GANNETT WELSH & KOTLER FUNDS, 485BPOS, 1998-02-03

GANNETT WELSH & KOTLER FUNDS
485BPOS, 1998-02-03

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U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM N-1A
--
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
--

Pre-Effective Amendment No.

Post-Effective Amendment No. 2

and/or
--
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
--

Amendment No. 3

(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
The Gannett Welsh & Kotler Funds
222 Berkeley Street
Boston, Massachusetts 02116
(Name and Address of Agent for Service)

Copies to:

Tina D. Hosking
Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202

It is proposed that this filing will become effective (check
appropriate box)

/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on February 1, 1998 pursuant to paragraph (b) of Rule 485
/ / __ days after filing pursuant to paragraph (a) of Rule 485
/ / on (date) pursuant to paragraph (a) of Rule 485

<PAGE>

THE GANNETT WELSH & KOTLER FUNDS

CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A)
UNDER THE SECURITIES ACT OF 1933

PART A

ITEM NO. REGISTRATION STATEMENT CAPTION CAPTION IN PROSPECTUS

1. Cover Page Cover Page

2. Synopsis Expense Information

3. Condensed Financial Information Financial Highlights;
Performance Information

4. General Description of Registrant Investment Objective,
Investment Policies and Risk
Considerations; Operation of
the Fund

5. Management of the Fund Operation of the Fund

6. Capital Stock and Other Securities Cover Page; Operation of the
Fund; Dividends and
Distributions; Taxes

7. Purchase of Securities Being Offered How to Purchase Shares;
Shareholder Services;
Exchange Privilege;
Distribution Plan;
Calculation of Share Price;
Application

8. Redemption or Repurchase How to Redeem Shares;
Shareholder Services;
Exchange Privilege

9. Pending Legal Proceedings Inapplicable

PART B
CAPTION IN STATEMENT
OF ADDITIONAL
ITEM NO. REGISTRATION STATEMENT CAPTION INFORMATION

10. Cover Page Cover Page

11. Table of Contents Table of Contents

(i)

<PAGE>

12. General Information and History The Trust

13. Investment Objectives and Policies Definitions, Policies and
Risk Considerations; Quality
Ratings of Corporate Bonds
and Preferred Stocks;
Investment Limitations;
Securities Transactions;
Portfolio Turnover

14. Management of the Fund Trustees and Officers

15. Control Persons and Principal Holders Principal Security Holders
of Securities

16. Investment Advisory and Other Services The Investment Adviser;
Distribution Plan;
Custodian; Auditors;
Countrywide Fund Services,
Inc.

17. Brokerage Allocation and Other Securities Transactions
Practices

18. Capital Stock and Other Securities The Trust

19. Purchase, Redemption and Pricing of Calculation of Share
Securities Being Offered Price; Redemption in Kind

20. Tax Status Taxes

21. Underwriters Inapplicable

22. Calculation of Performance Data Historical Performance
Information

23. Financial Statements Annual Report

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.

(ii)

<PAGE>

PROSPECTUS
February 1, 1998

THE GANNETT WELSH & KOTLER FUNDS
222 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
(617) 236-8900

GW&K EQUITY FUND
- -------------------------------------------------------------------------------

The GW&K Equity Fund (the "Fund"), a separate series of The Gannett
Welsh & Kotler Funds, seeks long-term total return, from a combination of
capital growth and growth of income, by investing in a diversified portfolio of
equity securities.

Gannett Welsh & Kotler, Inc. (the "Adviser"), 222 Berkeley Street,
Boston, Massachusetts 02116, manages the Fund's investments. The Adviser is an
independent investment counsel firm that has advised individual and
institutional clients since 1974.

This Prospectus sets forth concisely the information about the Fund
that you should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information dated February 1, 1998 has been
filed with the Securities and Exchange Commission and is hereby incorporated by
reference in its entirety. The Fund's address is 222 Berkeley Street, Boston,
Massachusetts 02116 and its telephone number is 888-GWK-FUND (888-495-3863). A
copy of the Statement of Additional Information can be obtained at no charge by
calling or writing the Fund.

TABLE OF CONTENTS
Expense Information..................................................... 2
Financial Highlights.................................................... 3
Investment Objective, Investment Policies and
Risk Considerations................................................... 4
How to Purchase Shares.................................................. 9
Shareholder Services....................................................10
How to Redeem Shares....................................................11
Exchange Privilege......................................................12
Dividends and Distributions.............................................13
Taxes...................................................................14
Operation of the Fund...................................................15
Distribution Plan.......................................................16
Calculation of Share Price..............................................17
Performance Information.................................................17
- -------------------------------------------------------------------------------

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.
- -------------------------------------------------------------------------------

<PAGE>

EXPENSE INFORMATION

SHAREHOLDER TRANSACTION EXPENSES

Sales Load Imposed on Purchases . . . . . . . . . . . . . . . None
Sales Load Imposed on Reinvested Dividends. . . . . . . . . . None
Exchange Fee. . . . . . . . . . . . . . . . . . . . . . . . . None
Redemption Fees . . . . . . . . . . . . . . . . . . . . . . . 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."

ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)

Management Fees After Waivers . . . . . . . . . . . .74%(A)
12b-1 Fees. . . . . . . . . . . . . . . . . . . . . .00%(B)
Other Expenses. . . . . . . . . . . . . . . . . . . .51%
-----
Total Fund Operating Expenses After Waivers . . . . 1.25%(C)
=====

(A) Absent waivers of management fees, such fees would have been 1.00% for the
fiscal period ended September 30, 1997.

(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 Fund operating expenses would
have been 1.51% for the fiscal period ended September 30, 1997.

The purpose of this table is to assist the investor in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The percentages expressing annual fund operating expenses are based
on amounts incurred during the most recent fiscal year. 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 (2) redemption at the end of each time period:

1 Year $13
3 Years 40
5 Years 69
10 Years 151

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<PAGE>

FINANCIAL HIGHLIGHTS

The following information, which has been audited by Arthur Andersen LLP, is an
integral part of the Fund's audited financial statements and should be read in
conjunction with the financial statements. The financial statements as of
September 30, 1997 appear in the Statement of Additional Information of the
Fund, which can be obtained at no charge by calling Countrywide Fund Services,
Inc. (Nationwide call toll-free 888-GWK-FUND (888-495-3863)) or by writing to
the Fund at the address on the front of this Prospectus.

PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED:

SEPTEMBER 30, 1997(A)

Net asset value at beginning of period................... $ 10.00
-------

Income from investment operations:
Net investment income.................................. 0.03
Net realized and unrealized gains
on investments....................................... 2.90
-------
Total from investment operations......................... 2.93
-------

Less distributions:
Dividends from net investment income.................... ----
-------
Total distributions...................................... ----
-------

Net asset value at end of period......................... $ 12.93
=======

RATIOS AND SUPPLEMENTAL DATA:

Total return (not annualized)............................ 29.30%
=======

Net assets at end of period (000's)..................... $ 37,347
=======
Ratio of expenses to average net assets(B).............. 1.25%(C)

Ratio of net investment income to average net assets.... 0.43%(C)

Portfolio turnover rate................................. 13%(C)

Average commission rate per share....................... $ 0.0842
- ------------------------------------------------------------------------------

(A) Represents the period from the initial public offering of shares (December
10, 1996) through September 30, 1997.
(B) Absent fee waivers by the Adviser, the ratio of expenses to average net
assets would have been 1.51%(C).
(C) Annualized.

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<PAGE>

INVESTMENT OBJECTIVE, INVESTMENT POLICIES AND RISK CONSIDERATIONS

The Fund is a series of The Gannett Welsh & Kotler Funds (the "Trust").
The investment objective of the Fund is to seek long-term total return, from a
combination of capital growth and growth of income, by investing in a
diversified portfolio of equity securities. Equity securities include common
stocks and securities convertible into common stock (such as convertible bonds,
convertible preferred stocks and warrants). The Fund is not intended to be a
complete investment program, and there is no assurance that its investment
objective can be achieved. The Fund's investment objective may be changed by the
Board of Trustees without shareholder approval, but only after notification has
been given to shareholders and after this Prospectus has been revised
accordingly. If there is a change in the Fund's investment objective,
shareholders should consider whether the Fund remains an appropriate investment
in light of their then current financial position and needs. Unless otherwise
indicated, all investment practices and limitations of the Fund are
nonfundamental policies which may be changed by the Board of Trustees without
shareholder approval.

The Fund pursues its investment objective by following flexible
long-term investment policies emphasizing companies with strong balance sheets
and growth potential. Securities will be purchased for the Fund's portfolio if,
in the Adviser's opinion, their prices are undervalued or attractively valued.
Measures such as price-to-earnings ratios and ratios of market price to book
value in comparison with similar measures for companies included in the Standard
& Poor's Index of 500 Common Stocks will be used to determine value. The Fund
will also seek out companies which have experienced earnings and dividend growth
at, or above, market norms. While the Fund intends to invest primarily in
companies which are leaders in their respective industries, the Fund may also
invest in less well known companies.

The Adviser intends to assemble a portfolio of securities diversified
as to company and industry. The Adviser will consider the desirability of
increasing or reducing the Fund's investment in the particular industry to which
the issuer of a security belongs in view of the Fund's goal of achieving
industry diversification. The Adviser expects that each economic sector within
the Standard & Poor's Index of 500 Common Stocks will be represented in the
Fund's portfolio.

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.

- 4 -

<PAGE>

The Fund will invest primarily in domestic equity securities, although
it may invest in foreign companies through the purchase of sponsored American
Depository Receipts (certificates of ownership issued by an American bank or
trust company as a convenience to investors in lieu of the underlying shares
which such bank or trust company holds in custody) or other securities of
foreign issuers that are publicly traded in the United States. When selecting
foreign investments, the Adviser will seek to invest in securities that have
investment characteristics and qualities comparable to the kinds of domestic
securities in which the Fund invests. Investment in securities of foreign
issuers involves somewhat different investment risks from those affecting
securities of domestic issuers. In addition to credit and market risks,
investments in foreign securities involve sovereign risk, which includes local
political and economic developments, potential nationalization, withholding
taxes on dividend or interest payments and currency blockage. Foreign companies
may have less public or less reliable information available about them and may
be subject to less governmental regulation than U.S. companies. Securities of
foreign companies may be less liquid or more volatile than securities of U.S.
companies.

The Fund expects to invest primarily in securities currently paying
dividends, although it may buy securities that are not paying dividends but
offer prospects for growth of capital or future income. Under normal
circumstances, at least 65% of the Fund's total assets will be invested in
common stocks and securities convertible into common stock (such as convertible
bonds, convertible preferred stocks and warrants). The Fund may invest in
preferred stocks and bonds without regard to quality ratings assigned by rating
organizations such as Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Ratings Group ("S&P"). Lower-rated securities (commonly called "junk
bonds"), i.e. securities rated below Baa by Moody's or below BBB by S&P, or the
equivalent, will have speculative characteristics (including the possibility of
default or bankruptcy of the issuers of such securities, market price volatility
based upon interest rate sensitivity, questionable creditworthiness and relative
liquidity of the secondary trading market). Because lower-rated securities have
been found to be more sensitive to adverse economic changes or individual
corporate developments and less sensitive to interest rate changes than
higher-rated investments, an economic downturn could disrupt the market for such
securities and adversely affect the value of outstanding bonds and the ability
of issuers to repay principal and interest. In addition, in a declining interest
rate market, issuers of lower-rated securities may exercise redemption or call
provisions, which may force the Fund, to the extent it owns such securities, to
replace those securities with lower yielding securities. This could result in a
decreased return for

- 5 -

<PAGE>

investors. The Fund does not currently intend to invest more than 5% of its net
assets in lower-rated securities. If subsequent to its purchase by the Fund, the
reduction of a security's rating below Baa or BBB causes the Fund to hold more
than 5% of its net assets in lower-rated securities, the Adviser will sell a
sufficient amount of such lower-rated securities, subject to market conditions
and the Adviser's assessment of the most opportune time for sale, in order to
lower the percentage of the Fund's net assets invested in such securities to 5%
or less.

When the Adviser believes substantial price risks exist for common
stocks and securities convertible into common stocks because of uncertainties in
the investment outlook or when in the judgment of the Adviser it is otherwise
warranted in selling to manage the Fund's portfolio, the Fund may temporarily
hold for defensive purposes all or a portion of its assets in short-term
obligations such as bank debt instruments (certificates of deposit, bankers'
acceptances and time deposits), commercial paper rated A-3 or better by S&P or
Prime-3 or better by Moody's, shares of money market investment companies, U.S.
Government obligations having a maturity of less than one year or repurchase
agreements. The Fund may invest up to 10% of its total assets in shares of money
market investment companies. Investments by the Fund in shares of money market
investment companies may result in duplication of advisory, administrative and
distribution fees. The Fund will not invest more than 5% of its total assets in
securities of any single investment company and will not purchase more than 3%
of the outstanding voting securities of any investment company.

If, in addition to believing that substantial price risks exist for
common stocks and securities convertible into common stocks, the Adviser
believes that market indicators point to lower interest rates, the Fund may, in
seeking to achieve its investment objective, invest up to 35% of its net assets
in U.S. Government obligations of any maturity. "U.S. Government obligations"
include securities which are issued or guaranteed by the United States Treasury,
by various agencies of the United States Government, and by various
instrumentalities which have been established or sponsored by the United States
Government. U.S. Treasury obligations are backed by the "full faith and credit"
of the United States Government. U.S. Treasury obligations include Treasury
bills, Treasury notes and Treasury bonds. U.S. Treasury obligations also include
the separate principal and interest components of U.S. Treasury obligations
which are traded under the Separate Trading of Registered Interest and Principal
of Securities ("STRIPS") program. Agencies and instrumentalities established by
the United States Government include the Federal Home Loan Banks, the Federal
Land Bank, the Government National Mortgage Association, the Federal National
Mortgage Association, the Federal Home Loan Mortgage

- 6 -

<PAGE>

Corporation, the Student Loan Marketing Association, the Small Business
Administration, the Bank for Cooperatives, the Federal Intermediate Credit Bank,
the Federal Financing Bank, the Federal Farm Credit Banks, the Federal
Agricultural Mortgage Corporation, the Financing Corporation of America and the
Tennessee Valley Authority. Some of these securities are supported by the full
faith and credit of the United States Government while others are supported only
by the credit of the agency or instrumentality, which may include the right of
the issuer to borrow from the United States Treasury. U.S. Government
obligations are subject to price fluctuations based upon changes in the level of
interest rates, which will generally result in all those securities changing in
price in the same way, i.e. all those securities experiencing appreciation when
interest rates decline and depreciation when interest rates rise.

The Fund may also engage in the following investment techniques, each
of which may involve certain risks:

REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which
the Fund purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
of the seller of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying security and losses. To minimize these
possibilities, the Fund intends to enter into repurchase agreements only with
its Custodian, banks having assets in excess of $10 billion and the largest and,
in the Adviser's judgment, most creditworthy primary U.S. Government securities
dealers. The Fund will enter into repurchase agreements which are collateralized
by U.S. Government obligations or other liquid high-grade debt obligations.
Collateral for repurchase agreements is held in safekeeping in the customer-only
account of the Fund's Custodian at the Federal Reserve Bank. At the time the
Fund enters into a repurchase agreement, the value of the collateral, including
accrued interest, will equal or exceed the value of the repurchase agreement
and, in the case of a repurchase agreement exceeding one day, the seller agrees
to maintain sufficient collateral so that the value of the underlying
collateral, including accrued interest, will at all times equal or exceed the
value of the repurchase agreement. The Fund will not enter into a repurchase
agreement not terminable within seven days if, as a result thereof, more than
15% of the value of the net assets of the Fund would be invested in such
securities and other illiquid securities.

- 7 -

<PAGE>

to at least 100% of the current value of the loaned securities plus accrued
interest. It is the present intention of the Trust, which may be changed without
shareholder approval, that loans of portfolio securities will not be made with
respect to the Fund if as a result the aggregate of all outstanding loans
exceeds one-third of the value of the Fund's total assets. Securities lending
will afford the Fund the opportunity to earn additional income because the Fund
will continue to be entitled to the interest payable on the loaned securities
and also will either receive as income all or a portion of the interest on the
investment of any cash loan collateral or, in the case of collateral other than
cash, a fee negotiated with the borrower. Such loans will be terminable at any
time. Loans of securities involve risks of delay in receiving additional
collateral or in recovering the securities lent or even loss of rights in the
collateral in the event of the insolvency of the borrower of the securities. The
Fund will have the right to regain record ownership of loaned securities in
order to exercise beneficial rights. The Fund may pay reasonable fees in
connection with arranging such loans.

BORROWING AND PLEDGING. The Fund may borrow money from banks provided
that, immediately after any such borrowing, there is asset coverage of 300% for
all borrowings of the Fund. The Fund will not make any borrowing which would
cause its outstanding borrowings to exceed one-third of its total assets. The
Fund may pledge assets in connection with borrowings but will not pledge more
than one-third of its total assets. Borrowing magnifies the potential for gain
or loss on the portfolio securities of the Fund and, therefore, if employed,
increases the possibility of fluctuation in the Fund's net asset value. This is
the speculative factor known as leverage. The Fund's policies on borrowing and
pledging are fundamental policies which may not be changed without the
affirmative vote of a majority of its outstanding shares. It is the Fund's
present intention, which may be changed by the Board of Trustees without
shareholder approval, to limit its borrowings to 5% of its total assets only for
emergency or extraordinary purposes and not for leverage.

- 8 -

<PAGE>

Fund recognizing greater amounts of income and capital gains, which would
increase the amount of income and capital gains which the Fund must distribute
to shareholders in order to maintain its status as a regulated investment
company and to avoid the imposition of federal income or excise taxes (see
"Taxes").

