THE
GANNETT
WELSH &
KOTLER
FUNDS
GW&K Equity Fund
GW&K Government Securities Fund
Semi-Annual Report
March 31, 1997
(Unaudited)
<PAGE>
LETTER FROM THE PRESIDENT MAY 22, 1997
==============================================================================
Dear Shareholders:
We welcome you to the Gannett Welsh & Kotler Mutual Fund Family. It is with
great pride and a commitment to excellence that our company takes on this new
responsibility. With the experience gained from managing individual accounts, we
have successfully built a firm that currently has assets under management of
$1.7 billion; we clearly understand our responsibilities to you our client.
We welcome your comments and hope to enjoy a long and mutually rewarding
relationship with you.
Best regards,
Harold G. Kotler, CFA
President
<PAGE>
LETTER TO SHAREHOLDERS MAY 22, 1997
==============================================================================
Dear Shareholders,
We are pleased to send you the first semi-annual report for the GW&K Equity Fund
for the period since the initial public offering, December 10, 1996, through
March 31, 1997.
From the $19.1 million in assets transferred from the GW&K Equity Fund L.P.
in December 1996, assets have grown to $23.6 million as of March 31, 1997. From
less than 100, we now have over 200 shareholders. We thank you for your support
and pledge to continue the same investment course that produced the LP's
favorable five-year record.
Our approach emphasizes individual stock selection and a diversified
portfolio. The portfolio holds companies that exhibit both growth and value
characteristics. We also diversify by the size of the companies in which we
invest. Approximately half the portfolio is invested in large capitalization
issues such as Merck & Co. and Sears, Roebuck & Co. We believe these holdings
will provide relatively steady returns. The remainder of the portfolio is
invested in small and medium capitalization companies, such as Cognex Corp.,
DeVry, Inc. and AES Corp. While performance from these stocks may be expected to
be more volatile, we expect the long-term performance to remain distinctly
superior, as it has in the past.
Much has been written recently about the unusually wide difference in
return between the smaller, less well known stocks, as measured by the Russell
2000 Index, and the larger stocks which dominate the Standard & Poor's 500
Index. A recent Wall Street Journal article revealed that for the 12 months
ending April 30, 1997, the Russell 2000 Index gained less than 1% while the S&P
500 Index was up over 25%, a "staggering" difference.
While being able to time such differences would be ideal, any attempt to manage
with a "philosophy of the moment" would only bring added risk and costs with
little chance of success. History provides ample evidence that portfolios as
diversified as the Fund, with well-selected stocks, have the right ingredients
for good results.
Sincerely,
Edward B. White
GW&K Equity Fund
Portfolio Manager
<PAGE>
LETTER TO SHAREHOLDERS MAY 22, 1997
==============================================================================
Dear Shareholders,
We are pleased to report for the first time on the performance and status of the
GW&K Government Securities Fund. Since its initial public offering on December
16, 1996 through March 31, 1997, the end of its first fiscal semi-annual period,
total assets grew to $21.4 million. The total rate of return for the Fund during
this same time period was 3.05%. This performance compares favorably with market
indices. For purposes of comparison, we have calculated performance for the
quarter ended March 31, 1997 below:
Total Return
GW&K Government Securities Fund 1.63%
Lehman Brothers Intermediate Government Index (.02)%
Lipper Analytic Services - Average GNMA Mutual Fund (.26)%
The interest rate backdrop for these performance values was one of rising
rates along the yield curve. Remember that the Federal Reserve Board increased
the Fed Funds target rate by 25 basis points in March. In light of this
weakening bond market, the Fund posted positive performance as a result of the
high-income streams associated with the premium coupon securities within the
Fund and the relative strength of the seasoned premium mortgage-backed sector.
The GW&K Government Securities Fund is invested 100% in government issued
premium mortgage-backed securities. A typical weighted average life for an
individual pool is 4.5 years. The average coupon within the Fund is greater than
10%. Despite the high coupons associated with the securities, prepayment rates
are moderate due to the seasoning of the underlying mortgages.
We will continue to search for value within the seasoned premium mortgage-backed
sector through careful analysis of the pools that we purchase. We will also
closely monitor the spread levels of these securities. This sector of the
mortgage-backed market is sensitive to changes in yield curve volatility. Should
long-term interest rates move over the 7% level for a sustained period of time,
spreads could begin to widen. Based on our view of the economy and interest
rates we do not predict a sustained upward movement and will remain 100%
committed to the sector.
