[Logo] The
Gannett
Welsh &
Kotler
Funds
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GW&K Equity Fund
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GW&K Government Securities Fund
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Annual Report
September 30, 1997
<PAGE>
GW&K Equity Fund
Letter to Shareholders November 18, 1997
Dear Shareholders,
At the conclusion of the first year of your Fund's operations, we have good news
to report. Assets have risen from $18 million in December 1996 to over $37
million as of September 30, 1997. Capital additions have averaged better than $1
million per month and redemptions have been minimal.
Our performance is detailed in this report and your Fund performed well versus
recognized averages, competing funds, and benchmarks of established funds of
varying objectives. The total return from inception on December 10, 1996 through
September 30, 1997 was 29.3%. This compares with total returns for the Standard
& Poor's 500 Stock Index of 28.2% and 27.5% for the Russell 2000 Index for
smaller companies. What these returns do not show are the much higher returns
from larger companies earlier in the year, and the sharp reversal starting at
mid-year.
During the course of the year, we sold five major positions of larger companies
whose valuations seemed to us to exceed their longer-term prospects. Smaller
companies became somewhat emphasized as we found their prices more in line with
their growth prospects. As we intend to maintain significant holdings in both
larger and smaller capitalization companies, investment results for the Fund
should fall in between the returns for these two groups. Historically, this is
what has happened.
Our objectives remain unchanged: use careful research to seek out companies that
we believe have characteristics that will allow good managements to steadily
grow revenues and profits. We will carefully diversify the holdings by economic
sector and by market capitalization. If we do our research job well, we will
report little turnover. During the period ended September 30, 1997, the Fund's
annualized turnover rate was 13%.
As the Fund was originally a limited partnership before transforming into an
open-ended mutual fund, many positions carry low tax costs. Some of these gains
have been realized and a capital gain distribution will be paid to shareholders
in November, 1997, which represents gains realized through October 31, 1997.
The stock market has had an attack of "Asian flu " for the past month. We are
increasingly in an international market. Many managers invest in markets all
around the world, which heightens volatility. While we sold some positions most
vulnerable to the downdraft, we believe that long-term investors should stay
invested and use periods of fear to add to positions in strong companies. While
the markets may have gone up too far, many good companies stocks are valued
fairly and we will do very well in the years ahead. We intend to be invested in
our fair share of these companies and to continue to provide our shareholders
with competitive investment returns.
Sincerely,
Edward B. White
GW&K Equity Fund Portfolio Manager
<PAGE>
GW&K Government Securities Fund
Letter to Shareholders November 18, 1997
Dear Shareholders,
At the conclusion of the first year of the GW&K Government Securities Fund's
operations, assets have grown to $24.8 million and the number of shareholders
now exceeds 220.
Our performance is detailed in this report and compares favorably with market
indices. The total cumulative return from inception on December 16, 1996 to the
end of the fiscal year September 30, 1997 was 7.5%, compared to the Lehman 1-3
Year Government Bond Index total return of 4.90% during the same period. This
performance represents an increasing net asset value that rose from $10.00 to
$10.23 as of September 30, 1997 and net investment income which averaged 6.0% on
an annualized basis.
The composition of the Fund's investment portfolio during the year was 100%
seasoned premium mortgage backed securities. By purchasing only seasoned premium
bonds, the Fund has a unique combination of consistent income flows, a
relatively short average life, and monthly principal cash flows that are only
moderately effected by interest rate changes. As a result, we believe the Fund's
volatility resembles the risk profile of 1-3 year US Government bonds while the
return more closely matches that of the 3-5 year US Government sector.
We found value in a variety of issues this year. Mortgage pools that offered
significant yield advantages were those that held a fewer number of loans with
small outstanding individual mortgage balances. The smaller the mortgage balance
the less incentive there is for mortgage holders to prepay their loans. The risk
to the holder of this type of pool is that one or many of these loans pay off.
However, we reduce this risk by diversifying the number of pools within the
Fund.
In recent months mortgage rates have been falling, while mortgage applications
and prepayment rates have been increasing. This rise in prepayment rates will
filter through somewhat to the premium market. We believe that the Fund's
portfolio is protected due to the seasoning of the pools that we purchase and
the diversification of the portfolio. The Fund holds over 300 individual pools
with coupons ranging from 7.5% to 13.0%, representing a geographic distribution
throughout the U.S.