HOW TO PURCHASE SHARES

Your initial investment in the Fund ordinarily must be at least
$2,000 ($1,000 for tax-deferred retirement plans). The Fund may, in the
Adviser's sole discretion, accept certain accounts with less than the stated
minimum initial investment. Shares of the Fund are sold on a continuous basis at
the net asset value next determined after receipt of a purchase order by the
Trust. Purchase orders received by dealers prior to 4:00 p.m., Eastern time, on
any business day and transmitted to the Trust's transfer agent, Countrywide Fund
Services, Inc. (the "Transfer Agent"), by 5:00 p.m., Eastern time, that day are
confirmed at the net asset value determined as of the close of the regular
session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Transfer Agent by 5:00 p.m., Eastern time. Dealers may
charge a fee for effecting purchase orders. Direct purchase orders received by
the Transfer Agent by 4:00 p.m., Eastern time, are confirmed at that day's net
asset value. Direct investments received by the Transfer Agent after 4:00 p.m.,
Eastern time, and orders received from dealers after 5:00 p.m., Eastern time,
are confirmed at the net asset value next determined on the following business
day.

You may open an account and make an initial investment in the Fund by
sending a check and a completed account application form to Countrywide Fund
Services, Inc., P.O. Box 5354, Cincinnati, Ohio 45201-5354. Checks should be
made payable to the "GW&K Equity Fund." An account application is included in
this Prospectus.

The Trust mails you confirmations of all purchases or redemptions of
Fund shares. Certificates representing shares are not issued. The Transfer Agent
reserves the rights to limit the amount of investments and to refuse to sell to
any person.

Investors should be aware that the Fund's account application contains
provisions in favor of the Trust, the Transfer Agent and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from unauthorized shareholder transactions) relating to
the various services (for example, telephone exchanges) made available to
investors.

- 9 -

<PAGE>

Should an order to purchase shares be canceled because your check does
not clear, you will be responsible for any resulting losses or fees incurred by
the Trust or the Transfer Agent in the transaction.

You may also purchase shares of the Fund by wire. Please telephone the
Transfer Agent (Nationwide call toll-free 888-GWK- FUND (888-495-3863)) for
instructions. You should be prepared to give the name in which the account is to
be established, the address, telephone number and taxpayer identification number
for the account, and the name of the bank which will wire the money.

Your investment will be made at the net asset value next determined
after your wire is received together with the account information indicated
above. If the Trust does not receive timely and complete account information,
there may be a delay in the investment of your money and any accrual of
dividends. To make your initial wire purchase, you are required to mail a
completed account application to the Transfer Agent. Your bank may impose a
charge for sending your wire. There is presently no fee for receipt of wired
funds, but the Trust reserves the right to charge shareholders for this service
upon thirty days prior notice to shareholders.

You may purchase and add shares to your account by mail or by bank
wire. Checks should be sent to Countrywide Fund Services, Inc., P.O. Box 5354,
Cincinnati, Ohio 45201-5354. Checks should be made payable to the "GW&K Equity
Fund." Bank wires should be sent as outlined above. You may also make additional
investments at the Trust's offices at 222 Berkeley Street, Boston, Massachusetts
02116. Each additional purchase request must contain the name of your account
and your account number to permit proper crediting to your account. While there
is no minimum amount required for subsequent investments, the Trust reserves the
right to impose such a requirement.

SHAREHOLDER SERVICES

Contact the Transfer Agent (Nationwide call toll-free 888-GWK-FUND
(888-495-3863)) for additional information about the shareholder services
described below.

AUTOMATIC WITHDRAWAL PLAN

If the shares in your account have a value of at least $5,000, you may
elect to receive, or may designate another person to receive, monthly or
quarterly payments in a specified amount of not less than $100 each. There is no
charge for this service.

TAX-DEFERRED RETIREMENT PLANS

Shares of the Fund are available for purchase in connection with the
following tax-deferred retirement plans:

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<PAGE>

-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for
individuals and their non-employed spouses, including
Roth IRAs and Education IRAs
-- Qualified pension and profit-sharing plans for
employees, including those profit-sharing plans with a
401(k) provision
-- 403(b)(7) custodial accounts for employees of public school
systems, hospitals, colleges and other non-profit
organizations meeting certain requirements of the Internal
Revenue Code

DIRECT DEPOSIT PLANS

Shares of the Fund may be purchased through direct deposit plans
offered by certain employers and government agencies. These plans enable a
shareholder to have all or a portion of his or her payroll or social security
checks transferred automatically to purchase shares of the Fund.

AUTOMATIC INVESTMENT PLAN

You may make automatic monthly investments in the Fund from your bank,
savings and loan or other depository institution account on either the 15th or
the last business day of the month. The minimum initial and subsequent
investments must be $100 under the plan. The Transfer Agent pays the costs
associated with these transfers, but reserves the right, upon thirty days
written notice, to make reasonable charges for this service. Your depository
institution may impose its own charge for debiting your account which would
reduce your return from an investment in the Fund.

HOW TO REDEEM SHARES

You may redeem shares of the Fund on each day that the Trust is open
for business by sending a written request to the Fund. The request must state
the number of shares or the dollar amount to be redeemed and your account
number. The request must be signed exactly as your name appears on the Trust's
account records. If the shares to be redeemed have a value of $25,000 or more,
your signature must be guaranteed by any eligible guarantor institution,
including banks, brokers and dealers, municipal securities brokers and dealers,
government securities brokers and dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and savings
associations.

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<PAGE>

processing fee. The Trust reserves the right, upon thirty days written notice,
to change the processing fee. All charges will be deducted from your account by
redemption of shares in your account. Your bank or brokerage firm may also
impose a charge for processing the wire. In the event that wire transfer of
funds is impossible or impractical, the redemption proceeds will be sent by mail
to the designated account.

You may also redeem shares by placing a wire redemption request through
a securities broker or dealer. Unaffiliated broker-dealers may impose a fee on
the shareholder for this service. You will receive the net asset value per share
next determined after receipt by the Trust or its agent of your wire redemption
request. It is the responsibility of broker-dealers to properly transmit wire
redemption orders.

You will receive the net asset value per share next determined after
receipt by the Transfer Agent of your redemption request in the form described
above. Payment is made within three business days after tender in such form,
provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to fifteen
days from the purchase date. To eliminate this delay, you may purchase shares of
the Fund by certified check or wire. At the discretion of the Trust or the
Transfer Agent, corporate investors and other associations may be required to
furnish an appropriate certification authorizing redemptions to ensure proper
authorization.

The Trust reserves the right to suspend the right of redemption or to
postpone the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.

EXCHANGE PRIVILEGE

Shares of the Fund may be exchanged for shares of the other series of
the Trust, the GW&K Government Securities Fund, at net asset value. Shares of
the Fund may also be exchanged at net asset value for shares of the Short Term
Government Income Fund (a series of Countrywide Trust), which invests in
short-term U.S. Government obligations backed by the "full faith and credit" of
the United States and seeks high current income, consistent with protection of
capital. Shares of the Short Term Government Income Fund acquired via exchange
may be re-exchanged for shares of the Fund at net asset value.

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<PAGE>

market activity), consider requesting your exchange by mail or by visiting the
Trust's offices at 222 Berkeley Street, Boston, Massachusetts 02116. An exchange
will be effected at the next determined net asset value after receipt of a
request by the Transfer Agent.

Exchanges may only be made for shares of funds then offered for sale in
your state of residence and are subject to the applicable minimum initial
investment requirements. The exchange privilege may be modified or terminated by
the Board of Trustees upon 60 days prior notice to shareholders. An exchange
results in a sale of fund shares, which may cause you to recognize a capital
gain or loss. Before making an exchange, contact the Transfer Agent to obtain a
current prospectus and more information about exchanges among the funds.

DIVIDENDS AND DISTRIBUTIONS

The Fund expects to distribute substantially all of its net investment
income, if any, on an annual basis. The Fund expects to distribute any net
realized long-term capital gains at least once each year. Management will
determine the timing and frequency of the distributions of any net realized
short-term capital gains.

Distributions are paid according to one of the following options:

Share Option - income distributions and capital gains
distributions reinvested in additional
shares.

Income Option - income distributions and short-term
capital gains distributions paid in
cash; long-term capital gains
distributions reinvested in additional
shares.

Cash Option - income distributions and capitalgains
distributions paid in cash.

You should indicate your choice of option on your application. If no
option is specified on your application, distributions will automatically be
reinvested in additional shares. All distributions will be based on the net
asset value in effect on the payable date.

If you select the Income Option or the Cash Option and the U.S. Postal
Service cannot deliver your checks or if your checks remain uncashed for six
months, your dividends may be reinvested in your account at the then current net
asset value and your account will be converted to the Share Option. No interest
will accrue on amounts represented by uncashed distribution checks.

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<PAGE>

TAXES

The Fund has qualified and intends to continue to qualify for the
special tax treatment afforded a "regulated investment company" under Subchapter
M of the Internal Revenue Code so that it does not pay federal taxes on income
and capital gains distributed to shareholders. The Fund intends to distribute
substantially all of its net investment income and any realized capital gains to
its shareholders. Distributions of net investment income and net realized
short-term capital gains, if any, are taxable to investors as ordinary income.
Dividends distributed by the Fund from net investment income may be eligible, in
whole or in part, for the dividends received deduction available to
corporations.

Distributions of net capital gains (i.e., the excess of net long-term
capital gains over net short-term capital losses) by the Fund to its
shareholders are taxable to the recipient shareholders as capital gains, without
regard to the length of time a shareholder has held Fund shares. The maximum
capital gains rate for individuals is 28% with respect to assets held for more
than 12 months, but not more than 18 months, and 20% with respect to assets held
more than 18 months. The maximum capital gains rate for corporate shareholders
is the same as the maximum tax rate for ordinary income. Redemptions of shares
of the Fund are taxable events on which a shareholder may realize a gain or
loss.

On December 10, 1996, prior to the offering of its shares to the
public, the Fund exchanged its shares for portfolio securities of GW&K Equity
Fund, L.P. (the "Partnership"), a Delaware limited partnership, after which the
Partnership dissolved and distributed Fund shares received pro rata to its
partners. Following this exchange transaction (the "Exchange"), partners of the
Partnership constituted all of the shareholders of the Fund, except for shares
representing seed capital contributed to the Fund by Harold G. Kotler and Edward
B. White. The Exchange was intended to qualify as a tax-free reorganization,
with no gain or loss recognized by the Partnership or its partners. The Exchange
may result in adverse tax consequences to future shareholders of the Fund. As a
result of this Exchange, the Fund acquired securities that had appreciated in
value from the date they were originally acquired by the Partnership. If these
appreciated securities are subsequently sold by the Fund after the Exchange, the
amount of the gain will be taxable to future shareholders as well as to
shareholders who received Fund shares in the Exchange. The effect of this for
future shareholders would be to immediately 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 shareholders who
received Fund shares in the Exchange would be to reduce their potential
liability for tax on capital gains by spreading such liability over a larger
asset base.

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<PAGE>

The Fund will mail to each of its shareholders a statement indicating
the amount and federal income tax status of all distributions made during the
year. In addition to federal taxes, shareholders of the Fund may be subject to
state and local taxes on distributions. Shareholders should consult their tax
advisors about the tax effect of distributions and withdrawals from the Fund and
the use of the Automatic Withdrawal Plan and the Exchange Privilege. The tax
consequences described in this section apply whether distributions are taken in
cash or reinvested in additional shares. See "Taxes" in the Statement of
Additional Information for further information.

OPERATION OF THE FUND

The Fund is a diversified series of The Gannett Welsh & Kotler Funds
(the "Trust"), an open-end management investment company organized as a
Massachusetts business trust on April 30, 1996. The Board of Trustees supervises
the business activities of the Trust. Like other mutual funds, the Trust retains
various organizations to perform specialized services for the Fund.

The Trust retains Gannett Welsh & Kotler, Inc. (the "Adviser"), 222
Berkeley Street, Boston, Massachusetts 02116, to manage the Fund's investments.
The Adviser is an independent investment counsel firm that has advised
individual and institutional clients since 1974. The controlling shareholders of
the Adviser are Harold G. Kotler and Benjamin H. Gannett. The Fund pays the
Adviser a fee, payable monthly, at the annual rate of 1.00% of the average value
of its daily net assets.

Edward B. White, a Principal and Senior Vice President of the Adviser,
is primarily responsible for managing the Fund's portfolio. Mr. White has been
employed by the Adviser since 1989.

In addition to the advisory fee, the Fund is responsible for the
payment of all operating expenses, including fees and expenses in connection
with membership in investment company organizations, brokerage fees and
commissions, legal, auditing and accounting expenses, expenses of registering
shares under federal and state securities laws, expenses related to the
distribution of the Fund's shares (see "Distribution Plan"), insurance expenses,
taxes or governmental fees, fees and expenses of the custodian, transfer agent,
administrator, and accounting and pricing agent of the Fund, 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 litigation to which the Fund may be a party and indemnification of the
Trust's officers and Trustees with respect thereto.

- 15 -

<PAGE>

The Trust has retained Countrywide Fund Services, Inc. (the "Transfer
Agent"), P.O. Box 5354, Cincinnati, Ohio, to serve as the Fund's transfer agent,
dividend paying agent and shareholder service agent. The Transfer Agent is a
wholly-owned indirect subsidiary of Countrywide Credit Industries, Inc., a New
York Stock Exchange listed company principally engaged in the business of
residential mortgage lending. The Transfer Agent also provides accounting and
pricing services to the Fund. The Transfer Agent receives a monthly fee from the
Fund for calculating daily net asset value per share and maintaining such books
and records as are necessary to enable it to perform its duties.

In addition, the Transfer Agent has been retained to provide
administrative services to the Fund. In this capacity, the Transfer Agent
supplies executive, administrative 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. The Fund pays the Transfer Agent a
fee, payable monthly, for these administrative services 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.

Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to its objective of seeking best
execution of portfolio transactions, the Adviser may consider sales of shares of
the Fund as a factor in the selection of brokers and dealers to execute
portfolio transactions of the Fund.

Shares of the Fund have equal voting rights and liquidation rights, and
are voted in the aggregate and not by series except in matters where a separate
vote is required by the Investment Company Act of 1940 or when the matter
affects only the interest of a particular series. When matters are submitted to
shareholders for a vote, each shareholder is entitled to one vote for each full
share owned and fractional votes for fractional shares owned. The Trust does not
normally hold annual meetings of shareholders. 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 Trust will comply
with the provisions of Section 16(c) of the Investment Company Act of 1940 in
order to facilitate communications among shareholders.

- 16 -

<PAGE>

DISTRIBUTION PLAN

Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the
Fund has adopted a plan of distribution (the "Plan") under which the Fund may
directly incur or reimburse the Adviser for certain distribution-related
expenses, including payments to securities dealers and others who are engaged in
the sale of shares of the Fund and who may be advising investors regarding the
purchase, sale or retention of such shares; expenses of maintaining personnel
who engage in or support distribution of shares or who render shareholder
support services not otherwise provided by the Transfer Agent; expenses of
formulating and implementing marketing and promotional activities, including
direct mail promotions and mass media advertising; expenses of preparing,
printing and distributing sales literature and prospectuses and statements of
additional information and reports for recipients other than existing
shareholders of the Fund; expenses of obtaining such information, analyses and
reports with respect to marketing and promotional activities as the Trust may,
from time to time, deem advisable; and any other expenses related to the
distribution of the Fund's shares.

The annual limitation for payment of expenses pursuant to the Plan is
.25% of the Fund's average daily net assets. Unreimbursed expenditures will not
be carried over from year to year. In the event the Plan is terminated by the
Fund in accordance with its terms, the Fund will not be required to make any
payments for expenses incurred after the date the Plan terminates.

Pursuant to the Plan, the Fund may also make payments to banks or other
financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, management of the
Trust believes that the Glass-Steagall Act should not preclude a bank from
providing such services. However, state securities laws on this issue may differ
from the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If a
bank were prohibited from continuing to perform all or a part of such services,
management of the Trust believes that there would be no material impact on the
Fund or its shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by regulatory authorities, and the
overall return to those shareholders availing themselves of the bank services
will be lower than to those shareholders who do not. The Fund may from time to
time purchase securities issued by banks which provide such services; however,
in selecting investments for the Funds, no preference will be shown for such
securities.

- 17 -

<PAGE>

CALCULATION OF SHARE PRICE

On each day that the Trust is open for business, the share price (net
asset value) of the shares of the Fund is determined as of the close of the
regular session of trading on the New York Stock Exchange, currently 4:00 p.m.,
Eastern time. The Trust is open for business on each day 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. The net asset value per share of the Fund is calculated by dividing
the sum of the value of the securities held by the Fund plus cash or other
assets minus all liabilities (including estimated accrued expenses) by the total
number of shares outstanding of the Fund, rounded to the nearest cent.

U.S. Government obligations are valued at their most recent bid prices
as obtained from one or more of the major market makers for such securities.
Other portfolio securities are valued as follows: (1) securities which are
traded on stock exchanges or are quoted by NASDAQ are valued at the last
reported sale price as of the close of the regular session of trading on the New
York Stock Exchange on the day the securities are being valued, or, if not
traded on a particular day, at the average of the highest current independent
bid and lowest current independent offer, (2) securities traded in the
over-the-counter market, and which are not quoted by NASDAQ, are valued at the
average of the highest current independent bid and lowest current independent
offer as of the close of the regular session of trading on the New York Stock
Exchange on the day the securities are being valued, (3) securities which are
traded both in the over-the-counter market and on a stock exchange are valued
according to the broadest and most representative market, and (4) securities
(and other assets) 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. The net asset value per share of the Fund will
fluctuate with the value of the securities it holds.

