partnership as
defined, the amount of gain recognized by any partner as a result of a
distribution to such partner of marketable securities is limited by a formula in
section 731(c)(3)(B) of the Code. Under the formula, as applied to the
Partnership, the amount of gain otherwise recognized by any partner is reduced
by the excess of the amount of gain which would have been allocated to him if
all of the Fund shares were sold by the Partnership over the amount of gain
which would be allocated to him if the Partnership sold its remaining assets
after distribution of the Fund shares. Since the Partnership will have no
remaining assets after distribution of the Fund shares, the latter number in the
formula is zero, and the gain otherwise recognized by a partner is reduced by
the amount of gain he or she would have recognized if the Partnership had sold
all the Fund shares. Thus no gain would be recognized by any partner.
The Internal Revenue Service has issued a number of private letter
rulings which hold that the transfer of all assets by an investment partnership
to a regulated investment company such as the Fund is tax free under Code
section 351. See, for example, Private Letter Rulings 9637039 and 9637040. While
a private diversified fund, the Fund must, with respect to 75% of its assets,
maintain at all times no more than 5% of its assets in securities
of one issuer and may hold no more than 10% of the outstanding
voting securities of any one issuer.
<PAGE>
GW&K Equity Fund, L.P.
GW&K Equity Fund
October 28, 1996
Page 4
letter ruling may not be relied upon by any person other than the one to whom it
was issued, and may not be cited as precedent, the existence of favorable
rulings gives an indication of the position which would likely be taken by the
Internal Revenue Service on similar facts.
Assumptions. In rendering our opinions, we assume that the proposed
transaction will be carried out in accordance with the Transfer Agreement and
applicable state law, and that the facts set out in the Registration Statement
are accurate and complete in all material respects.
Opinions. Based on the foregoing, and our examination of the law
which we consider to be relevant, we express to you the following opinions:
1. No gain or loss will be recognized by the Partnership on
the transfer of its portfolio assets to the Fund in exchange for shares
of the Fund.
2. No gain or loss will be received by the Fund upon receipt
of the portfolio assets of the Partnership in exchange for shares of
the Fund.
3. The basis to the Fund of the transferred portfolio assets
will be the same as the basis of those assets to the Partnership
immediately prior to the exchange.
4. The basis of shares of the Fund received by the Partnership
will be the same as the basis of the portfolio assets exchanged for
such shares.
5. The holding period of the portfolio assets received by the
Fund will be the same as the holding period of such portfolio assets in
the hands of the Partnership immediately prior to the exchange.
6. The holding period of the shares in the Fund to be received
by the Partnership will equal the holding period of the portfolio
assets exchanged for such shares.
7. The distribution of shares of the Fund by the Partnership
to its partners will result in no gain or loss to the partners, and the
distribution of cash, if any, by the Partnership to its partners will
result in gain only if and to the extent that the amount of cash
exceeds the partner's tax basis for such partner's interest in the
Partnership.
<PAGE>
GW&K Equity Fund, L.P.
GW&K Equity Fund
October 28, 1996
Page 5
8. A partner's basis for such partner's shares in the Fund
following distribution of such shares by the Partnership will equal
such partner's tax basis for his, her or its interest in the
Partnership, reduced (but not below zero) by the amount of any cash
distributed by the Partnership to such partner on termination and
dissolution of the Partnership.
9. A partner's holding period for such partner's shares in the
Fund following distribution of such shares by the Partnership will
include the Partnership's holding period with respect to such shares.
Miscellaneous. Our opinions are based on the Code, Regulations issued
under it, rulings of the Internal Revenue Service, and judicial interpretations.
All of these authorities are subject to change by legislative, regulatory or
judicial action, any of which could be retroactive in effect. There can be no
assurance that our opinions would not need to be modified by any such subsequent
change. This opinion is intended solely for the benefit of the Fund, the
Partnership, and the partners of the Partnership, and is not to be used,
released, quoted or relied upon by anyone else for any purpose (other than as
required by law) without our prior written consent.
We hereby consent to the filing of this opinion letter with the United
States Securities and Exchange Commission in
connection with the Registration Statement.
Very truly yours,
/s/Sullivan & Worcester LLP
Sullivan & Worcester LLP
GW&K EQUITY FUND, L.P.
VOTING INSTRUCTION FORM
TIME SENSITIVE MATERIAL
This voting instruction form relates to the proposal to exchange (the
"Exchange") all or substantially all of the assets of GW&K Equity Fund, L.P. for
shares of the GW&K Equity Fund, a series of The Gannett Welsh & Kotler Funds.
/ / I vote in favor of the Exchange.
/ / I vote against the Exchange.
/ / I abstain.
Limited Partner: _______________________
Date: _______, 1996
Signature of Limited Partner(s)
Signature of Limited Partner(s)
PLEASE CHECK ONE BOX, SIGN, DATE AND RETURN THIS VOTING INSTRUCTION FORM AS SOON
AS POSSIBLE TO GSD, INC. A Federal Express envelope is enclosed for your
convenience. Call Fedex @ 1-800-463-3339 to schedule a pickup, or use one of
their drop boxes.
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