We intend to continue to search for value within the premium mortgage backed
sector, while standing ready to take advantage of other investment vehicles in
order to meet our investment objective and provide our shareholders with
competitive investment returns.
Sincerely,
Jeanne M. Skettino
GW&K Government Securities Fund Portfolio Manager
<PAGE>
GW&K Equity Fund
Comparison of the Change in Value since August 1, 1991* of a $10,000
Investment in the GW&K Equity Fund, the Russell 2000 Index and the S&P 500 Index
MOUNTAIN CHART
Russell S&P GW&K
2000 500 Equity
Index Index Fund
------- ----- ------
August 1, 1991 $ 10,000 $ 10,000 $ 10,000
September 30, 1991 10,066 10,450 10,214
December 31, 1991 10,910 11,048 11,086
March 31, 1992 10,634 11,896 10,999
June 30, 1992 10,834 11,085 10,411
September 30, 1992 11,175 11,402 10,969
December 31, 1992 11,738 13,104 11,772
March 31, 1993 12,251 13,664 12,456
June 30, 1993 12,310 13,962 12,717
September 30, 1993 12,631 15,182 13,545
December 31, 1993 12,924 15,580 13,932
March 31, 1994 12,429 15,167 13,160
June 30, 1994 12,472 14,577 12,618
September 30, 1994 13,094 15,588 13,236
December 31, 1994 13,088 15,297 13,366
March 31, 1995 14,367 16,002 14,187
June 30, 1995 15,718 17,502 15,476
September 30, 1995 16,984 19,231 17,022
December 31, 1995 18,002 19,648 18,738
March 31, 1996 18,972 20,658 19,712
June 30, 1996 19,809 21,691 20,763
September 30, 1996 20,429 21,765 20,499
December 31, 1996 22,133 22,879 21,729
March 31, 1997 22,726 21,698 21,275
June 30,1997 26,694 25,207 24,824
September 30, 1997 28,693 28,950 27,974
GW&K Equity Fund
Average Annual Total Return
1 Year 5 Years From Inception*
36.51% 20.44% 18.16%
Past performance is not predictive of future performance.
*Combines the performance of the Fund, since its commencement of operations on
December 10, 1996, and the performance of GW&K Equity Fund, L.P. for periods
prior to December 10, 1996. It should be noted that: (1) the Fund's quoted
performance data includes performance for periods before the Fund's registration
statement became effective; (2) the Fund was not registered under the Investment
Company Act of 1940 (the "1940 Act") during such periods and therefore was not
subject to certain investment restrictions imposed by the 1940 Act; and (3) if
the Fund had been registered under the 1940 Act during such periods, performance
may have been adversely affected.
<PAGE>
GW&K Government Securities Fund
Comparison of the Change in Value since December 16, 1996* of a $10,000
Investment in the GW&K Government Securities Fund and the Lehman 1-3 Year
Government Bond Index.
MOUNTAIN CHART
GW&K Lehman
Government 1-3 Year
Securities Government
Fund Bond Index
---------- ----------
December 16, 1996 $ 10,000 $ 10,000
December 31, 1996 10,140 10,002
January 31, 1997 10,248 10,050
February 28, 1997 10,305 10,074
March 31, 1997 10,305 10,066
April 30, 1997 10,382 10,149
May 31, 1997 10,446 10,220
June 30, 1997 10,529 10,290
July 31, 1997 10,608 10,402
August 31, 1997 10,647 10,413
September 30, 1997 10,750 10,492
GW&K Government Securities Fund
Average Annual Total Return
From Inception*
9.56%
Past performance is not predictive of future performance.
* Initial public offering of shares was December 16, 1996.