Sincerely,
Jeanne M. Skettino
GW&K Government Fund
Portfolio Manager
<PAGE>
<TABLE>
<CAPTION>
THE GANNETT WELSH & KOTLER FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
March 31, 1997 (Unaudited)
===========================================================================================================
GW&K
GW&K GOVERNMENT
EQUITY SECURITIES
FUND FUND
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in securities:
At amortized cost .................................................... $18,185,964 $21,092,301
=========== ===========
At value (Note 2) .................................................... $23,487,352 $21,094,821
Cash .................................................................... 96,855 78,683
Receivable for principal paydowns ....................................... -- 40,583
Receivable for capital shares sold ...................................... 53,581 83
Dividends and interest receivable ....................................... 34,881 192,055
Organization expenses, net (Note 2) ..................................... 31,267 31,267
Other assets ............................................................ 11,710 10,948
----------- -----------
TOTAL ASSETS ......................................................... 23,715,646 21,448,440
----------- -----------
LIABILITIES
Payable for capital shares redeemed ..................................... 68,000 --
Dividends payable to shareholders ....................................... -- 24,062
Payable to Adviser (Note 4) ............................................. 10,710 8,694
Other accrued expenses and liabilities .................................. 40,941 49,001
----------- -----------
TOTAL LIABILITIES .................................................... 119,651 81,757
----------- -----------
NET ASSETS .............................................................. $23,595,995 $21,366,683
=========== ===========
Net assets consist of:
Paid-in capital ......................................................... $17,989,585 $21,323,840
Undistributed net investment income ..................................... 39,904 --
Accumulated net realized gains from security transactions ............... 265,118 40,323
Net unrealized appreciation on investments (Note 1) ..................... 5,301,388 2,520
----------- -----------
Net assets .............................................................. $23,595,995 $21,366,683
=========== ===========
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) ........................... 2,400,756 2,115,267
=========== ===========
Net asset value, offering price and redemption price per share (Note 2) . $ 9.83 $ 10.10
=========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE GANNETT WELSH & KOTLER FUNDS
STATEMENTS OF OPERATIONS
For the Period Ended March 31, 1997(A) (Unaudited)
===============================================================================================
GW&K
GW&K GOVERNMENT
EQUITY SECURITIES
FUND FUND
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Dividends ....................................................... $ 107,181 $ --
Interest ........................................................ 17,416 338,874
--------- ---------
TOTAL INVESTMENT INCOME ....................................... 124,597 338,874
--------- ---------
EXPENSES
Investment management fees (Note 4) ............................. 67,755 32,319
Pricing fees .................................................... 398 7,500
Reports to shareholders ......................................... 3,755 3,707
Registration fees ............................................... 3,343 3,292
Accounting services fees (Note 4) ............................... 4,000 2,000
Administrative services fees (Note 4) ........................... 3,992 1,750
Custodian fees .................................................. 2,900 2,500
Postage and supplies ............................................ 2,038 3,303
Trustees' fees and expenses ..................................... 2,279 2,279
Amortization of organization expenses (Note 2) .................. 2,233 2,233
Transfer agent fees (Note 4) .................................... 2,000 1,000
--------- ---------
TOTAL EXPENSES ................................................ 94,693 61,883
Fees waived by the Adviser (Note 4) ............................. (10,000) (23,625)
--------- ---------
NET EXPENSES .................................................. 84,693 38,258
--------- ---------
NET INVESTMENT INCOME .............................................. 39,904 300,616
--------- ---------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains from security transactions ................... 265,118 40,323
Net change in unrealized appreciation/depreciation on investments (917,495) 2,520
--------- ---------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS ......................................... (652,377) 42,843
--------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS ................................................. $(612,473) $ 343,459
========= =========
<FN>
(A) Represents the period from the start of operations (October 17, 1996)
through March 31, 1997.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE GANNETT WELSH & KOTLER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended March 31, 1997(A) (Unaudited)
===========================================================================================================
GW&K
GW&K GOVERNMENT
EQUITY SECURITIES
FUND FUND