PERFORMANCE INFORMATION

From time to time, the Fund may advertise its "average annual total
return." Average annual total return figures are based on historical earnings
and are not intended to indicate future performance.

The "average annual total return" of the Fund refers to the average
annual compounded rates of return over the most recent 1, 5 and 10 year periods
or, where the Fund has not been in operation for such period, over the life of
the Fund (which periods will be stated in an advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment. The calculation

- 18 -

<PAGE>

of "average annual total return" assumes the reinvestment of all dividends and
distributions. The Fund may also advertise total return (a "nonstandardized
quotation") which is calculated differently from "average annual total return."
A nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A nonstandardized quotation of
total return may also indicate average annual compounded rates of return over
periods other than those specified for "average annual total return." A
nonstandardized quotation of total return will always be accompanied by the
Fund's "average annual total return" as described above.

From time to time the Fund may advertise its performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc. ("Lipper"), or by publications of general
interest such as Forbes, Money, The Wall Street Journal, Business Week, Barron's
Fortune or Morningstar Mutual Fund Values. The Fund may also compare its
performance to that of other selected mutual funds, average of the other mutual
funds within its category as determined by Lipper, or recognized indicators such
as the Dow Jones Industrial Average, the Standard & Poor's 500 Stock Index, the
Value Line Composite Index, the NASDAQ Composite Index and the Russell 2000
Index. In connection with a ranking, the Fund may provide additional
information, such as the particular category of funds to which the ranking
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of fee waivers and/or expense reimbursements,
if any. The Fund may also present its performance and other investment
characteristics, such as volatility or a temporary defensive posture, in light
of the Adviser's view of current or past market conditions or historical trends.

Further information about the Fund's performance is contained in the
Trust's annual report which can be obtained by shareholders at no charge by
calling the Transfer Agent (Nationwide call toll-free 888-GWK-FUND
(888-495-3863)) or by writing to the Fund at the address on the front of this
Prospectus.

PRIOR PERFORMANCE OF GW&K EQUITY FUND, L.P. The investment performance
illustrated below combines the performance of the GW&K Equity Fund, since its
commencement of operations on December 10, 1996, and the performance of the GW&K
Equity Fund, L.P. (the "Partnership") for periods prior to December 10, 1996.
The Partnership was managed by the Adviser with investment objectives, policies
and strategies substantially similar to those employed by the Adviser in
managing the Fund. It should be noted that the Partnership was not registered
under the

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<PAGE>

Investment Company Act of 1940; if the Partnership had been so registered,
performance may have been adversely affected.

While the Adviser employs for the Fund investment objectives and
strategies that are substantially similar to those that were employed by the
Adviser in managing the Partnership, the Adviser, in managing the Fund, may be
subject to certain restrictions on its investment activities to which, as
investment adviser to the Partnership, it was not previously subject. Examples
include limits on the percentage of assets invested in securities of issuers in
a single industry and requirements on distributing income to shareholders.
Operating expenses are incurred by the Fund which were not incurred by the
Partnership.

With respect to periods prior to December 10, 1996, the following
performance data represents the prior performance data of the Partnership and
not the prior performance of the Fund, and should not be relied upon by
investors as an indication of future performance of the Fund. This performance
data measures the percentage change in the value of an account between the
beginning and end of a period and is net all expenses incurred.

PERIODIC RATES OF RETURN
GW&K S&P Russell
Equity 500 2000
Period Fund Index Index

August 1 -
December 31, 1991 10.86%* 9.09%* 10.47%*

Year Ended
December 31, 1992 6.19% 7.61% 18.40%

Year Ended
December 31, 1993 18.34% 10.12% 18.90%

Year Ended
December 31, 1994 -4.07% 1.31% -3.20%

Year Ended
December 31, 1995 40.21% 37.50% 26.20%

Year Ended
December 31, 1996 15.97% 22.96% 16.55%

Year Ended
December 31, 1997 25.52% 33.36% 22.24%

August 1, 1991
Through December 31, 1997
- -------------------------
Annualized Return 16.92% 18.37% 16.78%
Cumulative Return 172.76% 195.29% 170.67%

* Not Annualized

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<PAGE>

The S&P 500 Index is an unmanaged index of 500 stocks, the purpose of
which is to portray the pattern of common stock price movement. The Russell 2000
Index, representing approximately 11% of the U.S. equity market, is an unmanaged
index comprised of the 2,000 smallest U.S. domiciled publicly-traded common
stocks in the Russell 3000 Index.

- 21 -

<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)

No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Fund. This Prospectus does not constitute an offer by the Fund to sell
shares in any State to any person to whom it is unlawful for the Fund to make
such offer in such State.

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<PAGE>

[Logo] The
Gannett
Welsh &
Kotler
Funds

GW&K Equity Fund

Prospectus

No-Load Fund

- 23 -

<PAGE>

PROSPECTUS
February 1, 1998

THE GANNETT WELSH & KOTLER FUNDS
222 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
(617) 236-8900

GW&K GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------------------------

The GW&K Government Securities Fund (the "Fund"), a separate series of
The Gannett Welsh & Kotler Funds, seeks total return, through both income and
capital appreciation. The Fund will invest primarily in obligations issued or
guaranteed as to principal and interest by the United States Government, its
agencies or instrumentalities.

TABLE OF CONTENTS
Expense Information......................................................... 2
Financial Highlights........................................................ 3
Investment Objective, Investment Policies and
Risk Considerations....................................................... 4
How to Purchase Shares......................................................12
Shareholder Services........................................................14
How to Redeem Shares........................................................15
Exchange Privilege..........................................................16
Dividends and Distributions.................................................16
Taxes.......................................................................17
Operation of the Fund.......................................................18
Distribution Plan...........................................................20
Calculation of Share Price..................................................21
Performance Information.....................................................21
- ------------------------------------------------------------------------------

EXPENSE INFORMATION

SHAREHOLDER TRANSACTION EXPENSES

* 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."

ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)

Management Fees After Waivers . . . . . . . . . . . .28%(A)
12b-1 Fees. . . . . . . . . . . . . . . . . . . . . .00%(B)
Other Expenses. . . . . . . . . . . . . . . . . . . .72%
-----
Total Fund Operating Expenses After Waivers . . . . 1.00%(C)
=====

(A) Absent waivers of management fees, such fees would have been .75% for the
fiscal period ended September 30, 1997.

(C) Absent waivers of management fees, total Fund operating expenses would
have been 1.47% for the fiscal period ended September 30, 1997.

EXAMPLE

You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:

1 Year $10
3 Years 32
5 Years 55
10 Years 122

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<PAGE>
FINANCIAL HIGHLIGHTS

The following information, which has been audited by Arthur Andersen LLP, is an
integral part of the Fund's audited financial statements and should be read in
conjunction with the financial statements. The financial statements as of
September 30, 1997 appear in the Statement of Additional Information of the
Fund, which can be obtained at no charge by calling Countrywide Fund Services,
Inc. (Nationwide call toll-free 888-GWK-FUND (888-495- 3863)) or by writing to
the Fund at the address on the front of this Prospectus.

PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED:

SEPTEMBER 30, 1997(A)

Net asset value at beginning of period.....................$ 10.00
-------

Income from investment operations:
Net investment income.................................... 0.50
Net realized and unrealized gains
on investments....................................... 0.23
-------
Total from investment operations........................... 0.73
-------

Less distributions:
Dividends from net investment income.....................( 0.50)
-------
Total distributions........................................( 0.50)
-------

Net asset value at end of period...........................$ 10.23
=======

RATIOS AND SUPPLEMENTAL DATA:

Total return (not annualized).............................. 7.50%
=======

Net assets at end of period (000's)........................$ 24,855
=======
Ratio of expenses to average net assets(B)................. 0.97%(C)

Ratio of net investment income to average net assets....... 6.19%(C)

Portfolio turnover rate ................................... 44%(C)

Average commission rate per share..........................$ ----
- -------------------------------------------------------------------------------

(A) Represents the period from the initial public offering of shares (December
16, 1996) through September 30, 1997.
(B) Absent fee waivers, the ratio of expenses to average net assets would
have been 1.47%(C).
(C) Annualized.

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<PAGE>

INVESTMENT OBJECTIVE, INVESTMENT POLICIES AND RISK CONSIDERATIONS

The Fund is a series of The Gannett Welsh & Kotler Funds (the "Trust").
The investment objective of the Fund is to seek total return, through both
income and capital appreciation. The Fund is not intended to be a complete
investment program, and there is no assurance that its investment objective can
be achieved. The Fund's investment objective may be changed by the Board of
Trustees without shareholder approval, but only after notification has been
given to shareholders and after this Prospectus has been revised accordingly. If
there is a change in the Fund's investment objective, shareholders should
consider whether the Fund remains an appropriate investment in light of their
then current financial position and needs. Unless otherwise indicated, all
investment practices and limitations of the Fund are nonfundamental policies
which may be changed by the Board of Trustees without shareholder approval.

Under normal market conditions, at least 65% of the Fund's total assets
will be invested in U.S. Government obligations. "U.S. Government obligations"
include securities which are issued or guaranteed by the United States Treasury,
by various agencies of the United States Government, and by various
instrumentalities which have been established or sponsored by the United States
Government. U.S. Treasury obligations are backed by the "full faith and credit"
of the United States Government. U.S. Treasury obligations include Treasury
bills, Treasury notes and Treasury bonds. U.S. Treasury obligations also include
the separate principal and interest components of U.S. Treasury obligations
which are traded under the Separate Trading of Registered Interest and Principal
of Securities ("STRIPS") program. Agencies and instrumentalities established by
the United States Government include the Federal Home Loan Banks, the Federal
Land Bank, the Government National Mortgage Association, the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation, the Student
Loan Marketing Association, the Small Business Administration, the Bank for
Cooperatives, the Federal Intermediate Credit Bank, the Federal Financing Bank,
the Federal Farm Credit Banks, the Federal Agricultural Mortgage Corporation,
the Financing Corporation of America and the Tennessee Valley Authority. Some of
these securities are supported by the full faith and credit of the United States
Government while others are supported only by the credit of the issuing agency
or instrumentality, which may include the right of the issuer to borrow from the
United States Treasury.

The Fund may invest up to 35% of its total assets in preferred stocks and
debt securities which are not U.S. government obligations (including corporate
debt securities, bank debt instruments, mortgage-backed and asset-backed
securities and U.S. dollar-denominated fixed-income securities issued by foreign

- 4 -

<PAGE>

issuers, foreign branches of U.S. banks and U.S. branches of foreign banks)
without regard to quality ratings assigned by rating organizations such as
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Group
("S&P").

Lower-rated debt securities (commonly called "junk bonds"), i.e.
securities rated below Baa by Moody's or below BBB by S&P, or the equivalent,
may be subject to certain risk factors to which other securities are not subject
to the same degree. An economic downturn tends to disrupt the market for
lower-rated bonds and adversely affect their values. Such an economic downturn
may be expected to result in increased price volatility of lower-rated bonds and
of the value of the Fund's shares, and an increase in issuers' defaults on such
bonds. Also, many issuers of lower-rated bonds are substantially leveraged,
which may impair their ability to meet their obligations. In some cases, the
securities in which the Fund invests are subordinated to the prior payment of
senior indebtedness, thus potentially limiting the Fund's ability to recover
full principal or to receive payments when senior securities are in default. The
credit rating of a security does not necessarily address its market value risk.
Also, ratings may, from time to time, be changed to reflect developments in the
issuer's financial condition. Lower-rated securities held by the Fund have
speculative characteristics which are apt to increase in number and significance
with each lower rating category. When the secondary market for lower-rated bonds
becomes increasingly illiquid, or in the absence of readily available market
quotations for lower-rated bonds, the relative lack of reliable, objective data
makes the responsibility of the Trustees to value such securities more
difficult, and judgment plays a greater role in the valuation of portfolio
securities. Also, increased illiquidity of the market for lower-rated bonds may
affect the Fund's ability to dispose of portfolio securities at a desirable
price. In addition, if the Fund experiences unexpected net redemptions, it could
be forced to sell all or a portion of its lower-rated bonds without regard to
their investment merits, thereby decreasing the asset base upon which the Fund's
expenses can be spread and possibly reducing the Fund's rate of return. Also,
prices of lower-rated bonds have been found to be less sensitive to interest
rate changes and more sensitive to adverse economic changes and individual
corporate developments than more highly rated investments. Certain laws or
regulations may have a material effect on the Fund's investments in lower-rated
bonds.

The Fund does not currently intend to invest more than 35% of its net
assets in lower-rated debt securities. If subsequent to its purchase by the
Fund, the reduction of a security's rating below Baa or BBB causes the Fund to
hold more than 35% of its net assets in lower-rated securities, the Adviser will
sell a sufficient amount of such lower-rated securities, subject to market
conditions and the Adviser's assessment of the most opportune time for sale, in
order to lower the percentage of the Fund's net assets invested in such
securities to 35% or less.

- 5 -

<PAGE>

There is no limit on the maturity of the securities in which the Fund may
invest. The average maturity of the Fund may be as high as 20 years or may be
shorter depending on the Adviser's assessment of the current and future interest
rate environment. Securities with longer maturities generally offer both higher
yields and greater exposure to market fluctuation from changes in interest
rates. Consequently, to the extent the Fund is significantly invested in
securities with longer maturities, investors in the Fund should be aware that
there is a possibility of greater fluctuation in the Fund's net asset value.

Investments in debt securities are subject to inherent market risks and
fluctuations in value due to changes in earnings, economic conditions, quality
ratings and other factors beyond the control of the Adviser. Debt securities are
subject to price fluctuations based upon changes in the level of interest rates,
which will generally result in all those securities changing in price in the
same way, i.e., the securities experiencing appreciation when interest rates
decline and depreciation when interest rates rise. As a result, the return and
net asset value of the Fund will fluctuate.

For defensive purposes, the Fund may temporarily hold all or a portion of
its assets in money market instruments. The money market instruments which the
Fund may own from time to time include U.S. Government obligations having a
maturity of less than one year, shares of money market investment companies,
commercial paper rated A-3 or better by S&P or Prime-3 or better by Moody's,
repurchase agreements, bank debt instruments (certificates of deposit, time
deposits and bankers' acceptances) and U.S. dollar-denominated instruments
issued by domestic or foreign branches of U.S. banks and U.S. branches of
foreign banks. The Fund may invest up to 10% of its total assets in shares of
money market investment companies. Investments by the Fund in shares of money
market investment companies may result in duplication of advisory,
administrative and distribution fees. The Fund will not invest more than 5% of
its total assets in securities of any single investment company and will not
purchase more than 3% of the outstanding voting securities of any investment
company.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Fund may invest in
mortgage-backed securities, which are mortgage loans made by banks, savings and
loan institutions, and other lenders which are assembled into pools. Often these
securities are issued and guaranteed by an agency or instrumentality of the
United States Government, though not necessarily backed by the full faith and
credit of the United States Government, or are collateralized by U.S. Government
obligations. The Fund invests in mortgage-backed securities representing
undivided ownership interests in pools of mortgage loans, including Government

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National Mortgage Association (GNMA), Federal National Mortgage Association
(FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) Certificates and
so-called "CMOs" -- i.e., collateralized mortgage obligations which are issued
by non-governmental entities.

The Fund may also invest in stripped mortgage-backed securities, which
are derivative multiclass mortgage securities issued by agencies or
instrumentalities of the United States Government, or by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing. Stripped mortgage-backed securities are usually
structured with two classes that receive different proportions of the interest
and principal distributions on a pool of mortgage assets. A common type of
stripped mortgage-backed security will have one class receiving all of the
interest from the mortgage assets (the interest-only or "IO" class), while the
other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on the securities' yield to maturity. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial investment in these securities even if the security
is rated AAA or Aaa, and could even lose its entire investment. Although
stripped mortgage-backed securities are purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers,
these securities were only recently developed. As a result, established trading
markets have not developed for certain stripped mortgage-backed securities. The
Fund will not invest more than 15% of its net assets in stripped mortgage-backed
securities and CMOs for which there is no established market and other illiquid
securities. The Fund may invest more than 15% of its net assets in stripped
mortgage-backed securities and CMOs deemed to be liquid if the Adviser
determines, under the direction of the Board of Trustees, that the security can
be disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of the Fund's net asset value per share.
In addition, pursuant to the position of the staff of the Securities and
Exchange Commission, the Fund will not invest more than 5% of its total assets
in any CMO which is an investment company under the Investment Company Act of
1940 and will not invest more than 10% of its total assets in all such CMOs and
securities of other investment companies.

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<PAGE>

The rate of return on mortgage-backed securities such as GNMA, FNMA and
FHLMC Certificates, CMOs and stripped mortgage-backed securities may be affected
by the rate of early prepayment of principal on the underlying loans. Prepayment
rates vary widely and may be affected by changes in market interest rates. It is
not possible to accurately predict the average life of a particular pool.
Reinvestment of principal may occur at higher or lower rates than the original
yield. Therefore, the actual maturity and realized yield on mortgage-backed
securities will vary based upon the prepayment experience of the underlying pool
of mortgages.

The Fund's investments in mortgage-backed securities may be extremely
sensitive to changes in interest rates because they subject the Fund to
extension risk, i.e., the possibility that rising interest rates may cause
prepayments to occur at a slower than expected rate. This particular risk may
effectively change a mortgage-backed security which was considered short- or
intermediate-term at the time of purchase into a long-term security. Long-term
debt securities generally fluctuate more widely in response to changes in
interest rates than short- or intermediate-term debt securities. During times of
rapidly rising interest rates, the Fund may have a portfolio of securities with
a much higher average life than was anticipated at the time such securities were
purchased. Thus, an increase in interest rates would not only likely decrease
the value of the Fund's mortgage-backed securities, but would also increase the
inherent volatility of the Fund by effectively converting short-term debt
securities into long-term debt securities.