<PAGE>
THE GANNETT WELSH & KOTLER FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1997
GW&K
GW&K Government
Equity Securities
Fund Fund
-------------- --------------
ASSETS
Investments in securities:
At amortized cost $ 24,499,670 $ 24,260,456
============== ==============
At value (Note 2) $ 37,495,410 $ 24,563,994
Cash 165,661 ----
Receivable for principal paydowns ---- 101,216
Receivable for capital shares sold 24,916 4,689
Dividends and interest receivable 53,076 229,431
Organization expenses, net (Note 2) 27,917 27,917
Other assets 8,711 8,086
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TOTAL ASSETS 37,775,691 24,935,333
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LIABILITIES
Payable for capital shares redeemed 300 ----
Payable for securities purchased 357,997 ----
Dividends payable to shareholders ---- 24,978
Payable to affiliates (Note 4) 47,171 31,020
Other accrued expenses and liabilities 23,469 24,608
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TOTAL LIABILITIES 428,937 80,606
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NET ASSETS $ 37,346,754 $ 24,854,727
============== ==============
Net assets consist of:
Paid-in capital $ 23,561,428 $ 24,508,893
Undistributed net investment income 94,608 ----
Accumulated net realized gains from
security transactions 694,978 42,296
Net unrealized appreciation on investments
(Note 1) 12,995,740 303,538
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Net assets $ 37,346,754 $ 24,854,727
============== ==============
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) 2,888,995 2,428,645
============== ==============
Net asset value, redemption price and
offering price per share (Note 1) $ 12.93 $ 10.23
============== ==============
See accompanying notes to financial statements.
<PAGE>
THE GANNETT WELSH & KOTLER FUNDS
STATEMENTS OF OPERATIONS
For the Period Ended September 30, 1997(A)
GW&K
GW&K Government
Equity Securities
Fund Fund
------------ ------------
INVESTMENT INCOME
Dividends $ 326,560 $ ---
Interest 41,022 1,139,734
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TOTAL INVESTMENT INCOME 367,582 1,139,734
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EXPENSES
Investment management fees (Note 4) 218,380 119,224
Registration fees 26,200 23,445
Administration fees (Note 4) 19,090 13,305
Accounting services fees (Note 4) 16,000 14,000
Custodian fees 11,023 8,632
Pricing fees 1,027 17,496
Trustees' fees and expenses 8,241 8,241
Reports to shareholders 7,997 7,949
Transfer agent fees (Note 4) 8,000 7,000
Organization expenses 5,583 5,583
Legal fees 3,570 3,570
Insurance expense 2,128 2,128
Postage & supplies 3,863 3,712
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TOTAL EXPENSES 331,102 234,285
Fees waived by the Adviser (Note 4) (58,128) (80,153)
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NET EXPENSES 272,974 154,132
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NET INVESTMENT INCOME 94,608 985,602
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REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security
transactions 694,978 42,296
Net change in unrealized
appreciation/depreciation
on investments 6,776,858 303,53
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NET REALIZED AND UNREALIZED GAINS
ON INVESTMENTS 7,471,836 345,834
------------ ------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 7,566,444 $ 1,331,436
============ ============
(A) Represents the period from the start of operations (October 17, 1996)
through September 30, 1997.
See accompanying notes to financial statements.
<PAGE>
THE GANNETT WELSH & KOTLER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended September 30, 1997(A)
GW&K
GW&K Government
Equity Securities
Fund Fund
------------ ------------
FROM OPERATIONS:
Net investment income $ 94,608 $ 985,602
Net realized gains from
security transactions 694,978 42,296
Net change in unrealized appreciation/
depreciation on investments 6,776,858 303,53
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Net increase in net assets from
operations 7,566,444 1,331,436
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FROM DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income ----- (985,602)
------------ ------------
Decrease in net assets from
distributions to shareholders ----- (985,602)
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FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 30,589,751 25,204,381
Net asset value of shares issued in
reinvestment of distributions to
shareholders ----- 686,801
Payments for shares redeemed (809,441) (1,382,289)
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Net increase in net assets from
capital share transactions 29,780,310 24,508,893
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TOTAL INCREASE IN NET ASSETS 37,346,754 24,854,727
NET ASSETS:
Beginning of period ----- -----
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End of period $ 37,346,754 $ 24,854,727
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UNDISTRIBUTED NET INVESTMENT INCOME $ 94,608 $ -----
============= ============
NUMBER OF SHARES:
Sold 2,962,639 2,497,150
Reinvested ----- 67,615
Redeemed (73,644) (136,120)
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Net increase in shares outstanding 2,888,995 2,428,645
Shares outstanding, beginning
of period ----- -----
------------- ------------
Shares outstanding, end of period 2,888,995 2,428,645
============= ============
(A) Represents the period from the start of operations
(October 17, 1996) through September 30, 1997.