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................................................. $ 39,904 $ 300,616
Net realized gains from security transactions......................... 265,118 40,323
Net change in unrealized appreciation/
depreciation on investments...................................... (917,495) 2,520
--------------- ---------------
Net increase (decrease) in net assets from operations.................... (612,473) 343,459
--------------- ---------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income.................................. -- (300,616)
--------------- ---------------
Decrease in net assets from distributions to shareholders................ -- (300,616)
--------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................................. 24,378,821 21,533,683
Net asset value of shares issued in
reinvestment of distributions to shareholders....................... -- 159,944
Payments for shares redeemed.......................................... (170,353) (369,787)
--------------- ---------------
Net increase in net assets from capital share transactions............... 24,208,468 21,323,840
--------------- ---------------
TOTAL INCREASE IN NET ASSETS ............................................ 23,595,995 21,366,683
NET ASSETS:
Beginning of period................................................... -- --
--------------- ---------------
End of period......................................................... $ 23,595,995 $ 21,366,683
=============== ===============
UNDISTRIBUTED NET INVESTMENT INCOME ..................................... $ 39,904 $ --
=============== ===============
NUMBER OF SHARES:
Sold.................................................................. 2,417,491 2,135,936
Reinvested............................................................ -- 15,795
Redeemed.............................................................. (16,735) (36,464)
--------------- ---------------
Net increase in shares outstanding.................................... 2,400,756 2,115,267
Shares outstanding, beginning of period............................... -- --
--------------- ---------------
Shares outstanding, end of period..................................... 2,400,756 2,115,267
=============== ===============
<FN>
(A) Represents the period from the start of operations (October 17, 1996)
through March 31, 1997.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE GANNETT WELSH & KOTLER FUNDS
FINANCIAL HIGHLIGHTS
For the Periods Ended March 31, 1997(A) (Unaudited)
===========================================================================================
GW&K
GW&K GOVERNMENT
EQUITY SECURITIES
FUND FUND
- --------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
Net asset value at beginning of period .................... $ 10.00 $ 10.00
------------- ----------
Income from investment operations:
Net investment income ................................... 0.02 0.20
Net realized and unrealized gains (losses) on investments (0.19) 0.10
------------- ----------
Total from investment operations .......................... (0.17) 0.30
------------- ----------
Less distributions:
Dividends from net investment income .................... -- (0.20)
------------- ----------
Total distributions ....................................... -- (0.20)
------------- ----------
Net asset value at end of period .......................... $ 9.83 $ 10.10
============= ==========
RATIOS AND SUPPLEMENTAL DATA:
Total return (not annualized) ............................. (1.70)% 3.05%
============= ==========
Net assets at end of period (000's) ....................... $ 23,596 $ 21,367
============= ==========
Ratio of expenses to average net assets(B) ................ 1.25%(C) 0.88%(C)
Ratio of net investment income to average net assets ...... 0.59%(C) 6.93%(C)
Portfolio turnover rate ................................... 24%(C) 84%(C)
Average commission rate per share ......................... $ 0.0821 $ --
<FN>
(A) Represents the period from the initial public offering of shares (December
10, 1996 for the GW&K Equity Fund and December 16, 1996 for the GW&K
Government Securities Fund) through March 31, 1997.
(B) Absent fee waivers by the Adviser, the ratios of expenses to average net
assets would have been 1.39%(C) and 1.43%(C) for the GW&K Equity Fund and the
GW&K Government Securities Fund, respectively, for the periods from the
initial public offering of shares through March 31, 1997.
(C) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1997 (Unaudited)
==============================================================================
1. ORGANIZATION
The GW&K Equity Fund and the GW&K Government Securities Fund (collectively, the
Funds) are each a diversified series of shares of The Gannett Welsh & Kotler
Funds (the Trust). The Trust is registered under the Investment Company Act of
1940 as an open-end management investment company. The Trust was established as
a Massachusetts business trust under a Declaration of Trust dated April 24,
1996. The Declaration of Trust, as amended, permits the Trustees to issue an
unlimited number of shares of each Fund.
The GW&K Equity Fund seeks long-term total return, from a combination of capital
growth and growth of income, by investing in a diversified portfolio of equity
securities.
The GW&K Government Securities Fund seeks total return, through both income and
capital appreciation. The Fund invests primarily in obligations issued or
guaranteed as to principal and interest by the United States government, its
agencies or instrumentalities.