Asset-backed securities may include such securities as Certificates for
Automobile Receivables and Credit Card Receivable Securities. Certificates for
Automobile Receivables represent undivided fractional interests in a pool of
motor vehicle retail installment sales contracts. Underlying sales contracts are
subject to prepayment, which may reduce the overall return to certificate
holders. Certificate holders may also experience delays in payment or losses if
the full amounts due on underlying sales contracts are not realized because of
unanticipated costs of enforcing the contracts or because of depreciation,
damage or loss of the vehicles securing the contracts, or other factors. Credit
Card Receivable Securities are backed by receivables from revolving credit card
agreements. An acceleration in cardholders' payment rates may adversely affect
the overall return to holders of such certificates. Unlike most other
asset-backed securities, Credit Card Receivable Securities are unsecured
obligations of the credit cardholders. The Fund may also invest in other
asset-backed securities that may be developed in the future, provided that this
Prospectus is revised before the Fund does so. The Fund will not invest more
than 15% of its net assets in asset-backed securities for which there is no
established market and other illiquid securities.

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<PAGE>

Mortgage-backed securities, when they are issued, have stated maturities
of up to forty years, depending on the length of the mortgages underlying the
securities. In practice, unscheduled or early payments of principal on the
underlying mortgages may make the securities' effective maturity shorter than
this. A security based on a pool of forty-year mortgages may have an average
life of as short as two years. The average life of asset-backed securities may
also be substantially less than the stated maturity of the contracts or
receivables underlying such securities. It is common industry practice to
estimate the average life of mortgage-backed and asset-backed securities based
on assumptions regarding prepayments. The Fund will assume an average life based
on the prepayment characteristics of the underlying mortgages or other assets.

BANK DEBT INSTRUMENTS. The Fund may invest in certificates of deposit,
time deposits and bankers' acceptances issued by commercial banks. Certificates
of deposit are receipts from a bank for funds deposited for a specified period
of time at a specified rate of return. Bankers' acceptances are time drafts
drawn on commercial banks by borrowers, usually in connection with international
commercial transactions. Time deposits are generally similar to certificates of
deposit, but are uncertificated. The Fund will not invest more than 15% of its
net assets in time deposits maturing in greater than seven days and other
illiquid securities.

The Fund will not invest in any security issued by a commercial bank
unless (i) the bank has total assets of at least $1 billion, or the equivalent
in other currencies, or, in the case of domestic banks which do not have total
assets of at least $1 billion, the aggregate investment made in any one such
bank is limited to $100,000 and the principal amount of such investment is
insured in full by the Federal Deposit Insurance Corporation, (ii) in the case
of U.S. banks, it is a member of the Federal Deposit Insurance Corporation, and
(iii) in the case of foreign banks, the security is, in the opinion of the
Adviser, of an investment quality comparable with other debt securities which
may be purchased by the Fund. These limitations do not prohibit investments in
securities issued by foreign branches of U.S. banks, provided such U.S. banks
meet the foregoing requirements.

FOREIGN SECURITIES. The Fund may invest in U.S. dollar- denominated
fixed-income securities issued by foreign issuers, foreign branches of U.S.
banks and U.S. branches of foreign banks. Investment in securities of foreign
issuers and in foreign branches of domestic banks involves somewhat different
investment risks from those affecting securities of domestic issuers. In
addition to credit and market risks, investments in foreign securities involve
sovereign risk, which includes local political and economic developments,
potential nationalization,

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<PAGE>

withholding taxes on dividend or interest payments and currency blockage.
Foreign companies may have less public or less reliable information available
about them and may be subject to less governmental regulation than U.S.
companies. Securities of foreign companies may be less liquid or more volatile
than securities of U.S. companies. The Fund will not invest more than 15% of its
net assets in foreign securities which, in the opinion of the Adviser, are not
readily marketable and other illiquid securities.

REAL ESTATE SECURITIES. The Fund will not invest in real estate
(including limited partnership interests), but may invest in readily marketable
securities secured by real estate or interests therein or issued by companies
that invest in real estate or interests therein. The Fund may also invest in
readily marketable interests in real estate investment trusts ("REITs"). REITs
are generally publicly traded on the national stock exchanges and in the
over-the-counter market and have varying degrees of liquidity. Although the Fund
is not limited in the amount of REITs it may acquire, the Fund does not
presently intend to invest more than 5% of its net assets in REITs.

The Fund may also engage in the following investment techniques, each of
which may involve certain risks:

WHEN-ISSUED SECURITIES. The Fund may purchase securities on a when-issued
basis. Delivery of and payment for these securities may occur a month or more
after the date of the purchase commitment. The securities are subject to market
fluctuations during this period and no interest accrues to the Fund until
settlement. The Fund maintains with the Custodian a segregated account of cash,
U.S. Government obligations or other liquid securities in an amount at least
equal to these commitments.

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<PAGE>

Reserve Bank. At the time the Fund enters into a repurchase agreement, the value
of the collateral, including accrued interest, will equal or exceed the value of
the repurchase agreement and, in the case of a repurchase agreement exceeding
one day, the seller agrees to maintain sufficient collateral so that the value
of the underlying collateral, including accrued interest, will at all times
equal or exceed the value of the repurchase agreement. The Fund will not enter
into a repurchase agreement not terminable within seven days if, as a result
thereof, more than 15% of the value of the net assets of the Fund would be
invested in such securities and other illiquid securities.

LENDING PORTFOLIO SECURITIES. The Fund may, from time to time, lend
securities on a short-term basis (i.e., for up to seven days) to banks, brokers
and dealers and receive as collateral cash, U.S. Government obligations or
irrevocable bank letters of credit (or any combination thereof), which
collateral will be required to be maintained at all times in an amount equal to
at least 100% of the current value of the loaned securities plus accrued
interest. It is the present intention of the Trust, which may be changed without
shareholder approval, that loans of portfolio securities will not be made with
respect to the Fund if as a result the aggregate of all outstanding loans
exceeds one-third of the value of the Fund's total assets. Securities lending
will afford the Fund the opportunity to earn additional income because the Fund
will continue to be entitled to the interest payable on the loaned securities
and also will either receive as income all or a portion of the interest on the
investment of any cash loan collateral or, in the case of collateral other than
cash, a fee negotiated with the borrower. Such loans will be terminable at any
time. Loans of securities involve risks of delay in receiving additional
collateral or in recovering the securities lent or even loss of rights in the
collateral in the event of the insolvency of the borrower of the securities. The
Fund will have the right to regain record ownership of loaned securities in
order to exercise beneficial rights. The Fund may pay reasonable fees in
connection with arranging such loans.

BORROWING AND PLEDGING. The Fund may borrow money from banks provided
that, immediately after any such borrowings, there is asset coverage of 300% for
all borrowings of the Fund. The Fund will not make any borrowing which would
cause its outstanding borrowings to exceed one-third of its total assets. The
Fund may pledge assets in connection with borrowings but will not pledge more
than one-third of its total assets. Borrowing magnifies the potential for gain
or loss on the portfolio securities of the Fund and, therefore, if employed,
increases the possibility of fluctuation in the Fund's net asset value. This is
the speculative factor known as leverage. The Fund's policies on

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<PAGE>

borrowing and pledging are fundamental policies which may not be changed without
the affirmative vote of a majority of its outstanding shares. It is the Fund's
present intention, which may be changed by the Board of Trustees without
shareholder approval, to limit its borrowings to 5% of its total assets only for
emergency or extraordinary purposes and not for leverage.

PORTFOLIO TURNOVER. The Fund does not intend to use short-term trading as
a primary means of achieving its investment objective. However, the Fund's rate
of portfolio turnover will depend upon market and other conditions, and it will
not be a limiting factor when portfolio changes are deemed necessary or
appropriate by the Adviser. Although the annual portfolio turnover rate of the
Fund cannot be accurately predicted, it is not expected to exceed 100%, but may
be either higher or lower. A 100% turnover rate would occur, for example, if all
the securities of the Fund were replaced once in a one-year period. High
turnover involves correspondingly greater commission expenses and transaction
costs and increases the possibility that the Fund will not qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code.
High turnover may result in the Fund recognizing greater amounts of income and
capital gains, which would increase the amount of income and capital gains which
the Fund must distribute to shareholders in order to maintain its status as a
regulated investment company and to avoid the imposition of federal income or
excise taxes (see "Taxes").

HOW TO PURCHASE SHARES

Your initial investment in the Fund ordinarily must be at least $2,000
($1,000 for tax-deferred retirement plans). The Fund may, in the Adviser's sole
discretion, accept certain accounts with less than the stated minimum initial
investment. Shares of the Fund are sold on a continuous basis at the net asset
value next determined after receipt of a purchase order by the Trust. Purchase
orders received by dealers prior to 4:00 p.m., Eastern time, on any business day
and transmitted to the Trust's transfer agent, Countrywide Fund Services, Inc.
(the "Transfer Agent"), by 5:00 p.m., Eastern time, that day are confirmed at
the net asset value determined as of the close of the regular session of trading
on the New York Stock Exchange on that day. It is the responsibility of dealers
to transmit properly completed orders so that they will be received by the
Transfer Agent by 5:00 p.m., Eastern time. Dealers may charge a fee for
effecting purchase orders. Direct purchase orders received by the Transfer Agent
by 4:00 p.m., Eastern time, are confirmed at that day's net asset value. Direct
investments received by the Transfer Agent after 4:00 p.m., Eastern time, and
orders received from dealers after 5:00 p.m., Eastern time, are confirmed at the
net asset value next determined on the following business day.

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<PAGE>

You may open an account and make an initial investment in the Fund by
sending a check and a completed account application form to Countrywide Fund
Services, Inc., P.O. Box 5354, Cincinnati, Ohio 45201-5354. Checks should be
made payable to the "GW&K Government Securities Fund". An account application is
included in this Prospectus.

The Trust mails you confirmations of all purchases or redemptions of Fund
shares. Certificates representing shares are not issued. The Trust reserves the
rights to limit the amount of investments and to refuse to sell to any person.

Investors should be aware that the Fund's account application contains
provisions in favor of the Trust, The Transfer Agent and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from unauthorized shareholder transactions) relating to
the various services (for example, telephone exchanges) made available to
investors.

Your investment will be made at the net asset value next determined after
your wire is received together with the account information indicated above. If
the Trust does not receive timely and complete account information, there may be
a delay in the investment of your money and any accrual of dividends. To make
your initial wire purchase, you are required to mail a completed account
application to the Transfer Agent. Your bank may impose a charge for sending
your wire. There is presently no fee for receipt of wired funds, but the Trust
reserves the right to charge shareholders for this service upon thirty days
prior notice to shareholders.

You may purchase and add shares to your account by mail or by bank wire.
Checks should be sent to Countrywide Fund Services, Inc., P.O. Box 5354,
Cincinnati, Ohio 45201-5354. Checks should be made payable to the "GW&K
Government Securities Fund". Bank wires should be sent as outlined above. You
may also make additional investments at the Trust's offices at 222 Berkeley
Street, Boston, Massachusetts 02116. Each additional purchase request must
contain the name of your account and your account

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<PAGE>

number to permit proper crediting to your account. While there is no minimum
amount required for subsequent investments, the Trust reserves the right to
impose such a requirement.

SHAREHOLDER SERVICES

Contact the Transfer Agent (Nationwide call toll-free 888-GWK-FUND
(888-495-3863)) for additional information about the shareholder services
described below.

AUTOMATIC WITHDRAWAL PLAN

TAX-DEFERRED RETIREMENT PLANS

Shares of the Fund are available for purchase in connection with the
following tax-deferred retirement plans:

DIRECT DEPOSIT PLANS

Shares of the Fund may be purchased through direct deposit plans offered
by certain employers and government agencies. These plans enable a shareholder
to have all or a portion of his or her payroll or social security checks
transferred automatically to purchase shares of the Fund.

AUTOMATIC INVESTMENT PLAN

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<PAGE>

notice, to make reasonable charges for this service. Your depository institution
may impose its own charge for debiting your account which would reduce your
return from an investment in the Fund.

HOW TO REDEEM SHARES

You may redeem shares of the Fund on each day that the Trust is open for
business by sending a written request to the Fund. The request must state the
number of shares or the dollar amount to be redeemed and your account number.
The request must be signed exactly as your name appears on the Trust's account
records. If the shares to be redeemed have a value of $25,000 or more, your
signature must be guaranteed by any eligible guarantor institution, including
banks, brokers and dealers, municipal securities brokers and dealers, government
securities brokers and dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations.

Redemption requests may direct that the proceeds be wired directly to
your existing account in any commercial bank or brokerage firm in the United
States. If your instructions request a redemption by wire, you will be charged
an $8 processing fee. The Trust reserves the right, upon thirty days written
notice, to change the processing fee. All charges will be deducted from your
account by redemption of shares in your account. Your bank or brokerage firm may
also impose a charge for processing the wire. In the event that wire transfer of
funds is impossible or impractical, the redemption proceeds will be sent by mail
to the designated account.

You may also redeem shares by placing a wire redemption request through a
securities broker or dealer. Unaffiliated broker-dealers may impose a fee on the
shareholder for this service. You will receive the net asset value per share
next determined after receipt by the Trust or its agent of your wire redemption
request. It is the responsibility of broker-dealers to properly transmit wire
redemption orders.

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<PAGE>

EXCHANGE PRIVILEGE

Shares of the Fund may be exchanged for shares of the other series of the
Trust, the GW&K Equity Fund, at net asset value. Shares of the Fund may also be
exchanged at net asset value for shares of the Short Term Government Income Fund
(a series of Countrywide Trust), which invests in short-term U.S. Government
obligations backed by the "full faith and credit" of the United States and seeks
high current income, consistent with protection of capital. Shares of the Short
Term Government Income Fund acquired via exchange may be re-exchanged for shares
of the Fund at net asset value.

You may request an exchange by sending a written request to the Transfer
Agent. The request must be signed exactly as your name appears on the Trust's
account records. Exchanges may also be requested by telephone. If you are unable
to execute your transaction by telephone (for example, during times of unusual
market activity), consider requesting your exchange by mail or by visiting the
Trust's offices at 222 Berkeley Street, Boston, Massachusetts 02116. An exchange
will be effected at the next determined net asset value after receipt of a
request by the Transfer Agent.

DIVIDENDS AND DISTRIBUTIONS

All of the net investment income of the Fund is expected to be declared
as a dividend to shareholders of record on each business day of the Trust and
paid monthly. The Fund expects to distribute any net realized long-term capital
gains at least once each year. Management will determine the timing and
frequency of the distributions of any net realized short-term capital gains.

Distributions are paid according to one of the following options:

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<PAGE>

Share Option - income distributions and capital gains
distributions reinvested in additional shares.

Income Option - income distributions and short-term capital
gains distributions paid in cash; long-term capital
gains distributions reinvested in additional shares.

Cash Option - income distributions and capital gains
distributions paid in cash.

TAXES

The Fund has qualified and intends to continue to qualify for the
special tax treatment afforded a "regulated investment company" under Subchapter
M of the Internal Revenue Code so that it does not pay federal taxes on income
and capital gains distributed to shareholders. The Fund intends to distribute
substantially all of its net investment income and any realized capital gains to
its shareholders. Distributions of net investment income and net realized
short-term capital gains, if any, are taxable to investors as ordinary income.
Since the investment income of the Fund is derived from interest rather than
dividends, no portion of such distributions is eligible for the dividends
received deduction available to corporations.

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<PAGE>

The Fund will mail to each of its shareholders a statement indicating the
amount and federal income tax status of all distributions made during the year.
In addition to federal taxes, shareholders of the Fund may be subject to state
and local taxes on distributions. Shareholders should consult their tax advisors
about the tax effect of distributions and withdrawals from the Fund and the use
of the Automatic Withdrawal Plan and the Exchange Privilege. The tax
consequences described in this section apply whether distributions are taken in
cash or reinvested in additional shares. See "Taxes" in the Statement of
Additional Information for further information.

OPERATION OF THE FUND

The Fund is a diversified series of The Gannett Welsh & Kotler Funds (the
"Trust"), an open-end management investment company organized as a Massachusetts
business trust on April 30, 1996. The Board of Trustees supervises the business
activities of the Trust. Like other mutual funds, the Trust retains various
organizations to perform specialized services for the Fund.

The Trust retains Gannett Welsh & Kotler, Inc. (the "Adviser"), 222
Berkeley Street, Boston, Massachusetts 02116, to manage the Fund's investments.
The Adviser is an independent investment counsel firm that has advised
individual and institutional clients since 1974. The controlling shareholders of
the Adviser are Harold G. Kotler and Benjamin H. Gannett. The Fund pays the
Adviser a fee at the annual rate of .75% of the average value of its daily net
assets.

Jeanne M. Skettino, a Principal and Senior Vice President of the Adviser,
is primarily responsible for managing the portfolio of the Fund. Ms. Skettino
has been employed by the Adviser since 1992.

In addition to the advisory fee, the Fund is responsible for the payment
of all operating expenses, including fees and expenses in connection with
membership in investment company organizations, brokerage fees and commissions,
legal, auditing and accounting expenses, expenses of registering shares under
federal and state securities laws, expenses related to the distribution of the
Fund's shares (see "Distribution Plan"), insurance expenses, taxes or
governmental fees, fees and expenses of the custodian, transfer agent,
administrator, and accounting and pricing agent of the Fund, 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 litigation to which the Fund may be a party and indemnification of the
Trust's officers and Trustees with respect thereto.

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<PAGE>

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to its objective of seeking best execution
of portfolio transactions, the Adviser may consider sales of shares of the Fund
as a factor in the selection of brokers and dealers to execute portfolio
transactions of the Fund.