See accompanying notes to financial statements.
<PAGE>
THE GANNETT WELSH & KOTLER FUNDS
FINANCIAL HIGHLIGHTS
For the Periods Ended September 30, 1997 (A)
GW&K
GW&K Government
Equity Securities
Fund Fund
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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 0.03 0.50
Net realized and unrealized gains
on investments 2.90 0.23
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Total from investment operations 2.93 0.73
-------- --------
Less distributions:
Dividends from net investment
income ---- (0.50)
-------- --------
Total distributions ---- (0.50)
-------- --------
Net asset value at end of period $ 12.93 $ 10.23
======== ========
RATIOS AND SUPPLEMENTAL DATA:
Total return (not annualized) 29.30% 7.50%
======== ========
Net assets at end of period (000's) $ 37,347 $ 24,855
Ratio of expenses to average net
assets (B) 1.25%(C) 0.97%(C)
Ratio of net investment income to
average net assets 0.43%(C) 6.19%(C)
Portfolio turnover rate 13%(C) 44%(C)
Average commission rate per share $ 0.0842 ----
(A) Represents the period from the initial public offering of shares (December
10, 1996 for the Equity Fund and December 16, 1996 for the Government
Securities Fund) through September 30, 1997.
(B) Absent fee waivers by the Adviser, the ratios of expenses to average net
assets would have been 1.51%(C) and 1.47% (C) for the Equity Fund and the
Government Securities Fund, respectively.
(C) Annualized.
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
1. ORGANIZATION
The GW&K Equity Fund and the GW&K Government Securities Fund (individually, a
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 amended, 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 for cash 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 $6,218,882 as of December 10, 1996. 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
<PAGE>
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
approved 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 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.
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 are declared and paid annually to shareholders of the GW&K
Equity Fund. With respect to each Fund, net realized short-term capital gains
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 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.
<PAGE>
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 September 30, 1997:
GW&K
GW&K Government
Equity Securities
Fund Fund
------------ ------------
Gross unrealized appreciation $ 13,544,089 $ 306,257
Gross unrealized depreciation (548,349) (2,719)
------------ ------------
Net unrealized appreciation $ 12,995,740 $ 303,538
============ ============
Federal income tax cost $ 24,499,670 $ 24,260,456
============ ============
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) were as follows for
the period ended September 30, 1997:
GW&K
GW&K Government
Equity Securities
Fund Fund
------------ ------------
Purchases of investment securities $ 14,098,169 $ 31,113,989
============ ============
Proceeds from sales and maturities
of investment securities $ 2,854,255 $ 7,090,560
============ ============
<PAGE>
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.
Advisory Agreement
Each Fund's investments are managed by the Adviser under the terms of an
advisory agreement (Advisory Agreement). Under the terms of the Advisory
Agreement, the GW&K Equity Fund pays the Adviser a fee, which is computed and
accrued daily and paid monthly, at an annual rate of 1.00% of its average daily
net assets; the GW&K Government Securities Fund pays the Adviser a fee, which is
computed and accrued daily and paid monthly, at an annual rate of 0.75% of its
average daily net assets.
In order to reduce the operating expenses of the GW&K Equity Fund and the GW&K
Government Securities Fund for the period ended September 30, 1997, the Adviser
voluntarily waived advisory fees of $58,128 and $80,153, respectively.
Administrative Services 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 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; subject to a $1,000 monthly minimum fee.
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 $21 per shareholder account from the GW&K Government Securities Fund and
$17 per shareholder account from the GW&K Equity 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.
Plan of Distribution
The Trust has a plan of distribution (the Plan) under which each Fund may incur
or reimburse the Adviser for expenses related to the distribution and promotion
of capital shares. The annual limitation for payment of such expenses under the
Plan is 0.25% of the average daily net assets of each Fund.