The Trust commenced operations on October 17, 1996, when shares of each Fund
were issued at $10.00 per share to affiliates of Gannett Welsh & Kotler, Inc.,
the Funds' investment adviser, in order to provide the initial capitalization of
the Trust.
On December 10, 1996, the GW&K Equity Fund, prior to offering shares to the
public, exchanged its shares for portfolio securities of GW&K Equity Fund, L.P.
(the Partnership) as part of a tax-free reorganization of the Partnership. The
GW&K Equity Fund acquired the securities of the Partnership at the Partnership's
cost basis and holding periods, thus resulting in the acquisition of securities
with unrealized appreciation of $6,218,883 as of December 10, 1996. The exchange
transaction may result in adverse tax consequences to shareholders acquiring
Fund shares subsequent to the exchange transaction, since the sale of these
appreciated securities would result in realized capital gains to the Fund which
would be distributed to all shareholders of the Fund during future operating
periods. Subsequent to the exchange transaction, the Fund began the initial
public offering of shares.
The GW&K Government Securities Fund began its initial public offering of shares
on December 16, 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Funds' significant accounting policies:
Security valuation -- The Funds' portfolio securities are valued as of the close
of business of the regular session of the New York Stock Exchange (currently
4:00 p.m., Eastern time). U.S. Government obligations and mortgage-backed
securities are generally valued at their most recent bid price as obtained from
one or more of the major market makers for such securities or are valued based
on estimates of market values obtained from yield data relating to instruments
or securities with similar characteristics. Portfolio securities traded on stock
exchanges and securities traded in the over-the-counter market are valued at the
last sales price as of the close of business on the day the securities are being
valued. Securities not traded on a particular day, or for which the last sale
price is not readily available, are valued at the closing bid price quoted by
brokers that make markets in the securities. Securities for which market
quotations are not readily available are valued at their fair value as
determined in good faith in accordance with consistently applied procedures
established by and under the general supervision of the Board of Trustees.
Share valuation -- The net asset value per share of each Fund is calculated
daily by dividing the total value of each Fund's assets, less liabilities, by
the number of shares outstanding. The offering and redemption price per share of
each Fund is equal to the net asset value per share.
Investment income -- Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date. Discounts and premiums on securities purchased
are amortized in accordance with income tax regulations which approximate
generally accepted accounting principles.
<PAGE>
Distributions to shareholders -- Dividends arising from net investment income
are declared daily and paid on the last business day of each month to
shareholders of the GW&K Government Securities Fund. Dividends arising from net
investment income, if any, are declared and paid annually to shareholders of the
GW&K Equity Fund. With respect to each Fund, net realized short-term capital
gains, if any, may be distributed throughout the year and net realized long-term
capital gains, if any, are distributed at least once each year. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations.
Securities transactions -- Security transactions are accounted for on the trade
date. Securities sold are valued on a specific identification basis.
Securities traded on a to-be-announced basis -- The GW&K Government Securities
Fund frequently trades portfolio securities on a to-be-announced (TBA) basis. In
a TBA transaction, the Fund has committed to purchase securities for which all
specific information is not yet known at the time of the trade, particularly the
face amount in mortgage-backed securities transactions. Securities purchased on
a TBA basis are not settled until they are delivered to the Fund, normally 15 to
45 days later. These transactions are subject to market fluctuations and their
current value is determined in the same manner as for other portfolio
securities. When effecting such transactions, assets of a dollar amount
sufficient to make payment for the portfolio securities to be purchased are
placed in a segregated account on the trade date.
Organizational expenses -- Expenses of organization, net of certain expenses
paid by the Adviser, have been capitalized and are being amortized on a
straight-line basis over five years.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes is made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during the
twelve months ending October 31) plus undistributed amounts from prior years.