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<PAGE>

DISTRIBUTION PLAN

Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
has adopted a plan of distribution (the "Plan") under which the Fund may
directly incur or reimburse the Adviser for certain distribution-related
expenses, including payments to securities dealers and others who are engaged in
the sale of shares of the Fund and who may be advising investors regarding the
purchase, sale or retention of such shares; expenses of maintaining personnel
who engage in or support distribution of shares or who render shareholder
support services not otherwise provided by the Transfer Agent; expenses of
formulating and implementing marketing and promotional activities, including
direct mail promotions and mass media advertising; expenses of preparing,
printing and distributing sales literature and prospectuses and statements of
additional information and reports for recipients other than existing
shareholders of the Fund; expenses of obtaining such information, analyses and
reports with respect to marketing and promotional activities as the Trust may,
from time to time, deem advisable; and any other expenses related to the
distribution of the Fund's shares.

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CALCULATION OF SHARE PRICE

U.S. Government obligations are valued at their most recent bid prices as
obtained from one or more of the major market makers for such securities. Other
portfolio securities are valued as follows: (i) securities which are traded on
stock exchanges or are quoted by NASDAQ are valued at the last reported sale
price as of the close of the regular session of trading on the New York Stock
Exchange on the day the securities are being valued, or, if not traded on a
particular day, at the closing bid price, (ii) securities traded in the
over-the-counter market, and which are not quoted by NASDAQ, are valued at the
last sale price (or, if the last sale price is not readily available, at the
last bid price as quoted by brokers that make markets in the securities) as of
the close of the regular session of trading on the New York Stock Exchange on
the day the securities are being valued, (iii) securities which are traded both
in the over-the-counter market and on a stock exchange are valued according to
the broadest and most representative market, and (iv) securities (and other
assets) 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. The net asset value per share of each Fund will fluctuate with the
value of the securities it holds.

PERFORMANCE INFORMATION

From time to time, the Fund may advertise its "average annual total
return." The Fund may also advertise "yield." Both yield and average annual
total return figures are based on historical earnings and are not intended to
indicate future performance.

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The "yield" of the Fund is computed by dividing the net investment income
per share earned during a thirty-day (or one month) period stated in the
advertisement by the net asset value per share on the last day of the period
(using the average number of shares entitled to receive dividends). The yield
formula assumes that net investment income is earned and reinvested at a
constant rate and annualized at the end of a six-month period.

From time to time the Fund may advertise its performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc.("Lipper"), or by publications of general
interest such as FORBES, MONEY, THE WALL STREET JOURNAL, BUSINESS WEEK,
BARRON'S, FORTUNE or MORNINGSTAR MUTUAL FUND VALUES. The Fund may also compare
its performance to that of other selected mutual funds, averages of the other
mutual funds within its category as determined by Lipper, or recognized
indicators. In connection with a ranking, the Fund may provide additional
information, such as the particular category of funds to which the ranking
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of fee waivers and/or expense reimbursements,
if any. The Fund may also present its performance and other investment
characteristics, such as volatility or a temporary defensive posture, in light
of the Adviser's view of current or past market conditions or historical trends.

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<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)

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[Logo] The
Gannett
Welsh &
Kotler
Funds

GW&K Government Securities Fund

Prospectus

No-Load Fund

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THE GANNETT WELSH & KOTLER FUNDS

STATEMENT OF ADDITIONAL INFORMATION

February 1, 1998

GW&K Equity Fund
GW&K Government Securities Fund

This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of the applicable Fund of The Gannett
Welsh & Kotler Funds dated February 1, 1998. A copy of a Fund's Prospectus can
be obtained by writing the Trust at 222 Berkeley Street, Boston, Massachusetts
02116, or by calling the Trust nationwide toll-free 888-GWK-FUND (888-495-3863).

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STATEMENT OF ADDITIONAL INFORMATION

The Gannett Welsh & Kotler Funds
222 Berkeley Street
Boston, Massachusetts 02116

TABLE OF CONTENTS
PAGE

THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . 3

DEFINITIONS, POLICIES AND RISK CONSIDERATIONS. . . . . . . . 4

QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS. . . 13

INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . 16

TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . 19

THE INVESTMENT ADVISER . . . . . . . . . . . . . . . . . . . 20

DISTRIBUTION PLAN. . . . . . . . . . . . . . . . . . . . . . 21

SECURITIES TRANSACTIONS. . . . . . . . . . . . . . . . . . . 23

PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . 24

CALCULATION OF SHARE PRICE . . . . . . . . . . . . . . . . . 25

TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

REDEMPTION IN KIND . . . . . . . . . . . . . . . . . . . . . 26

HISTORICAL PERFORMANCE INFORMATION . . . . . . . . . . . . . 26

PRINCIPAL SECURITY HOLDERS . . . . . . . . . . . . . . . . . 29

CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . 29

AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . 30

COUNTRYWIDE FUND SERVICES, INC.. . . . . . . . . . . . . . . 30

ANNUAL REPORT. . . . . . . . . . . . . . . . . . . . . . . . 31

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THE TRUST

The Gannett Welsh & Kotler Funds (the "Trust") was organized as a
Massachusetts business trust on April 30, 1996. The Trust currently offers two
series of shares to investors: the GW&K Equity Fund and the GW&K Government
Securities Fund (referred to individually as a "Fund" and collectively as the
"Funds"). Each Fund has its own investment objective and policies.

Each share of a Fund represents an equal proportionate interest in the
assets and liabilities belonging to that Fund with each other share of that Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interest in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of a
Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
Fund. Any general expenses of the Trust not readily identifiable as belonging to
a particular Fund are allocated by or under the direction of the Trustees in
such manner as the Trustees determine to be fair and equitable. Generally, the
Trustees allocate such expenses on the basis of relative net assets or number of
shareholders. No shareholder is liable to further calls or to assessment by the
Trust without his express consent.

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 Investment Company
Act of 1940 have been formed as Massachusetts business trusts and the Trust is
not aware of any instance where such result has occurred. In addition, the
Agreement and Declaration of Trust 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 Agreement and Declaration of Trust 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

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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.

On December 10, 1996, prior to the offering of its shares to the
public, the GW&K Equity Fund exchanged its shares for portfolio securities of
GW&K Equity Fund, L.P., a Delaware limited partnership (the "Partnership"),
after which the Partnership dissolved and distributed the Fund shares received
pro rata to its partners, along with cash received from the sale of portfolio
securities.

DEFINITIONS, POLICIES AND RISK CONSIDERATIONS

A more detailed discussion of some of the terms used and investment
policies described in the Prospectuses (see "Investment Objectives, Investment
Policies and Risk Considerations") appears below:

MAJORITY. As used in the Prospectuses and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Trust (or of
either Fund) means the lesser of (1) 67% or more of the outstanding shares of
the Trust (or the applicable Fund) present at a meeting, if the holders of more
than 50% of the outstanding shares of the Trust (or the applicable Fund) are
present or represented at such meeting or (2) more than 50% of the outstanding
shares of the Trust (or the applicable Fund).

COMMERCIAL PAPER. Commercial paper consists of short-term (usually
maturing in from one to two hundred seventy days) unsecured promissory notes
issued by corporations in order to finance their current operations. Each Fund
will only invest in commercial paper rated in one of the three highest
categories by either Moody's Investors Service, Inc. (Prime-1, Prime-2 or
Prime-3) or Standard & Poor's Ratings Group (A-1, A-2 or A-3), or which, in the
opinion of the Adviser, is of equivalent investment quality. Certain notes may
have floating or variable rates. Variable and floating rate notes with a demand
notice period exceeding seven days will be subject to each Fund's restriction on
illiquid investments (see "Investment Limitations") unless, in the judgment of
the Adviser, such note is liquid.

The rating of Prime-1 is the highest commercial paper rating assigned
by Moody's Investors Service, Inc. Among the factors considered by Moody's in
assigning ratings are the following: valuation of the management of the issuer;
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas;

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evaluation of the issuer's products in relation to competition and customer
acceptance; liquidity; amount and quality of long-term debt; trend of earnings
over a period of 10 years; financial strength of the parent company and the
relationships which exist with the issuer; and, recognition by the management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. These factors are all
considered in determining whether the commercial paper is rated Prime-1, Prime-2
or Prime-3. Commercial paper rated A-1 (highest quality) by Standard & Poor's
Ratings Group has the following characteristics: liquidity ratios are adequate
to meet cash requirements; long-term senior debt is rated "A" or better,
although in some cases "BBB" credits may be allowed; the issuer has access to at
least two additional channels of borrowing; basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances; typically, the
issuer's industry is well established and the issuer has a strong position
within the industry; and, the reliability and quality of management are
unquestioned. The relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated A-1, A-2, or A-3.

BANK DEBT INSTRUMENTS. Bank debt instruments in which the Funds may
invest consist of certificates of deposit, bankers' acceptances and time
deposits issued by national banks and state banks, trust companies and mutual
savings banks, or banks or institutions the accounts of which are insured by the
Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation. Certificates of deposit are negotiable certificates evidencing the
indebtedness of a commercial bank to repay funds deposited with it for a
definite period of time (usually from fourteen days to one year) at a stated or
variable interest rate. Bankers' acceptances are credit instruments evidencing
the obligation of a bank to pay a draft which has been drawn on it by a
customer, which instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. Each Fund will not invest in time
deposits maturing in more than seven days if, as a result thereof, more than 15%
of the value of its net assets would be invested in such securities and other
illiquid securities.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The average life of
mortgage-backed securities varies with the maturities of the underlying mortgage
instruments (generally up to 30 years) and with the extent of prepayments of the
mortgages themselves. Any such prepayments are passed through to the certificate
holder, reducing the stream of future payments. Prepayments tend

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to rise in periods of falling interest rates, decreasing the average life of the
certificate and generating cash which must be invested in a lower interest rate
environment. This could limit the appreciation potential of the certificates
when compared to similar debt obligations which may not be paid down at will.
The coupon rates of mortgage-backed securities are lower than the interest rate
on the underlying mortgages by the amount of fees paid to the issuing agencies,
usually approximately 1/2 of 1%. When prevailing interest rates increase, the
value of the mortgage-backed securities may decrease, as do other non-redeemable
debt securities. However, when interest rates decline, the value of
mortgage-backed securities may not rise on a comparable basis with other
non-redeemable debt securities.

Mortgage-backed securities include certificates issued by the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation and
the Government National Mortgage Association. The Federal National Mortgage
Association ("FNMA") is a government sponsored corporation owned entirely by
private stockholders. The guarantee of payments under these instruments is that
of FNMA only. They are not backed by the full faith and credit of the U.S.
Treasury but the U.S. Treasury may extend credit to FNMA through discretionary
purchases of its securities. The average life of the mortgages backing newly
issued FNMA Certificates is approximately 10 years. The Federal Home Loan
Mortgage Corporation ("FHLMC") is a corporate instrumentality of the U.S.
Government whose stock is owned by the Federal Home Loan Banks. Certificates
issued by FHLMC represent interests in mortgages from its portfolio. FHLMC
guarantees payments under its certificates but this guarantee is not backed by
the full faith and credit of the United States and FHLMC does not have authority
to borrow from the U.S. Treasury. The average life of the mortgages backing
newly issued FHLMC Certificates is approximately 10 years. The Government
National Mortgage Association ("GNMA") Certificates represent pools of mortgages
insured by the Federal Housing Administration or the Farmers Home Administration
or guaranteed by the Veterans Administration. The guarantee of payments under
GNMA Certificates is backed by the full faith and credit of the United States.
The average life of the mortgages backing newly issued GNMA Certificates is
approximately 12 years.

The GW&K Government Securities Fund may also purchase mortgage-backed
securities issued by financial institutions, mortgage banks, and securities
broker-dealers (or affiliates of such institutions established to issue these
securities) in the form of collateralized mortgage obligations ("CMOs"). CMOs
are obligations fully collateralized directly or indirectly by a pool of
mortgages on which payments of principal and interest are passed through to the
holders of the CMOs, although not necessarily on a pro rata basis, on the same
schedule as they are

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received. The most common structure of a CMO contains four classes of
securities; the first three pay interest at their stated rates beginning with
the issue date, the final one is typically an accrual class (or Z bond). The
cash flows from the underlying mortgage collateral are applied first to pay
interest and then to retire securities. The classes of securities are retired
sequentially. All principal payments are directed first to the shortest-maturity
class (or A bonds). When those securities are completely retired, all principal
payments are then directed to the next-shortest-maturity security (or B bond).
This process continues until all of the classes have been paid off. Because the
cash flow is distributed sequentially instead of pro rata as with pass-through
securities, the cash flows and average lives of CMOs are more predictable, and
there is a period of time during which the investors in the longer-maturity
classes receive no principal paydowns.

Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage banks, and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. In
addition, such issuers may be the originators and/or servicers of the underlying
mortgage loans as well as the guarantors of the mortgage-backed securities.
Pools created by non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because of the absence of
direct or indirect government or agency guarantees. Timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance, and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers, and the mortgage poolers. Such insurance,
guarantees, and the creditworthiness of the issuers thereof will be considered
in determining whether a mortgage-backed security meets the GW&K Government
Securities Fund's investment quality standards. There can be no assurance that
the private insurers or guarantors can meet their obligations under the
insurance policies or guarantee arrangements. The Fund may buy mortgage-backed
securities without insurance or guarantees, if the Adviser determines that the
securities meet the Fund's quality standards. The Fund will not purchase
mortgage-backed securities or any other assets which, in the opinion of the
Adviser, are illiquid if, as a result, more than 15% of the value of the Fund's
net assets will be illiquid. The Adviser will, consistent with the Fund's
investment objective, policies, and quality standards, consider making
investments in new types of mortgage-backed securities as such securities are
developed and offered to investors.

The GW&K Government Securities Fund may also purchase other
asset-backed securities (unrelated to mortgage loans) such as Certificates for
Automobile ReceivablesSM ("CARS"SM) and Credit Card Receivable Securities. CARS
represent undivided fractional interests in a trust whose assets consist of a
pool of motor vehicle retail installment sales contracts and security interests

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in the vehicles securing the contracts. Payments of principal and interest on
CARS are "passed-through" monthly to certificate holders, and are guaranteed up
to certain amounts by a letter of credit issued by a financial institution
unaffiliated with the trustee or originator of the trust. Underlying sales
contracts are subject to prepayment, which may reduce the overall return to
certificate holders. Certificate holders may also experience delays in payment
or losses on CARS if the full amounts due on underlying sales contracts are not
realized by the trust because of unanticipated legal or administrative costs of
enforcing the contracts, or because of depreciation, damage, or loss of the
vehicles securing the contracts, or other factors. Credit Card Receivable
Securities are backed by receivables from revolving credit card agreements.
Credit balances on revolving credit card agreements ("Accounts") are generally
paid down more rapidly than are automobile contracts. Most of the Credit Card
Receivable Securities issued publicly to date have been pass-through
certificates. In order to lengthen the maturity of Credit Card Receivable
Securities, most such securities provide for a fixed period during which only
interest payments on the underlying Accounts are passed through to the security
holder and principal payments received on such Accounts are used to fund the
transfer to the pool of assets supporting the securities of additional credit
card charges made on an Account. The initial fixed period usually may be
shortened upon the occurrence of specified events which signal a potential
deterioration in the quality of the assets backing the security, such as the
imposition of a cap on interest rates. The ability of the issuer to extend the
life of an issue of Credit Card Receivable Securities thus depends upon the
continued generation of additional principal amounts in the underlying Accounts
and the non-occurrence of specified events. The Internal Revenue Code of 1986,
which phased out the deduction for consumer interest, as well as competitive and
general economic factors, could adversely affect the rate at which new
receivables are created in an Account and conveyed to an issuer, shortening the
expected weighted average life of the related security, and reducing its yield.
An acceleration in cardholders' payment rates or any other event which shortens
the period during which additional credit card charges on an Account may be
transferred to the pool of assets supporting the related security could have a
similar effect on the weighted average life and yield. Credit card holders are
entitled to the protection of state and federal consumer credit laws, many of
which give such holder the right to set off certain amounts against balances
owed on the credit card, thereby reducing amounts paid on Accounts. In addition,
unlike most other asset-backed securities, Accounts are unsecured obligations of
the cardholder.

STRIPS. STRIPS are U.S. Treasury bills, notes, and bonds that have been
issued without interest coupons or stripped of their unmatured interest coupons,
interest coupons that have been stripped from such U.S. Treasury securities, and
receipts or certificates representing interests in such stripped U.S. Treasury
securities and coupons. A STRIPS security pays no

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interest in cash to its holder during its life although interest is accrued for
federal income tax purposes. Its value to an investor consists of the difference
between its face value at the time of maturity and the price for which it was
acquired, which is generally an amount significantly less than its face value.
Investing in STRIPS may help to preserve capital during periods of declining
interest rates. For example, if interest rates decline, GNMA Certificates owned
by a Fund which were purchased at greater than par are more likely to be
prepaid, which would cause a loss of principal. In anticipation of this, a Fund
might purchase STRIPS, the value of which would be expected to increase when
interest rates decline.

STRIPS do not entitle the holder to any periodic payments of interest
prior to maturity. Accordingly, such securities usually trade at a deep discount
from their face or par value and will be subject to greater fluctuations of
market value in response to changing interest rates than debt obligations of
comparable maturities which make periodic distributions of interest. On the
other hand, because there are no periodic interest payments to be reinvested
prior to maturity, STRIPS eliminate the reinvestment risk and lock in a rate of
return to maturity. Current federal tax law requires that a holder of a STRIPS
security accrue a portion of the discount at which the security was purchased as
income each year even though the Fund received no interest payment in cash on
the security during the year.