<PAGE>
GW&K EQUITY FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
Market
Shares COMMON STOCK -- 98.8% Value
- ------ ---------------------- ---------
BASIC MATERIALS - 5.4%
38,000 Huntco, Inc. - Class A $ 543,875
16,000 Ionics, Inc. * 709,000
45,000 Universal Forest Products, Inc. 787,500
-------------
$ 2,040,375
-------------
CONSUMER, CYCLICAL - 12.3%
36,000 DeVry, Inc. * $ 1,075,500
38,000 Extended Stay America, Inc. * 570,000
13,000 May Department Stores Company 708,500
3,500 Readers Digest Association, Inc. - Class A 105,000
15,000 Readers Digest Association, Inc. - Class B 427,500
14,000 Sears Roebuck & Co. 797,125
30,000 Staffing Resources, Inc. * 270,000
60,000 Standard-Pacific Corp. 630,000
-------------
$ 4,583,625
-------------
CONSUMER, NON-CYCLICAL - 17.1%
32,000 CareMatrix Corp. * $ 812,000
32,000 Chiron Corp. * 724,000
15,000 EntreMed, Inc. * 149,062
10,000 General Mills, Inc. 689,375
13,000 HealthCare COMPARE Corp. * 830,375
7,200 Merck & Co., Inc. 719,550
25,000 Panamerican Beverages, Inc. 976,562
19,900 PepsiCo, Inc. 807,194
11,200 Pfizer, Inc. 672,700
-------------
$ 6,380,818
-------------
ENERGY - 10.4%
30,972 AES Corp. * $ 1,355,025
14,000 Camco International, Inc. 976,500
19,000 Questar Corp 770,687
14,000 Royal Dutch Petroleum Company 777,000
-------------
$ 3,879,212
-------------
FINANCIAL SERVICES - 15.5%
23,000 Boston Properties, Inc. * $ 754,687
19,000 Capital One Financial Corp. 869,250
9,368 Cincinnati Financial Corp. 768,176
6,000 Citicorp 803,625
40,000 CRIIMI MAE, Inc. 635,000
3,500 General Re Corp. 694,750
30,000 Health & Retirement Property Trust 566,250
5,500 MBIA, Inc. 689,906
-------------
$ 5,781,644
-------------
<PAGE>
Market
Shares Value
- ------ ---------
INDUSTRIAL - 10.9%
15,000 Boeing Company $ 816,563
20,000 Dames & Moore, Inc. 262,500
10,000 General Electirc Co. 680,625
12,000 General Motors Corp., - Class H 793,500
25,000 Republic Industries, Inc.* 823,438
26,000 U.S. Rentals, Inc.* 684,125
-------------
$ 4,060,751
-------------
TECHNOLOGY - 19.1%
27,000 Bay Networks, Inc. * $ 1,042,875
40,000 Cognex Corp. * 1,315,000
17,500 Compaq Computer Corp. 1,308,125
32,000 Mastech Corp. * 1,088,000
21,000 Oracle Corp. * 765,188
38,000 SDL, Inc. * 769,500
10,000 Xerox Corp. 841,875
-------------
$ 7,130,563
-------------
UTILITIES - 8.1%
15,000 AT&T Corp. 664,688
14,000 Enron Corp. 539,000
12,000 GTE Corp. 544,500
20,000 Houston Industries, Inc. 435,000
24,000 WorldCom, Inc. * 849,000
-------------
$ 3,032,188
-------------
TOTAL COMMON STOCK (COST $23,893,436) $ 36,889,176
-------------
CASH EQUIVALENTS - 1.6%
-----------------------
606,234 Merrimac Cash Fund - Institutional Class
(Cost $606,234) $ 606,234
-------------
TOTAL INVESTMENTS AT VALUE - 100.4%
(COST $24,499,670) 37,495,410
--------------
OTHER ASSETS & LIABILITIES, NET - (.4)% (148,656)
--------------
NET ASSETS -- 100.0% $ 37,346,754
==============
* Non-income producing securities.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
GW&K GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997
<S> <C> <C>
Par Market
Value MORTGAGE-BACKED SECURITIES -- 96.8% Value
----- ----------------------------------- ----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 25.5%
$ 1,321,467 Government National Mortgage Assoc., 9.50%, 06/15/09 thru 10/15/09 $ 1,432,448
12,863 Government National Mortgage Assoc., 9.75%, 12/15/00 thru 01/15/01 13,403
1,714,427 Government National Mortgage Assoc., 10.00%, 10/15/00 thru 02/20/21 1,877,593
44,226 Government National Mortgage Assoc., 10.25%, 05/15/99 thru 02/15/01 45,840