The following information is based upon the federal income tax cost of portfolio
investments as of March 31, 1997:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
GW&K
GW&K GOVERNMENT
EQUITY SECURITIES
FUND FUND
- ---------------------------------------------------------------------------
<S> <C> <C>
Gross unrealized appreciation.......... $ 6,210,823 $ 92,640
Gross unrealized depreciation.......... (909,435) (90,120)
--------------- ---------------
Net unrealized appreciation............ $ 5,301,388 $ 2,520
=============== ===============
Federal income tax cost................ $ 18,185,964 $ 21,092,301
=============== ===============
</TABLE>
<PAGE>
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) were as follows for
the period ended March 31, 1997:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
GW&K
GW&K GOVERNMENT
EQUITY SECURITIES
FUND FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Purchases of investment securities.............................. $ 7,085,968 $ 24,332,365
=============== ===============
Proceeds from sales and maturities of investment securities..... $ 1,592,357 $ 3,825,136
=============== ===============
- -----------------------------------------------------------------------------------------------------
</TABLE>
4. TRANSACTIONS WITH AFFILIATES
The President and the Treasurer of the Trust are also principals of Gannett
Welsh & Kotler, Inc. (the Adviser), the Trust's investment adviser. Certain
other officers of the Trust are also officers of Countrywide Fund Services, Inc.
(CFS), the Trust's administrative services agent, transfer agent and shareholder
service agent, and accounting services agent.
MANAGEMENT AGREEMENTS
Each Fund's investments are managed by the Adviser under the terms of a
Management Agreement. Under the terms of the Management Agreement, each Fund
pays the Adviser a fee, which is computed and accrued daily and paid monthly, at
an annual rate of 1.00% of the average daily net assets of the GW&K Equity Fund
and 0.75% of the average daily net assets of the GW&K Government Securities
Fund.
In order to reduce the operating expenses of the GW&K Equity Fund and the GW&K
Government Securities Fund for the period ended March 31, 1997, the Adviser
voluntarily waived advisory fees of $10,000 and $23,625, respectively.
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement with the Trust, CFS supplies
executive and regulatory services, supervises the preparation of tax returns,
and coordinates the preparation of reports to shareholders and reports to and
filings with the Securities and Exchange Commission and state securities
authorities. For these services, each Fund pays CFS a fee, payable monthly, at
the annual rate of .10% of the average value of its daily net assets up to
$100,000,000, .075% of such assets from $100,000,000 to $200,000,000; and .05%
of such assets in excess of $200,000,000; provided, however, that the minimum
fee is $1,000 per month for each Fund.
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement with the Trust, CFS maintains the records for each
shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of each Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. For these services, CFS receives a monthly fee at an annual
rate of $17.00 per shareholder account from the Equity Fund and $21.00 per
shareholder account from the GW&K Government Securities Fund, subject to a
$1,000 minimum monthly fee for each Fund. In addition, each Fund pays
out-of-pocket expenses including, but not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement with the Trust, CFS
calculates the daily net asset value per share and maintains the financial books
and records of each Fund. For these services, CFS receives a monthly fee of
$2,000 from each Fund. In addition, each Fund pays certain out-of-pocket
expenses incurred by CFS in obtaining valuations of such Fund's portfolio
securities.
<PAGE>
<TABLE>
<CAPTION>
GW&K EQUITY FUND
SCHEDULE OF INVESTMENTS
March 31, 1997 (Unaudited)
============================================================================================================
MARKET
SHARES COMMON STOCK -- 97.5% VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER, NON-CYCLICAL -- 18.5%
30,000 CareMatrix Corp.* ............................................................. $ 551,250
27,000 Chiron Corp.* ................................................................. 502,875
15,000 EntreMed, Inc.* ............................................................... 191,250
8,000 General Mills, Inc............................................................. 497,000
12,000 HealthCare COMPARE Corp.* ..................................................... 487,500
16,000 HEALTHSOUTH Corp.*............................................................. 306,000
4,400 Merck & Co., Inc............................................................... 370,700
10,000 Panamerican Beverages, Inc..................................................... 536,250
17,000 PepsiCo, Inc................................................................... 554,625
4,400 Pfizer, Inc.................................................................... 370,150
------------
$ 4,367,600
------------
TECHNOLOGY -- 15.4%
25,000 Bay Networks, Inc.* ........................................................... $ 446,875
40,000 Cognex Corp.* ................................................................. 760,000