WHEN-ISSUED SECURITIES AND SECURITIES PURCHASED ON A TO-BE-ANNOUNCED
BASIS. The GW&K Government Securities Fund may purchase debt obligations on a
"when-issued" or "to-be-announced" basis. The Fund will only make commitments to
purchase securities on a when-issued or to-be-announced ("TBA") basis with the
intention of actually acquiring the securities. In addition, the Fund may
purchase securities on a when-issued or TBA basis only if delivery and payment
for the securities takes place within 120 days after the date of the
transaction. In connection with these investments, the Fund will direct the
Custodian to place cash, U.S. Government obligations or other liquid securities
in a segregated account in an amount sufficient to make payment for the
securities to be purchased. When a segregated account is maintained because the
Fund purchases securities on a when-issued or TBA basis, the assets deposited in
the segregated account will be valued daily at market for the purpose of
determining the adequacy of the securities in the account. If the market value
of such securities declines, additional cash or securities will be placed in the
account on a daily basis so that the market value of the account will equal the
amount of the Fund's commitments to purchase securities on a when-issued or TBA
basis. To the extent funds are in a segregated account, they will not be
available for new investment or to meet redemptions. Securities purchased on a
when-issued or

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TBA basis and the securities held in the Fund's portfolio are subject to changes
in market value based upon changes in the level of interest rates (which will
generally result in all of those securities changing in value in the same way,
I.E., all those securities experiencing appreciation when interest rates decline
and depreciation when interest rates rise). Therefore, if in order to achieve
higher returns, the Fund remains substantially fully invested at the same time
that it has purchased securities on a when-issued or TBA basis, there will be a
possibility that the market value of the Fund's assets will experience greater
fluctuation. The purchase of securities on a when-issued or TBA basis may
involve a risk of loss if the broker-dealer selling the securities fails to
deliver after the value of the securities has risen.

When the time comes for the Fund to make payment for securities
purchased on a when-issued or TBA basis, the Fund will do so by using then
available cash flow, by sale of the securities held in the segregated account,
by sale of other securities or, although it would not normally expect to do so,
by directing the sale of the securities purchased on a when-issued or TBA basis
themselves (which may have a market value greater or less than the Fund's
payment obligation). Although the Fund will only make commitments to purchase
securities on a when-issued or TBA basis with the intention of actually
acquiring the securities, the Fund may sell these securities before the
settlement date if it is deemed advisable by the Adviser as a matter of
investment strategy.

REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which
a Fund purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
by the seller of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying security and losses. To minimize these possibilities,
each Fund intends to enter into repurchase agreements only with its Custodian,
with banks having assets in excess of $10 billion and with broker-dealers who
are recognized as primary dealers in U.S. Government obligations by the Federal
Reserve Bank of New York. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' Custodian at the Federal
Reserve Bank. A Fund will not enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 15% of the value of its net
assets would be invested in such securities and other illiquid securities.

Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's acquisition of the securities and normally would
be within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate

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effective for the period of time the Fund's money will be invested in the
securities, and will not be related to the coupon rate of the purchased
security. At the time a Fund enters into a repurchase agreement, the value of
the underlying security, including accrued interest, will equal or exceed the
value of the repurchase agreement, and, in the case of a repurchase agreement
exceeding one day, the seller will agree that the value of the underlying
security, including accrued interest, will at all times equal or exceed the
value of the repurchase agreement. The collateral securing the seller's
obligation must be of a credit quality at least equal to a Fund's investment
criteria for portfolio securities and will be held by the Custodian or in the
Federal Reserve Book Entry System.

For purposes of the Investment Company Act of 1940, a repurchase
agreement is deemed to be a loan from a Fund to the seller subject to the
repurchase agreement and is therefore subject to that Fund's investment
restriction applicable to loans. It is not clear whether a court would consider
the securities purchased by a Fund subject to a repurchase agreement as being
owned by that Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the securities before repurchase of the security under
a repurchase agreement, a Fund may encounter delay and incur costs before being
able to sell the security. Delays may involve loss of interest or decline in
price of the security. If a court characterized the transaction as a loan and a
Fund has not perfected a security interest in the security, that Fund may be
required to return the security to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, a Fund would be at
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt obligation purchased for a Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case, the seller. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to repurchase the security, in which case a Fund may
incur a loss if the proceeds to that Fund of the sale of the security to a third
party are less than the repurchase price. However, if the market value of the
securities subject to the repurchase agreement becomes less than the repurchase
price (including interest), the Fund involved will direct the seller of the
security to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that a Fund will be unsuccessful in seeking to
enforce the seller's contractual obligation to deliver additional securities.

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LOANS OF PORTFOLIO SECURITIES. Each Fund may lend its portfolio
securities subject to the restrictions stated in its Prospectus. Under
applicable regulatory requirements (which are subject to change), the loan
collateral must, on each business day, at least equal the value of the loaned
securities. To be acceptable as collateral, letters of credit must obligate a
bank to pay amounts demanded by a Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund. The
Funds receive amounts equal to the dividends or interest on loaned securities
and also receive one or more of (a) negotiated loan fees, (b) interest on
securities used as collateral, or (c) interest on short-term debt securities
purchased with such collateral; either type of interest may be shared with the
borrower. The Funds may also pay fees to placing brokers as well as custodian
and administrative fees in connection with loans. Fees may only be paid to a
placing broker provided that the Trustees determine that the fee paid to the
placing broker is reasonable and based solely upon services rendered, that the
Trustees separately consider the propriety of any fee shared by the placing
broker with the borrower, and that the fees are not used to compensate the
Adviser or any affiliated person of the Trust or an affiliated person of the
Adviser or other affiliated person. The terms of the Funds' loans must meet
applicable tests under the Internal Revenue Code and permit the Funds to
reacquire loaned securities on five days' notice or in time to vote on any
important matter.

FOREIGN SECURITIES. Subject to each Fund's investment policies and
quality and maturity standards, the Funds may invest in the securities (payable
in U.S. dollars) of foreign issuers and in the securities of foreign branches of
U.S. banks such as negotiable certificates of deposit (Eurodollars). Because the
Funds may invest in foreign securities, investment in the Funds involves risks
that are different in some respects from an investment in a fund which invests
only in securities of U.S. domestic issuers. Foreign investments may be affected
favorably or unfavorably by changes in currency rates and exchange control
regulations. There may be less publicly available information about a foreign
company than about a U.S. company and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. There may be less governmental
supervision of securities markets, brokers and issuers of securities. Securities
of some foreign companies are less liquid or more volatile than securities of
U.S. companies and foreign brokerage commissions and custodian fees are
generally higher than in the United States. Settlement practices may include
delays and may differ from those customary in United States markets. Investments
in foreign securities may also be subject to other risks different from those
affecting U.S. investments, including local political or economic developments,

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expropriation or nationalization of assets, restrictions on foreign investment
and repatriation of capital, imposition of withholding taxes on dividend or
interest payments, currency blockage (which would prevent cash from being
brought back to the United States), and difficulty in enforcing legal rights
outside the United States.

WARRANTS AND RIGHTS. Warrants are options to purchase equity securities
at a specified price and are valid for a specific time period. Rights are
similar to warrants, but normally have a short duration and are distributed by
the issuer to its shareholders. The GW&K Equity Fund may purchase warrants and
rights, provided that the Fund does not presently intend to invest more than 5%
of its net assets at the time of purchase in warrants and rights other than
those that have been acquired in units or attached to other securities. Of such
5%, no more than 2% of the Fund's assets at the time of purchase may be invested
in warrants which are not listed on either the New York Stock Exchange or the
American Stock Exchange.

QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS

The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for corporate bonds in which the Funds may invest are as follows:

MOODY'S INVESTORS SERVICE, INC.

Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.

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<PAGE>

Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

Caa - Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.

Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

STANDARD & POOR'S RATINGS GROUP

AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.

AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.

A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.

BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.

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<PAGE>

BB, B, CCC and CC - Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

C - The rating C is reserved for income bonds on which no interest is
being paid.

D - Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.

The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group for preferred stocks in which the Funds may invest are as follows:

MOODY'S INVESTORS SERVICE, INC.

aaa - An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.

aa - An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.

a - An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.

baa - An issue which is rated baa is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.

ba - An issue which is rated ba is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.

b - An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.

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<PAGE>

caa - An issue which is rated caa is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate the
future status of payments.

STANDARD & POOR'S RATINGS GROUP

AAA - This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.

AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.

A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.

BBB - An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.

BB, B and CCC - Preferred stock rated BB, B and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.

CC - The rating CC is reserved for a preferred stock issue in arrears
on dividends or sinking fund payments but that is currently paying.

C - A preferred stock rated C is a non-paying issue.

D - A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.

INVESTMENT LIMITATIONS

The Trust has adopted certain fundamental investment limitations
designed to reduce the risk of an investment in the Funds. These limitations may
not be changed with respect to either Fund without the affirmative vote of a
majority of the outstanding shares of that Fund.

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<PAGE>

The limitations applicable to each Fund are:

1. BORROWING MONEY. The Fund will not borrow money, except from a bank,
provided that immediately after any such borrowing there is asset coverage of
300% for all borrowings of the Fund.

2. PLEDGING. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings. Deposit of payment
by the Fund of initial or maintenance margin in connection with futures
contracts and related options is not considered a pledge or hypothecation of
assets.

3. MARGIN PURCHASES. The Fund will not purchase any securities on
"margin" (except such short-term credits as are necessary for the clearance of
transactions). The deposit of funds in connection with transactions in options,
futures contracts, and options on such contracts will not be considered a
purchase on "margin."

4. SHORT SALES. The Fund will not make short sales of securities, or
maintain a short position, other than short sales "against the box."

5. COMMODITIES. The Fund will not purchase or sell commodities or
commodity contracts including futures, except that the Fund may purchase or sell
put or call options, financial futures contracts and related options.

6. UNDERWRITING. The Fund will not act as underwriter of securities
issued by other persons. This limitation is not applicable to the extent that,
in connection with the disposition of portfolio securities, a Fund may be deemed
an underwriter under certain federal securities laws.

7. REAL ESTATE. The Fund will not purchase, hold or deal in real estate
or real estate mortgage loans, including real estate limited partnership
interests, except that the Fund may purchase (a) securities of companies (other
than limited partnerships) which deal in real estate, (b) securities which are
secured by interests in real estate or by interests in mortgage loans including
securities secured by mortgage-backed securities or (c) readily marketable
interests in real estate investment trusts.

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<PAGE>

8. LOANS. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, or (b) by engaging in repurchase agreements. For
purposes of this limitation, the term "loans" shall not include the purchase of
bonds, debentures, commercial paper or corporate notes, and similar marketable
evidences of indebtedness.

9. INDUSTRY CONCENTRATION. The Fund will not invest more than 25% of
its total assets in any particular industry.

10. SENIOR SECURITIES. The Fund will not issue or sell any senior
security as defined by the Investment Company Act of 1940 except in so far as
any borrowing that the Fund may engage in may be deemed to be an issuance of a
senior security.

The Trust does not intend to pledge, mortgage or hypothecate the assets
of either Fund. The Trust does not intend to make short sales of securities
"against the box" as described in investment limitation 4. The statements of
intention in this paragraph reflect nonfundamental policies which may be changed
by the Board of Trustees without shareholder approval.

Other current investment policies of the Fund, which are not
fundamental and which may be changed by action of the Board of Trustees without
shareholder approval, are as follows:

1. ILLIQUID INVESTMENTS. The Fund will not purchase securities for
which no readily available market exists or engage in a repurchase agreement
maturing in more than seven days if, as a result thereof, more than 15% of the
value of the net assets of the Fund would be invested in such securities.

2. INVESTING FOR CONTROL. The Fund will not invest in companies for the
purpose of exercising control or management.

3. OTHER INVESTMENT COMPANIES. The Fund will not invest more than 10%
of its total assets in securities of other investment companies. The Fund will
not invest more than 5% of its total assets in the securities of any single
investment company. The Fund will not hold more than 3% of the outstanding
voting stock of any single investment company.

4. MINERAL LEASES. The Fund will not purchase oil, gas or other mineral
leases, rights or royalty contracts.

5. VOTING SECURITIES OF ANY ISSUER. The Fund will not purchase more
than 10% of the outstanding voting securities of any one issuer.

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<PAGE>

With respect to the percentages adopted by the Trust as maximum
limitations on a Fund's investment policies and restrictions, an excess above
the fixed percentage (except for the percentage limitations relative to the
borrowing of money and the holding of illiquid securities) will not be a
violation of the policy or restriction unless the excess results immediately and
directly from the acquisition of any security or the action taken.

TRUSTEES AND OFFICERS

The following is a list of the Trustees and executive officers of the
Trust. Each Trustee who is an "interested person" of the Trust, as defined by
the Investment Company Act of 1940, is indicated by an asterisk.

Compensation
Name Age Position Held From The Trust
- ---- --- ------------- --------------
*Harold G. Kotler 53 President/Trustee $ 0
*Benjamin H. Gannett 55 Treasurer/Trustee 0
Arlene Zoe Aponte-Gonzalez 41 Trustee 4,000
Morton S. Grossman 74 Trustee 3,500
Timothy P. Neher 50 Trustee 4,000
+Josiah A. Spaulding, Jr. 46 Trustee 4,500
+Allan Tofias 67 Trustee 4,000
Irwin M. Heller 51 Secretary 0

* Messrs. Kotler and Gannett, as principals of Gannett Welsh & Kotler,
Inc., the Trust's investment adviser, are "interested persons" of the
Trust within the meaning of Section 2(a)(19) of the Investment Company
Act of 1940.

+ Member of Audit Committee.

The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:

HAROLD G. KOTLER, 222 Berkeley Street, Boston, Massachusetts, is
President and a principal of the Adviser. He was a Principal and the President
of GSD, Inc., the General Partner of the GW&K Equity Fund, L.P. (a limited
partnership investing in equity securities and the predecessor entity to the
GW&K Equity Fund). He is also a director of ICON Consulting (a software
consulting company).

BENJAMIN H. GANNETT, 222 Berkeley Street, Boston, Massachusetts, is
Executive Vice President and Treasurer of the Adviser. He previously was a
Principal of GSD, Inc.

ARLENE ZOE APONTE-GONZALEZ, 100 Technology Center Drive, Stoughton,
Massachusetts is an Associate Director of Reebok International Ltd. (a
sportswear company). She previously was a Director of The Boston Plan for
Excellence.

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<PAGE>

MORTON S. GROSSMAN, P.O. Box 110, Quincy, Massachusetts, is Chairman of
the Board of The Grossman Companies, Inc. (a real estate management company).

TIMOTHY P. NEHER, Pilot House, Lewis Wharf, Boston, Massachusetts, is
Vice-Chairman of Continental Cablevision, Inc. (a telecommunications company)
and a Director of The Golf Channel, Inc. (a golf broadcasting company). He
previously was a Director of Turner Broadcasting, Inc.

JOSIAH A. SPAULDING, JR., 270 Tremont Street, Boston, Massachusetts, is
the President and Chief Executive Officer of The Wang Center for the Performing
Arts (an entertainment company).

ALLAN TOFIAS, 205 Broadway, Cambridge, Massachusetts, is Chairman of
the Board of Tofias Fleishman Shapiro & Co. P.C. (an accounting and business
consulting firm).

IRWIN M. HELLER, 177 Hampshire Road, Wellesley, Massachusetts, is a
Partner of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, PC (a law firm).

Each non-interested Trustee will receive an annual retainer of $2,000
and a $500 fee for each Board meeting attended and will be reimbursed for travel
and other expenses incurred in the performance of his or her duties.

THE INVESTMENT ADVISER

Gannett Welsh & Kotler, Inc. (the "Adviser") is the Trust's investment
manager. Messrs. Kotler and Gannett, as principals of the Adviser, may directly
or indirectly receive benefits from the advisory fees paid to the Adviser. Under
the terms of the investment advisory agreement between the Trust and the
Adviser, the Adviser manages the Funds' investments. The GW&K Equity Fund pays
the Adviser a fee 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 computed and accrued daily and paid monthly at an annual
rate of .75% of its average daily net assets. For the fiscal year ended
September 30, 1997, the GW&K Equity Fund accrued advisory fees of $218,380 and
the GW&K Government Securities Fund accrued advisory fees of $119,224; however,
in order to reduce the operating expenses of each Fund, the Adviser voluntarily
waived $58,128 of its fee with respect to the GW&K Equity Fund and $80,153 of
its fee with respect to the GW&K Government Securities Fund.

The Funds are responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Funds, including such extraordinary or non-recurring expenses as may arise, such
as litigation to which the Trust may be a party. The Funds may have an
obligation

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<PAGE>

to indemnify the Trust's officers and Trustees with respect to such litigation,
except in instances of willful misfeasance, bad faith, gross negligence or
reckless disregard by such officers and Trustees in the performance of their
duties. The Adviser bears promotional expenses in connection with the
distribution of the Funds' shares to the extent that such expenses are not
assumed by the Funds under their plan of distribution (see below). The
compensation and expenses of any officer, Trustee or employee of the Trust who
is an officer, director or employee of the Adviser are paid by the Adviser.

By its terms, the Trust's investment advisory agreement will remain in
force until December 3, 1998 and from year to year thereafter, subject to annual
approval by (a) the Board of Trustees or (b) a vote of the majority of a Fund's
outstanding voting securities; provided that in either event continuance is also
approved by a majority of the Trustees who are not interested persons of the
Trust, by a vote cast in person at a meeting called for the purpose of voting on
such approval. The Trust's investment advisory agreement may be terminated at
any time, on sixty days' written notice, without the payment of any penalty, by
the Board of Trustees, by a vote of the majority of a Fund's outstanding voting
securities, or by the Adviser. The investment advisory agreement automatically
terminates in the event of its assignment, as defined by the Investment Company
Act of 1940 and the rules thereunder.