486,841 Government National Mortgage Assoc., 10.50%, 12/20/00 thru 10/20/19 533,932
534,934 Government National Mortgage Assoc., 11.00%, 12/15/09 thru 01/15/16 606,222
15,872 Government National Mortgage Assoc., 11.25%, 01/15/98 thru 04/15/01 16,408
1,107,990 Government National Mortgage Assoc., 11.50%, 06/20/99 thru 08/20/19 1,266,681
250,908 Government National Mortgage Assoc., 11.75%, 08/15/13 284,179
16,979 Government National Mortgage Assoc., 12.00%, 08/15/13 thru 09/15/14 19,798
15,272 Government National Mortgage Assoc., 12.25%, 04/15/14 17,484
199,245 Government National Mortgage Assoc., 13.00%, 01/15/11 thru 01/15/15 235,570
- ----------- ------------
$ 5,721,024 TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION $ 6,349,558
- ----------- ------------
(Amortized Cost $6,246,519)
FEDERAL HOME LOAN MORTGAGE CORP. - 35.1%
$ 491,144 Federal Home Loan Mortgage Corp., 7.50%, 02/01/22 $ 505,849
299,727 Federal Home Loan Mortgage Corp., 8.50%, 03/01/08 thru 09/01/17 314,765
859,074 Federal Home Loan Mortgage Corp., 8.75%, 10/01/08 907,620
336,060 Federal Home Loan Mortgage Corp., 9.00%, 07/01/08 thru 12/01/16 356,321
2,406,374 Federal Home Loan Mortgage Corp., 9.25%, 10/01/08 thru 12/1/10 2,581,720
538,363 Federal Home Loan Mortgage Corp., 9.75%, 12/01/08 thru 01/01/10 582,998
43,660 Federal Home Loan Mortgage Corp., 10.00%, 01/01/01 thru 03/01/03 45,857
1,510,714 Federal Home Loan Mortgage Corp., 10.25%, 04/01/09 thru 02/01/10 1,640,078
330,594 Federal Home Loan Mortgage Corp., 10.50%, 06/01/00 thru 10/01/19 360,098
304,447 Federal Home Loan Mortgage Corp., 10.75%, 07/01/10 335,117
267,267 Federal Home Loan Mortgage Corp., 11.00%, 12/01/00 thru 01/01/19 294,531
54,859 Federal Home Loan Mortgage Corp., 11.25%, 09/01/09 thru 11/01/13 61,201
243,894 Federal Home Loan Mortgage Corp., 11.50%, 06/01/11 thru 06/01/19 274,686
90,646 Federal Home Loan Mortgage Corp., 11.75%, 02/01/11 thru 07/01/13 102,459
61,161 Federal Home Loan Mortgage Corp., 12.00%, 12/01/11 thru 02/01/16 69,955
158,139 Federal Home Loan Mortgage Corp., 12.50%, 01/01/10 thru 07/01/15 180,862
104,010 Federal Home Loan Mortgage Corp., 13.00%, 01/01/00 thru 12/01/14 119,958
- ----------- ------------
$ 8,100,133 TOTAL FEDERAL HOME LOAN MORTGAGE CORP. $ 8,734,075
- ----------- ------------
(Amortized Cost $8,638,250)
<PAGE>
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 36.2%
$ 362,799 Federal National Mortgage Association, 8.00%, 08/01/19 $ 379,335
831,382 Federal National Mortgage Association, 8.50%, 12/01/08 thru 04/01/19 875,986
441,964 Federal National Mortgage Association, 8.75%, 08/01/07 thru 08/01/17 465,542
2,543,828 Federal National Mortgage Association, 9.00%, 09/01/24 thru 03/01/25 2,701,444
297,936 Federal National Mortgage Association, 9.25%, 12/01/15 320,966
140,448 Federal National Mortgage Association, 9.75%, 05/01/09 150,865
2,409,253 Federal National Mortgage Association, 10.00%, 11/01/00 thru 10/01/20 2,625,453
168,173 Federal National Mortgage Association, 10.25%, 05/01/09 thru 03/01/16 186,609
926,822 Federal National Mortgage Association, 10.50%, 08/01/00 thru 09/01/20 1,026,446
75,399 Federal National Mortgage Association, 10.75%, 09/01/09 thru 03/01/14 84,706
19,803 Federal National Mortgage Association, 11.25%, 10/01/15 22,413
73,116 Federal National Mortgage Association, 12.00%, 03/01/13 thru 07/01/13 84,413
60,543 Federal National Mortgage Association, 12.25%, 05/01/10 thru 07/01/15 69,321
- ----------- -----------
$ 8,351,466 TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION $ 8,993,499
- ----------- -----------
(Amortized Cost $8,888,825)
$22,172,623 TOTAL MORTGAGE-BACKED SECURITIES $24,077,132