7,000 Compaq Computer Corp.* ........................................................ 536,375
30,000 Mastech Corp.* ................................................................ 483,750
12,000 Oracle Corp.* ................................................................. 462,750
25,000 SDL, Inc.* .................................................................... 428,125
9,000 Xerox Corp..................................................................... 511,875
------------
$ 3,629,750
------------
FINANCIAL SERVICES -- 14.1%
15,000 Capital One Financial Corp..................................................... $ 558,750
7,368 Cincinnati Financial Corp...................................................... 517,602
4,000 Citicorp....................................................................... 433,000
32,000 CRIIMI MAE, Inc................................................................ 472,000
3,000 General Re Corp................................................................ 474,000
25,000 Health & Retirement Property Trust............................................. 450,000
4,500 MBIA, Inc...................................................................... 431,437
------------
$ 3,336,789
------------
CONSUMER, CYCLICAL -- 13.0%
36,000 DeVry, Inc.* .................................................................. $ 792,000
27,000 Extended Stay America, Inc.* .................................................. 398,250
8,000 May Department Stores Company* ................................................ 364,000
3,500 Readers Digest Association, Inc. - Class A..................................... 100,625
10,000 Readers Digest Association, Inc. - Class B..................................... 270,000
9,000 Sears, Roebuck & Co............................................................ 452,250
30,000 Staffing Resources, Inc.* ..................................................... 420,000
45,000 Standard-Pacific Corp.......................................................... 281,250
------------
$ 3,078,375
------------
<PAGE>
<CAPTION>
GW&K EQUITY FUND
SCHEDULE OF INVESTMENTS (continued)
============================================================================================================
MARKET
SHARES COMMON STOCK -- 97.5% VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL -- 11.1%
4,500 Boeing Company................................................................. $ 443,813
20,000 Dames & Moore, Inc............................................................. 260,000
4,500 General Electric Co............................................................ 446,625
9,000 General Motors Corp. - Class H................................................. 488,250
15,000 Republic Industries, Inc.* .................................................... 520,313
25,000 U.S. Rentals, Inc.* ........................................................... 453,125
------------
$ 2,612,126
------------
ENERGY -- 10.6%
18,000 AES China Generating Co. Ltd.* ................................................ $ 297,000
10,266 AES Corp. * ................................................................... 574,896
13,000 Camco International, Inc...................................................... 572,000
15,000 Questar Corp................................................................... 538,125
3,000 Royal Dutch Petroleum Company.................................................. 525,000
------------
$ 2,507,021
------------
UTILITIES -- 9.2%
13,000 AT&T Corp...................................................................... $ 451,750
12,000 Enron Corp..................................................................... 456,000
10,000 GTE Corp....................................................................... 466,250
20,000 Houston Industries, Inc........................................................ 417,500
17,000 WorldCom, Inc.* ............................................................... 374,000
------------
$ 2,165,500
------------
BASIC MATERIALS -- 5.6%
30,000 Huntco, Inc. - Class A......................................................... $ 363,750
10,000 Ionics, Inc.* ................................................................. 463,750
40,000 Universal Forest Products, Inc. ............................................... 490,000
------------
$ 1,317,500
------------
TOTAL COMMON STOCK (COST $17,713,273) ......................................... $23,014,661
------------
<CAPTION>
=============================================================================================================
MARKET
SHARES CASH EQUIVALENTS -- 2.0% VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
472,691 Merrimac Cash Fund - Institutional Class (Cost $472,691)....................... $ 472,691
------------
TOTAL INVESTMENTS AT VALUE-- 99.5% (COST $18,185,964) ........................ $23,487,352
OTHER ASSETS AND LIABILITIES, NET -- 0.5% ..................................... 108,643
------------
NET ASSETS-- 100.0% ........................................................... $ 23,595,995
============
<FN>
* Non-income producing securities.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GW&K GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS
March 31, 1997 (Unaudited)
=============================================================================================================
PAR MARKET
VALUE MORTGAGE-BACKED SECURITIES-- 95.8% VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 35.5%