The names "Gannett Welsh & Kotler" and "GW&K" are property rights of
the Adviser. The Adviser may use the names "Gannett Welsh & Kotler" and "GW&K"
in other connections and for other purposes, including in the name of other
investment companies. The Trust has agreed to discontinue any use of the names
"Gannett Welsh & Kotler" or "GW&K" if the Adviser ceases to be employed as the
Trust's investment manager.

DISTRIBUTION PLAN

As stated in each Fund's Prospectus, the Funds have adopted a plan of
distribution (the "Plan") pursuant to Rule 12b-1 under the Investment Company
Act of 1940 which permits each Fund to pay for expenses incurred in the
distribution and promotion of the Funds' shares, including but not limited to,
the printing of prospectuses, statements of additional information and reports
used for sales purposes, advertisements, expenses of preparation and printing of
sales literature, promotion, marketing and sales expenses and other
distribution-related expenses, including any distribution fees paid to
securities dealers or other firms who have executed a distribution or service
agreement with the Trust. The Plan expressly limits payment of the distribution
expenses listed above in any fiscal year to a maximum of .25% of the average
daily net assets of each Fund. Unreimbursed expenses will not be carried over
from year to year.

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<PAGE>

Agreements implementing the Plan (the "Implementation Agreements"),
including agreements with dealers wherein such dealers agree for a fee to act as
agents for the sale of the Funds' shares, are in writing and have been approved
by the Board of Trustees. All payments made pursuant to the Plan are made in
accordance with written agreements.

The continuance of the Plan and the Implementation Agreements must be
specifically approved at least annually by a vote of the Trust's Board of
Trustees and by a vote of the Trustees who are not interested persons of the
Trust and have no direct or indirect financial interest in the Plan or any
Implementation Agreement (the "Independent Trustees") at a meeting called for
the purpose of voting on such continuance. The Plan may be terminated at any
time by a vote of a majority of the Independent Trustees or by a vote of the
holders of a majority of the outstanding shares of a Fund. In the event the Plan
is terminated in accordance with its terms, the affected Fund will not be
required to make any payments for expenses incurred by the Adviser after the
termination date. Each Implementation Agreement terminates automatically in the
event of its assignment and may be terminated at any time by a vote of a
majority of the Independent Trustees or by a vote of the holders of a majority
of the outstanding shares of a Fund on not more than 60 days' written notice to
any other party to the Implementation Agreement. The Plan may not be amended to
increase materially the amount to be spent for distribution without shareholder
approval. All material amendments to the Plan must be approved by a vote of the
Trust's Board of Trustees and by a vote of the Independent Trustees.

In approving the Plan, the Trustees determined, in the exercise of
their business judgment and in light of their fiduciary duties as Trustees, that
there is a reasonable likelihood that the Plan will benefit the Funds and their
shareholders. The Board of Trustees believes that expenditure of the Funds'
assets for distribution expenses under the Plan should assist in the growth of
the Funds which will benefit the Funds and their shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification and less chance of disruption of planned investment strategies.
The Plan will be renewed only if the Trustees make a similar determination for
each subsequent year of the Plan. There can be no assurance that the benefits
anticipated from the expenditure of the Funds' assets for distribution will be
realized. While the Plan is in effect, all amounts spent by the Funds pursuant
to the Plan and the purposes for which such expenditures were made must be
reported quarterly to the Board of Trustees for its review. In addition, the
selection and nomination of those Trustees who are not interested persons of the
Trust are committed to the discretion of the Independent Trustees during such
period.

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<PAGE>

As principals of the Adviser, Messrs. Gannett and Kotler may be deemed
to have a financial interest in the operation of the Plan and the Implementation
Agreements.

SECURITIES TRANSACTIONS

Decisions to buy and sell securities for the Funds and the placing of
the Funds' securities transactions and negotiation of commission rates where
applicable are made by the Adviser and are subject to review by the Board of
Trustees of the Trust. In the purchase and sale of portfolio securities, the
Adviser seeks best execution for the Funds, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and responsiveness of the broker
or dealer and the brokerage and research services provided by the broker or
dealer. The Adviser generally seeks favorable prices and commission rates that
are reasonable in relation to the benefits received. For the fiscal year ended
September 30, 1997, the GW&K Equity Fund paid brokerage commissions of $32,918.

Generally, the Funds attempt to deal directly with the dealers who make
a market in the securities involved unless better prices and execution are
available elsewhere. Such dealers usually act as principals for their own
account. On occasion, portfolio securities for the Funds may be purchased
directly from the issuer. Because the portfolio securities of the GW&K
Government Securities Fund are generally traded on a net basis and transactions
in such securities do not normally involve brokerage commissions, the cost of
portfolio securities transactions of the Fund will consist primarily of dealer
or underwriter spreads.

The Adviser is specifically authorized to select brokers who also
provide brokerage and research services to the Funds and/or other accounts over
which the Adviser exercises investment discretion and to pay such brokers a
commission in excess of the commission another broker would charge if the
Adviser determines in good faith that the commission is reasonable in relation
to the value of the brokerage and research services provided. The determination
may be viewed in terms of a particular transaction or the Adviser's overall
responsibilities with respect to the Funds and to accounts over which it
exercises investment discretion.

Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends, general advice on the relative merits of
possible investment securities for the Funds and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to

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<PAGE>

the Funds and the Adviser, it is not possible to place a dollar value on it.
Research services furnished by brokers through whom the Funds effect securities
transactions may be used by the Adviser in servicing all of its accounts and not
all such services may be used by the Adviser in connection with the Funds.

The Adviser may aggregate purchase and sale orders for the Funds and
its other clients if it believes such aggregation is consistent with its duty to
seek best execution for the Funds and its other clients. The Adviser will not
favor any advisory account over any other account, and each account that
participates in an aggregated order will participate at the average share price
for all transactions of the Adviser in that security on a given business day,
with all transaction costs shared on a pro rata basis.

CODE OF ETHICS. The Trust and the Adviser have each adopted a Code of Ethics
under Rule 17j-1 of the Investment Company Act of 1940. The Code significantly
restricts the personal investing activities of all access persons of the Adviser
and, as described below, imposes additional, more onerous, restrictions on
investment personnel of the Adviser. The Code requires that all access persons
of the Adviser preclear any personal securities (with limited exceptions, such
as U.S. Government obligations). The preclearance requirement and associated
procedures are designed to identify any substantive prohibition or limitation
applicable to the proposed investment. In addition, no access person may
purchase or sell any security which, at that time, is being purchased or sold
(as the case may be), or to the knowledge of the access person is being
considered for purchase or sale, by either Fund. The substantive restrictions
applicable to investment personnel of the Adviser include a ban on acquiring any
securities in an initial public offering. Furthermore, the Code provides for
trading "blackout periods" which prohibit trading by investment personnel of the
Adviser within periods of trading by either Fund in the same (or equivalent)
security.

PORTFOLIO TURNOVER

A Fund's portfolio turnover rate is calculated by dividing the lesser
of purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Funds. The Adviser anticipates that the portfolio turnover rate for each Fund
normally will not exceed 100%. A 100% turnover rate would occur if all of a
Fund's portfolio securities were replaced once within a one year period.

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<PAGE>

Generally, each Fund intends to invest for long-term purposes. However,
the rate of portfolio turnover will depend upon market and other conditions, and
it will not be a limiting factor when the Adviser believes that portfolio
changes are appropriate. For the fiscal year ended September 30, 1997, the
portfolio turnover rate was 13% for the GW&K Equity Fund and 44% for the GW&K
Government Securities Fund.

CALCULATION OF SHARE PRICE

The share price (net asset value) of the shares of each Fund is
determined as of the close of the regular session of trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time) on each day the Trust is open
for business. The Trust is open for business on every day except Saturdays,
Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The Trust may also be open for business on
other days in which there is sufficient trading in either Fund's portfolio
securities that its net asset value might be materially affected. For a
description of the methods used to determine the share price, see "Calculation
of Share Price" in the Prospectus.

TAXES

Each Fund's Prospectus describes generally the tax treatment of
distributions by the Funds. This section of the Statement of Additional
Information includes additional information concerning federal taxes.

Each Fund has qualified and intends to continue to qualify annually for
the special tax treatment afforded a "regulated investment company" under
Subchapter M of the Internal Revenue Code so that it does not pay federal taxes
on income and capital gains distributed to shareholders. To so qualify a Fund
must, among other things, (i) derive at least 90% of its gross income in each
taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currency, or certain other income (including but not limited to gains from
options, futures and forward contracts) derived with respect to its business of
investing in stock, securities or currencies; and (ii) diversify its holdings so
that at the end of each quarter of its taxable year the following two conditions
are met: (a) at least 50% of the value of the Fund's total assets is represented
by cash, U.S. Government securities, securities of other regulated investment
companies and other securities (for this purpose such other securities will
qualify only if the Fund's investment is limited in respect to any issuer to an
amount not greater than 5% of the Fund's assets and 10% of the outstanding

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voting securities of such issuer) and (b) not more than 25% of the value of the
Fund's assets is invested in securities of any one issuer (other than U.S.
Government securities or securities of other regulated investment companies).

A Fund's net realized capital gains from securities transactions will
be distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction.

A federal excise tax at the rate of 4% will be imposed on the excess,
if any, of a Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of a Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar year
plus undistributed amounts from prior years. The Funds intend to make
distributions sufficient to avoid imposition of the excise tax.

The Trust is required to withhold and remit to the U.S. Treasury a
portion (31%) of dividend income on any account unless the shareholder provides
a taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholdings or demonstrates an
exemption from withholding.

REDEMPTION IN KIND

Under unusual circumstances, when the Board of Trustees deems it in the
best interests of a Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. If any such redemption in kind is to be made, each Fund intends
to make an election pursuant to Rule 18f-1 under the Investment Company Act of
1940. This election will require the Funds to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of each Fund during any 90
day period for any one shareholder. Should payment be made in securities, the
redeeming shareholder will generally incur brokerage costs in converting such
securities to cash. Portfolio securities which are issued in an in-kind
redemption will be readily marketable.

HISTORICAL PERFORMANCE INFORMATION

From time to time, each Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:

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P (1 + T)n = ERV
Where:

P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 and 10 year periods at the end of the 1, 5 or
10 year periods (or fractional portion thereof)

The calculation of average annual total return assumes the reinvestment of all
dividends and distributions and, with respect to the GW&K Equity Fund, will
include the performance of the Partnership prior to December 10, 1996. With
respect to the GW&K Equity Fund, it should be noted that: (1) the 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. If a Fund has been in existence less than one,
five or ten years, the time period since the date of the initial public offering
of shares will be substituted for the periods stated. The average annual total
return of the GW&K Government Securities Fund for the period ended September 30,
1997 was 9.56%. The average annual total returns of the GW&K Equity Fund for the
periods ended September 30, 1997 are as follows:

1 Year 36.51%
5 Years 20.44%
Since Inception (August 1, 1991) 18.16%

Each Fund may also advertise total return (a "nonstandardized
quotation") which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A nonstandardized quotation may
also indicate average annual compounded rates of return over periods other than
those specified for average annual total return. A nonstandardized quotation of
total return will always be accompanied by a Fund's average annual total return
as described above.

- 27 -

<PAGE>

From time to time, each of the Funds may also advertise its yield. A
yield quotation is based on a 30-day (or one month) period and is computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:

Yield = 2[(a-b/cd + 1)6 - 1]
Where:

a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period

Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that a Fund
owns the security. Generally, interest earned (for the purpose of "a" above) on
debt obligations is computed by reference to the yield to maturity of each
obligation held based on the market value of the obligation (including actual
accrued interest) at the close of business on the last business day prior to the
start of the 30-day (or one month) period for which yield is being calculated,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest). With respect to the treatment of discount and
premium on mortgage or other receivables-backed obligations which are expected
to be subject to monthly paydowns of principal and interest, gain or loss
attributable to actual monthly paydowns is accounted for as an increase or
decrease to interest income during the period and discount or premium on the
remaining security is not amortized. The yields of the GW&K Equity Fund and the
GW&K Government Securities Fund for September, 1997 were .25% and 5.99%,
respectively.

The performance quotations described above are based on historical
earnings and are not intended to indicate future performance.

To help investors better evaluate how an investment in a Fund might
satisfy their investment objective, advertisements regarding each Fund may
discuss various measures of Fund performance, including current performance
ratings and/or rankings appearing in financial magazines, newspapers and
publications which track mutual fund performance. Advertisements may also
compare performance (using the calculation methods set forth in the Prospectus)
to performance as reported by other investments, indices and averages. When
advertising current ratings or rankings, the Funds may use the following
publications or indices to discuss or compare Fund performance:

- 28 -

<PAGE>

Lipper Mutual Fund Performance Analysis and Lipper Fixed Income Fund
Performance Analysis measure total return and average current yield for the
mutual fund industry and rank individual mutual fund performance over specified
time periods assuming reinvestment of all distributions, exclusive of sales
loads. The GW&K Equity Fund may provide comparative performance information
appearing in the Growth and Income Funds category and the GW&K Government
Securities Fund may provide comparative performance information appearing in the
General U.S. Government Funds category. In addition, the Funds may use
comparative performance information of relevant indices, including the S&P 500
Index and the Dow Jones Industrial Average. The S&P 500 Index is an unmanaged
index of 500 stocks, the purpose of which is to portray the pattern of common
stock price movement. The Dow Jones Industrial Average is a measurement of
general market price movement for 30 widely held stocks listed on the New York
Stock Exchange.

In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Fund's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
performance. In addition, there can be no assurance that the Fund will continue
this performance as compared to such other averages.

PRINCIPAL SECURITY HOLDERS

As of January 2, 1998, Wang Center for the Performing Arts, TTEE
Designate Endowment, c/o Mr. Joseph A. Spaulding, Jr., 270 Tremont Street,
Boston, Massachusetts 02116, owned of record 5.44% of the outstanding shares of
the GW&K Government Securities Fund.

As of the same date, the Trustees and officers of the Trust as a group
owned of record or beneficially less than 1% of the outstanding shares of both
the GW&K Equity Fund and the GW&K Government Securities Fund.

CUSTODIAN

Investors Bank & Trust Company, 89 South Street, Boston, Massachusetts
02111, has been retained to act as Custodian for the Funds' investments.
Investors Bank and Trust acts as each Fund's depository, safekeeps its portfolio
securities, collects all income and other payments with respect thereto,
disburses funds as instructed and maintains records in connection with its
duties.

- 29 -

<PAGE>

AUDITORS

The firm of Arthur Andersen LLP has been selected as independent public
accountants for the Trust for the fiscal year ending September 30, 1998. Arthur
Andersen LLP, 425 Walnut Street, Cincinnati, Ohio, performs an annual audit of
the Trust's financial statements and advises the Funds as to certain
accounting matters.

COUNTRYWIDE FUND SERVICES, INC.

The Trust's transfer agent, Countrywide Fund Services, Inc. (the
"Transfer Agent"), maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Funds' shares, acts as dividend and distribution disbursing
agent and performs other shareholder service functions. The Transfer Agent
receives for its services as transfer agent a fee payable monthly at an annual
rate of $17 per account from the GW&K Equity Fund and $21 per account from the
GW&K Government Securities Fund, provided, however, that the minimum fee is
$1,000 per month for each Fund. In addition, the Funds pay out-of-pocket
expenses, including but not limited to, postage, envelopes, checks, drafts,
forms, reports, record storage and communication lines.

The Transfer Agent also provides accounting and pricing services to the
Funds. For calculating daily net asset value per share and maintaining such
books and records as are necessary to enable the Transfer Agent to perform its
duties, each Fund pays the Transfer Agent a fee in accordance with the following
schedule:

AVERAGE MONTHLY NET ASSETS MONTHLY FEE

0 - $ 50,000,000 $2,000
50 - 100,000,000 2,500
100 - 250,000,000 3,000
Over 250,000,000 4,000

In addition, each Fund pays all costs of external pricing services.

In addition, the Transfer Agent is retained to provide administrative
services to the Funds. In this capacity, the Transfer Agent supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services. The Transfer
Agent supervises the preparation of tax returns, reports to shareholders of the
Funds, reports to and filings with the Securities and Exchange Commission and
state securities commissions, and materials for meetings of the Board of
Trustees.

- 30 -

<PAGE>

For the performance of these administrative services, each Fund pays the
Transfer Agent a fee 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.

ANNUAL REPORT

The Funds' financial statements as of September 30, 1997, which have
been audited by Arthur Andersen LLP, are attached to this Statement of
Additional Information.

- 31 -

<PAGE>

[Logo] The
Gannett
Welsh &
Kotler
Funds
-------------------------------
GW&K Equity Fund
-------------------------------
GW&K Government Securities Fund
-------------------------------

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>
ARTHUR ANDERSEN LLP

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Trustees of The Gannett, Welsh &
Kotler Funds:

We have audited the accompanying statements of assets and liabilities
of the GW&K Government Securities Fund, and the GW&K Equity Fund of The Gannett,
Welsh & Kotler Funds (a Massachusetts business trust), including the portfolios
of investments, as of September 30, 1997, and the related statements of
operations, the statements of changes in net assets, and the financial
highlights for the periods indicated thereon. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights 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
September 30, 1997, 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 and financial highlights
referred to above present fairly, in all material respects, the financial
position of the GW&K Government Securities Fund, and the GW&K Equity Fund of The
Gannett, Welsh & Kotler Funds as of September 30, 1997, the results of their
operations, the changes in their net assets, and the financial highlights for
the periods indicated thereon, in conformity with generally accepted accounting
principles.