=========== -----------
(Amortized Cost $23,773,594)
CASH EQUIVALENTS -- 2.0%
$ 486,862 Merrimac Cash Fund - Institutional Class (Cost $486,862) $ 486,862
- ----------- ----------
$ 486,862 TOTAL CASH EQUIVALENTS $ 486,862
- ----------- ----------
TOTAL INVESTMENTS AND CASH EQUIVALENTS AT VALUE -- 98.8% $24,563,994
OTHER ASSETS AND LIABILITIES, NET -- 1.2% $ 290,733
-----------
NET ASSETS -- 100% $24,854,727
===========
<FN>
See accompanying notes to financial statements.
</FN>
</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)
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001012401
<NAME> THE GANNETT WELSH & KOTLER FUNDS
<SERIES>
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<NAME> GW&K EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 24,499,670
<INVESTMENTS-AT-VALUE> 37,495,410
<RECEIVABLES> 77,992
<ASSETS-OTHER> 36,628
<OTHER-ITEMS-ASSETS> 165,661
<TOTAL-ASSETS> 37,775,691
<PAYABLE-FOR-SECURITIES> 357,997
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 70,940
<TOTAL-LIABILITIES> 428,937
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,561,428
<SHARES-COMMON-STOCK> 2,888,995
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 94,608
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 694,978
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,995,740
<NET-ASSETS> 37,346,754
<DIVIDEND-INCOME> 326,560
<INTEREST-INCOME> 41,022
<OTHER-INCOME> 0
<EXPENSES-NET> 272,974
<NET-INVESTMENT-INCOME> 94,608
<REALIZED-GAINS-CURRENT> 694,978
<APPREC-INCREASE-CURRENT> 6,776,858
<NET-CHANGE-FROM-OPS> 7,566,444
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,962,639
<NUMBER-OF-SHARES-REDEEMED> 73,644
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<NET-CHANGE-IN-ASSETS> 37,346,754
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 218,380
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 331,102
<AVERAGE-NET-ASSETS> 27,177,940
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 2.90
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.93
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
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<NAME> THE GANNETT WELSH & KOTLER FUNDS
<SERIES>
<NUMBER> 2
<NAME> GW&K GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 24,260,456
<INVESTMENTS-AT-VALUE> 24,563,994
<RECEIVABLES> 335,336
<ASSETS-OTHER> 36,003
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 24,935,333
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 80,606
<TOTAL-LIABILITIES> 80,606
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,508,893
<SHARES-COMMON-STOCK> 2,428,645
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 42,296
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 303,538
<NET-ASSETS> 24,854,727
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,139,734
<OTHER-INCOME> 0
<EXPENSES-NET> 154,132
<NET-INVESTMENT-INCOME> 985,602
<REALIZED-GAINS-CURRENT> 42,296
<APPREC-INCREASE-CURRENT> 303,538
<NET-CHANGE-FROM-OPS> 1,331,436
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 985,602
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,497,150
<NUMBER-OF-SHARES-REDEEMED> 136,120
<SHARES-REINVESTED> 67,615
<NET-CHANGE-IN-ASSETS> 24,854,727
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 119,224
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 234,285
<AVERAGE-NET-ASSETS> 20,124,933
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .50
<PER-SHARE-GAIN-APPREC> .23
<PER-SHARE-DIVIDEND> .50
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<PER-SHARE-NAV-END> 10.23
<EXPENSE-RATIO> .97
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