$ 107,871 Federal National Mortgage Association, 8.75%, 08/01/17......................... $ 112,051
3,418,874 Federal National Mortgage Association, 9.00%, 09/01/24 thru 03/01/25........... 3,575,192
1,516,725 Federal National Mortgage Association, 10.00%, 11/01/00 thru 10/01/20.......... 1,635,963
178,326 Federal National Mortgage Association, 10.25%, 05/01/09 thru 03/01/16.......... 194,987
1,122,347 Federal National Mortgage Association, 10.50%, 08/01/00 thru 09/01/20.......... 1,224,573
77,432 Federal National Mortgage Association, 10.75%, 09/01/09 thru 03/01/14.......... 86,130
524,928 Federal National Mortgage Association, 11.00%, 08/01/10........................ 580,866
21,432 Federal National Mortgage Association, 11.25%, 10/01/15........................ 24,040
73,835 Federal National Mortgage Association, 12.00%, 03/01/13 thru 07/01/13.......... 84,356
64,224 Federal National Mortgage Association, 12.25%, 05/01/10 thru 07/01/15.......... 72,771
- -------------- ------------
$ 7,105,994 TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION ................................... $ 7,590,929
- -------------- ------------
(Amortized Cost $7,626,320)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 32.9%
$ 1,472,879 Government National Mortgage Assoc., 9.50%, 06/15/09 thru 10/15/09............. $ 1,585,007
19,936 Government National Mortgage Assoc., 9.75%, 12/15/00 thru 01/15/01............. 20,703
1,823,760 Government National Mortgage Assoc., 10.00%, 10/15/00 thru 02/20/21............ 1,980,433
59,298 Government National Mortgage Assoc., 10.25%, 05/15/99 thru 02/15/01............ 62,053
536,762 Government National Mortgage Assoc., 10.50%, 06/20/00 thru 10/20/19............ 583,114
615,262 Government National Mortgage Assoc., 11.00%, 12/15/09 thru 01/15/16............ 688,553
29,594 Government National Mortgage Assoc., 11.25%, 01/15/98 thru 04/15/01............ 30,913
1,289,210 Government National Mortgage Assoc., 11.50%, 06/20/99 thru 08/20/19............ 1,460,407
266,483 Government National Mortgage Assoc., 11.75%, 08/15/13.......................... 299,050
22,089 Government National Mortgage Assoc., 12.00%, 08/15/13 thru 09/15/14............ 25,541
43,629 Government National Mortgage Assoc., 12.25%, 04/15/14.......................... 49,451
203,772 Government National Mortgage Assoc., 13.00%, 01/15/11 thru 01/15/15............ 237,531
11,602 Government National Mortgage Assoc., 14.50%, 10/15/12.......................... 13,674
- -------------- ------------
$ 6,394,276 TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ................................ $ 7,036,430
- -------------- ------------
(Amortized Cost $6,989,007)
FEDERAL HOME LOAN MORTGAGE CORP. -- 27.4%
$ 516,034 Federal Home Loan Mortgage Corp., 7.50%, 02/01/22.............................. $ 516,034
217,694 Federal Home Loan Mortgage Corp., 9.00%, 07/01/08 thru 12/01/16................ 227,819
1,757,445 Federal Home Loan Mortgage Corp., 9.25%, 12/01/08.............................. 1,869,412
272,794 Federal Home Loan Mortgage Corp., 9.75%, 12/01/08 thru 01/01/10................ 291,521
49,525 Federal Home Loan Mortgage Corp., 10.00%, 01/01/01 thru 03/01/03............... 51,524
1,188,338 Federal Home Loan Mortgage Corp., 10.25%, 04/01/09 thru 10/01/09............... 1,272,997
399,448 Federal Home Loan Mortgage Corp., 10.50%, 06/01/00 thru 10/01/19............... 429,393
294,547 Federal Home Loan Mortgage Corp., 11.00%, 12/01/00 thru 01/01/19............... 321,407
72,149 Federal Home Loan Mortgage Corp., 11.25%, 09/01/09 thru 11/01/13............... 79,901
263,635 Federal Home Loan Mortgage Corp., 11.50%, 06/01/11 thru 06/01/19............... 294,849
93,329 Federal Home Loan Mortgage Corp., 11.75%, 02/01/11 thru 07/01/13............... 104,972
69,966 Federal Home Loan Mortgage Corp., 12.00%, 12/01/11 thru 02/01/16............... 79,237
170,646 Federal Home Loan Mortgage Corp., 12.50%, 01/01/10 thru 07/01/15............... 193,287
<PAGE>
<CAPTION>
GW&K GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS (continued)
=============================================================================================================
PAR MARKET
VALUE MORTGAGE-BACKED SECURITIES-- 95.8% VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
108,235 Federal Home Loan Mortgage Corp., 13.00%, 01/01/00 thru 12/01/14............... 123,802
- -------------- ------------
$ 5,473,785 TOTAL FEDERAL HOME LOAN MORTGAGE CORP. ........................................ $ 5,856,155
- -------------- ------------
(Amortized Cost $5,865,666)
$ 18,974,055 TOTAL MORTGAGE-BACKED SECURITIES .............................................. $20,483,514
============== ------------
(Amortized Cost $20,480,994)
CASH EQUIVALENTS -- 2.9%
$ 611,307 Merrimac Cash Fund - Institutional Class (Cost $611,307)....................... $ 611,307
- -------------- ------------
TOTAL INVESTMENTS AT VALUE-- 98.7% (Cost $21,092,301)......................... $21,094,821
OTHER ASSETS AND LIABILITIES, NET-- 1.3% ...................................... 271,862
------------
NET ASSETS-- 100% ............................................................. $21,366,683
============
</TABLE>
<PAGE>
THE GANNETT WELSH & KOTLER FUNDS
222 Berkeley Street
Boston, Massachusetts 02116
BOARD OF TRUSTEES
Arlene Zoe Aponte-Gonzalez
Benjamin H. Gannett
Morton S. Grossman
Harold G. Kotler
Timothy P. Neher
Josiah A. Spaulding, Jr.
Allan Tofias
INVESTMENT ADVISER
GANNETT WELSH & KOTLER, INC.
222 Berkeley Street
Boston, Massachusetts 02116
(617) 236-8900
TRANSFER AGENT
COUNTRYWIDE FUND SERVICES, INC.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
SHAREHOLDER SERVICE
Nationwide: (Toll-Free) 888-GWK-FUND
(888-495-3863)
RATE LINE
Nationwide: (Toll-Free) 800-852-4052
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001012401
<NAME> THE GANNETT WELSH & KOTLER FUNDS
<SERIES>
<NUMBER> 1
<NAME> GW&K EQUITY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 18,185,964
<INVESTMENTS-AT-VALUE> 23,487,352
<RECEIVABLES> 88,462
<ASSETS-OTHER> 42,977
<OTHER-ITEMS-ASSETS> 96,855
<TOTAL-ASSETS> 23,715,646
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 119,651
<TOTAL-LIABILITIES> 119,651
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,989,585
<SHARES-COMMON-STOCK> 2,400,756
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 39,904
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 265,118
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,301,388
<NET-ASSETS> 23,595,995
<DIVIDEND-INCOME> 107,181
<INTEREST-INCOME> 17,416
<OTHER-INCOME> 0
<EXPENSES-NET> 84,693
<NET-INVESTMENT-INCOME> 39,904
<REALIZED-GAINS-CURRENT> 265,118
<APPREC-INCREASE-CURRENT> (917,495)
<NET-CHANGE-FROM-OPS> (612,473)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,417,491
<NUMBER-OF-SHARES-REDEEMED> 16,735
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 23,595,995
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 67,755
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 94,693
<AVERAGE-NET-ASSETS> 22,331,161
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> (.19)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.83
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001012401
<NAME> THE GANNETT WELSH & KOTLER FUNDS
<SERIES>
<NUMBER> 2
<NAME> GW&K GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 21,092,301
<INVESTMENTS-AT-VALUE> 21,094,821
<RECEIVABLES> 232,721
<ASSETS-OTHER> 42,215
<OTHER-ITEMS-ASSETS> 78,683
<TOTAL-ASSETS> 21,448,440
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 81,757
<TOTAL-LIABILITIES> 81,757
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,323,840
<SHARES-COMMON-STOCK> 2,115,267
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 40,323
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,520
<NET-ASSETS> 21,366,683
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 338,874
<OTHER-INCOME> 0
<EXPENSES-NET> 38,258
<NET-INVESTMENT-INCOME> 300,616
<REALIZED-GAINS-CURRENT> 40,323
<APPREC-INCREASE-CURRENT> 2,520
<NET-CHANGE-FROM-OPS> 343,459
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 300,616
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,135,936
<NUMBER-OF-SHARES-REDEEMED> 36,464
<SHARES-REINVESTED> 15,795
<NET-CHANGE-IN-ASSETS> 21,366,683
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 32,319
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 61,883
<AVERAGE-NET-ASSETS> 14,935,787
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> .10
<PER-SHARE-DIVIDEND> (.20)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.10
<EXPENSE-RATIO> .88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