/s/ Arthur Andersen LLP

Cincinnati, Ohio
October 17, 1997

<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
-------------- --------------
TOTAL ASSETS 37,775,691 24,935,333
-------------- --------------

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
-------------- --------------
TOTAL LIABILITIES 428,937 80,606
-------------- --------------

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
-------------- --------------
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
------------ ------------
TOTAL INVESTMENT INCOME 367,582 1,139,734
------------ ------------

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
------------ ------------
TOTAL EXPENSES 331,102 234,285
Fees waived by the Adviser (Note 4) (58,128) (80,153)
------------ ------------
NET EXPENSES 272,974 154,132
------------ ------------

NET INVESTMENT INCOME 94,608 985,602
------------ ------------

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

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
------------ ------------
Net increase in net assets from
operations 7,566,444 1,331,436
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income ----- (985,602)
------------ ------------
Decrease in net assets from
distributions to shareholders ----- (985,602)
------------ ------------
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)
------------- ------------
Net increase in net assets from
capital share transactions 29,780,310 24,508,893
------------- ------------

TOTAL INCREASE IN NET ASSETS 37,346,754 24,854,727

NET ASSETS:
Beginning of period ----- -----
------------- ------------
End of period $ 37,346,754 $ 24,854,727
============= ============

UNDISTRIBUTED NET INVESTMENT INCOME $ 94,608 $ -----
============= ============
NUMBER OF SHARES:
Sold 2,962,639 2,497,150
Reinvested ----- 67,615
Redeemed (73,644) (136,120)
------------- ------------
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
-------- ----------
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
-------- --------
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.

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>

GW&K GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1997

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)

<PAGE>

THE GANNETT WELSH & KOTLER FUNDS

PART C. OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) (i) Financial Statements included in Part A:

Financial Highlights for the Periods Ended
September 30, 1997

(ii) Financial Statements included in Part B:

Statements of Assets & Liabilities,
September 30, 1997

Statements of Operations for the Periods Ended
September 30, 1997

Statements of Changes in Net Assets for the
Periods Ended September 30, 1997

Financial Highlights for the Periods Ended
September 30, 1997

Portfolio of Investments, September 30, 1997

(b) Exhibits

(1) (i) Agreement and Declaration of Trust*

(ii) Amendment No. 1 to Agreement & Declaration of
Trust*

(2) Bylaws*

(3) Inapplicable

(4) Inapplicable

(5) Advisory Agreement with Gannett Welsh &
Kotler, Inc.*

(6) Inapplicable

(7) Inapplicable

(8) Custody Agreement with Investors Bank & Trust
Company*

(9) (i) Administration Agreement with Countrywide
Fund Services, Inc.*

<PAGE>

(ii) Accounting Services Agreement with
Countrywide Fund Services, Inc.*

(iii) Transfer, Dividend Disbursing, Shareholder
Service and Plan Agency Agreement with
Countrywide Fund Services, Inc.*

(10) Opinion and Consent of Counsel*

(11) Consent of Independent Public Accountants

(12) Inapplicable

(13) (i) Agreement Relating to Initial Capital with
Harold G. Kotler*

(ii) Agreement Relating to Initial Capital with
Edward B. White*

(14) Inapplicable

(15) Plan of Distribution Pursuant to Rule 12b-1*

(16) Computation for Performance Quotations

(17) (i) Financial Data Schedule for the GW&K Equity
Fund

(ii) Financial Data Schedule for the GW&K
Government Securities Fund

(18) Inapplicable
- --------------------------------------

* Incorporated by reference to the Trust's registration
statement on Form N-1A.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT

None

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

Set forth below are the number of record holders, as of
December 31, 1997, of the shares of beneficial interest of the
Registrant.

Number of
Title Of Class Record Holders
-------------- --------------
GW&K Equity Fund 205

GW&K Government Securities Fund 46

- 2 -

<PAGE>

ITEM 27. INDEMNIFICATION

Article VI of the Registrant's Agreement and Declaration of
Trust provides for indemnification of officers and Trustees as
follows:

"SECTION 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS,
ETC. Subject to and except as otherwise provided in
the Securities Act of 1933, as amended, and the 1940
Act, the Trust shall indemnify each of its Trustees
and officers, including persons who serve at the
Trust's request as directors, officers or trustees of
another organization in which the Trust has any
interest as a shareholder, creditor or otherwise
(hereinafter referred to as a "Covered Person")
against all liabilities, including but not limited to
amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and expenses,
including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the
defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which
such Covered Person may be or may have been involved
as a party or otherwise or with which such person may
be or may have been threatened, while in office or
thereafter, by reason of being or having been such a
Trustee or officer, director or trustee, and except
that no Covered Person shall be indemnified against
any liability to the Trust or its Shareholders to
which such Covered Person would otherwise be subject
by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's
office (disabling conduct). Anything herein contained
to the contrary notwithstanding, no Covered Person
shall be indemnified for any liability to the Trust
or its shareholders to which such Covered Person
would otherwise be subject unless (1) a final
decision on the merits is made by a court or other
body before whom the proceeding was brought that the
Covered Person to be indemnified was not liable by
reason of disabling conduct or, (2) in the absence of
such a decision, a reasonable determination is made,
based upon a review of the facts, that the Covered
Person was not liable by

- 3 -

<PAGE>

reason of disabling conduct, by (a) the vote of a
majority of a quorum of Trustees who are neither
"interested persons" of the Company as defined in the
Investment Company Act of 1940 nor parties to the
proceeding ("disinterested, non-party Trustees"), or
(b) an independent legal counsel in a written
opinion.

SECTION 6.5 ADVANCES OF EXPENSES. The Trust shall
advance attorneys' fees or other expenses incurred by
a Covered Person in defending a proceeding, upon the
undertaking by or on behalf of the Covered Person to
repay the advance unless it is ultimately determined
that such Covered Person is entitled to
indemnification, so long as one of the following
conditions is met: (i) the Covered Person shall
provide security for his undertaking, (ii) the Trust
shall be insured against losses arising by reason of
any lawful advances, or (iii) a majority of a quorum
of the disinterested non-party Trustees of the Trust,
or an independent legal counsel in a written opinion,
shall determine, based on a review of readily
available facts (as opposed to full trial-type
inquiry), that there is reason to believe that the
Covered Person ultimately will be found entitled to
indemnification.

SECTION 6.6 INDEMNIFICATION NOT EXCLUSIVE, ETC. The
right of indemnification provided by this Article VI
shall not be exclusive of or affect any other rights
to which any such Covered Person may be entitled. As
used in this Article VI, "Covered Person" shall
include such person's heirs, executors and
administrators; an "interested Covered Person" is one
against whom the action, suit or other proceeding in
question or another action, suit or other proceeding
on the same or similar grounds is then or has been
pending or threatened, and a "disinterested" person
is a person against whom none of such actions, suits
or other proceedings or another action, suit or other
proceeding on the same or similar grounds is then or
has been pending or threatened. Nothing contained in
this article shall affect any rights to
indemnification to which personnel of the Trust,
other than Trustees and officers, and other persons
may be entitled by contract or otherwise under law,
nor the power of the Trust to purchase and maintain
liability insurance on behalf of any such person."

- 4 -

<PAGE>

Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to Trustees, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such Trustee,
officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.

The Registrant maintains a standard mutual fund and investment
advisory professional and directors and officers liability
policy. The policy will provide coverage to the Registrant,
its Trustees and officers, and Gannett Welsh & Kotler, Inc.
(the "Adviser"). Coverage under the policy will include losses
by reason of any act, error, omission, misstatement,
misleading statement, neglect or breach of duty.

The Advisory Agreement with the Adviser provides that the
Adviser shall not be liable for any action taken, omitted or
suffered to be taken by it in its reasonable judgment, in good
faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by the
Advisory Agreement, or in accordance with (or in the absence
of) specific directions or instructions from the Trust,
provided, however, that such acts or omissions shall not have
resulted from the Adviser's willful misfeasance, bad faith or
gross negligence, a violation of the standard of care
established by and applicable to the Adviser in its actions
under the Advisory Agreement or breach of its duty or of its
obligations under the Advisory Agreement.

- 5 -

<PAGE>

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT
ADVISER

(a) The Adviser is an independent investment counsel firm
that has advised individual and institutional clients
since 1974. The Adviser was the investment adviser to
the GW&K Equity Fund, L.P., the predecessor entity to
the GW&K Equity Fund.

(b) The directors and officers of the Adviser and any
other business, profession, vocation or employment of
a substantial nature engaged in at any time during
the past two years:

(i) Harold G. Kotler - A Principal and President
of the Adviser.

President of the Registrant. He was a
Principal and the President of GSD, Inc.,
the General Partner of the GW&K Equity Fund,
L.P., the predecessor entity to the GW&K
Equity Fund.

(ii) Benjamin H. Gannett - A Principal and
Executive Vice President and Treasurer of the
Adviser.

Treasurer of the Registrant. He was a
Principal of GSD, Inc.

(iii) Edward B. White - A Principal and Senior Vice
President of the Adviser.

Formerly, a Principal of GSD, Inc.

(iv) Nancy G. Angell - A Principal and Senior Vice
President of the Adviser.

(v) Jeanne M. Skettino - A Principal and Senior
Vice President of the Adviser.

(vi) Jackson O. Welsh - Senior Vice President of
the Adviser.

(vii) Thomas F. X. Powers - Senior Vice President
of the Adviser.

(viii) Geoffrey S. Drayson - Vice President of the
Adviser.

- 6 -

<PAGE>

(ix) Thomas J. Duff - Vice President of the
Adviser.

(x) John B. Fox - Vice President of the Adviser.

(xi) Joyce S. Kiritsis - Vice President of the
Adviser.

(xii) T. Williams Roberts, III - Vice President of
the Adviser.

ITEM 29. PRINCIPAL UNDERWRITERS

(a) Inapplicable

(b) Inapplicable

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

Accounts, books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder will be maintained by the
Registrant at its offices located at 222 Berkeley Street,
Boston, Massachusetts 02116 as well as at the offices of the
Registrant's transfer agent located at 312 Walnut Street, 21st
Floor, Cincinnati, Ohio 45202.

ITEM 31. MANAGEMENT SERVICES NOT DISCUSSED IN PARTS A OR B

Inapplicable

ITEM 32. UNDERTAKINGS

(a) Inapplicable

(b) Inapplicable

(c) The Registrant undertakes to furnish each person to
whom a Prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders,
upon request and without charge.

(d) The Registrant undertakes to call a meeting of
shareholders, if requested to do so by holders of
at least 10% of the Fund's outstanding shares, for
the purpose of voting upon the question of removal
of a trustee or trustees and to assist in
communications with other shareholders as required
by Section 16(c) of the Investment Company Act of
1940.

- 7 -

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of the Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Boston and Commonwealth of Massachusetts, on the
29th day of January, 1998.

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 date indicated.

Signature Title Date
--------- ----- ----

/s/ Harold G. Kotler President January 29, 1998
Harold G. Kotler and Trustee

/s/ Benjamin H. Gannett Treasurer January 29, 1998
Benjamin H. Gannett and Trustee

Trustee
Arlene Zoe-Aponte Gonzalez*

Trustee By:/s/Tina D. Hosking
Morton S. Grossman* Tina D. Hosking
Attorney-in-Fact*
January 29, 1998
Trustee
Timothy P. Neher*

Trustee
Josiah A. Spaulding, Jr.*

Trustee
Allan Tofias*

<PAGE>

INDEX TO EXHIBITS

(1) (i) Agreement and Declaration of Trust*

(ii) Amendment No. 1 to Agreement & Declaration of Trust*

(2) Bylaws*

(3) Inapplicable

(4) Inapplicable

(5) Advisory Agreement*

(6) Inapplicable

(7) Inapplicable

(8) Custody Agreement*

(9) (i) Administration Agreement*

(9) (ii) Accounting Services Agreement*

(9) (iii) Transfer, Dividend Disbursing, Shareholder
Service and Plan Agency Agreement*

(10) Opinion and Consent of Counsel*

(11) Consent of Independent Public Accountants

(12) Inapplicable

(13)(i) Agreement Relating to Initial Capital*

(ii) Agreement Relating to Initial Capital*

(14) Inapplicable

(15) Plan of Distribution Pursuant to Rule 12b-1*

(16) Computation for Performance Quotations

(17)(i) Financial Data Schedule for the GW&K Equity Fund

(ii) Financial Data Schedule for the GW&K Government
Securities Fund

(18) Inapplicable

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

* Incorporated by reference to the Trust's registration
statement on Form N-1A.

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
dated October 17, 1997 and to all references to our Firm included in or made a
part of this Post-Effective Amendment No. 2.

/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP

Cincinnati, Ohio
January 28, 1998

<TABLE>
<CAPTION>
GW&K EQUITY FUND AVERAGE ANNUAL TOTAL RETURNS
AMOUNT INVESTED ON AUG-1-91 $25,000 ALL DIVIDENDS REINVESTED
SALES CHARGE 0.00% $25,000 ALL CAP GAINS REINVESTED
SEP-30-97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DIVIDEND DIVIDEND TOTAL TOTAL ADD'L ADD'L INCEPTION INCEPTION
DIVIDEND PER SHARE PER SHARE SHARE DIVIDEND DIVIDEND REINVEST SHARES SHARES NEW SHARE INCEPTION DOLLAR TOTAL
DATE INCOME CAP GAIN BALANCE INCOME CAP GAIN PRICE INCOME CAP GAIN BALANCE VALUE INCREASE RETURN
01-Aug-91 $25,000.00 $0.00 0.00%
31-Aug-91 $25,585.00 $585.00 2.34%
30-Sep-91 $25,534.75 $534.75 2.14%
31-Oct-91 $26,015.24 $1,015.24 4.06%
30-Nov-91 $24,955.98 ($44.02) -0.18%
31-Dec-91 $27,715.00 $2,715.00 10.86%
31-Jan-92 $28,078.78 $3,078.78 12.32%
29-Feb-92 $28,382.65 $3,382.65 13.53%
31-Mar-92 $27,386.11 $2,386.11 9.54%
30-Apr-92 $27,201.42 $2,201.42 8.81%
31-May-92 $27,275.30 $2,275.30 9.10%
30-Jun-92 $25,924.88 $924.88 3.70%
31-Jul-92 $27,179.79 $2,179.79 8.72%
31-Aug-92 $26,720.79 $1,720.79 6.88%
30-Sep-92 $27,315.21 $2,315.21 9.26%
31-Oct-92 $27,666.05 $2,666.05 10.66%
30-Nov-92 $28,872.79 $3,872.79 15.49%
31-Dec-92 $29,314.51 $4,314.51 17.26%
31-Jan-93 $29,427.77 $4,427.77 17.71%
28-Feb-93 $28,942.29 $3,942.29 15.77%
31-Mar-93 $30,815.57 $5,815.57 23.26%
30-Apr-93 $29,607.45 $4,607.45 18.43%
31-May-93 $30,889.72 $5,889.72 23.56%
30-Jun-93 $31,459.49 $6,459.49 25.84%
31-Jul-93 $31,686.64 $6,686.64 26.75%
31-Aug-93 $32,641.56 $7,641.56 30.57%
30-Sep-93 $33,507.40 $8,507.40 34.03%
31-Oct-93 $34,051.87 $9,051.87 36.21%
30-Nov-93 $33,477.57 $8,477.57 33.91%
31-Dec-93 $34,465.64 $9,465.64 37.86%
31-Jan-94 $35,746.04 $10,746.04 42.98%
28-Feb-94 $34,214.44 $9,214.44 36.86%
31-Mar-94 $32,554.56 $7,554.56 30.22%
30-Apr-94 $32,461.58 $7,461.58 29.85%
31-May-94 $32,390.56 $7,390.56 29.56%
30-Jun-94 $31,214.37 $6,214.37 24.86%
31-Jul-94 $31,884.48 $6,884.48 27.54%
31-Aug-94 $32,940.77 $7,940.77 31.76%
30-Sep-94 $32,742.56 $7,742.56 30.97%
31-Oct-94 $33,311.14 $8,311.14 33.24%
30-Nov-94 $32,200.69 $7,200.69 28.80%
<PAGE>
GW&K EQUITY FUND AVERAGE ANNUAL TOTAL RETURNS
AMOUNT INVESTED ON AUG-1-91 $25,000 ALL DIVIDENDS REINVESTED
SALES CHARGE 0.00% $25,000 ALL CAP GAINS REINVESTED
SEP-30-97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DIVIDEND DIVIDEND TOTAL TOTAL ADD'L ADD'L INCEPTION INCEPTION
DIVIDEND PER SHARE PER SHARE SHARE DIVIDEND DIVIDEND REINVEST SHARES SHARES NEW SHARE INCEPTION DOLLAR TOTAL
DATE INCOME CAP GAIN BALANCE INCOME CAP GAIN PRICE INCOME CAP GAIN BALANCE VALUE INCREASE RETURN
31-Dec-94 $33,063.89 $8,063.89 32.26%
31-Jan-95 $32,670.76 $7,670.76 30.68%
28-Feb-95 $34,224.04 $9,224.04 36.90%
31-Mar-95 $35,095.06 $10,095.06 40.38%
30-Apr-95 $35,700.05 $10,700.05 42.80%
31-May-95 $36,722.59 $11,722.59 46.89%
30-Jun-95 $38,286.63 $13,286.63 53.15%
31-Jul-95 $40,427.78 $15,427.78 61.71%
31-Aug-95 $40,633.81 $15,633.81 62.54%
30-Sep-95 $42,112.46 $17,112.46 68.45%
31-Oct-95 $42,196.36 $17,196.36 68.79%
30-Nov-95 $44,427.73 $19,427.73 77.71%
31-Dec-95 $46,358.89 $21,358.89 85.44%
31-Jan-96 $46,346.77 $21,346.77 85.39%
29-Feb-96 $47,218.54 $22,218.54 88.87%
31-Mar-96 $48,770.57 $23,770.57 95.08%
30-Apr-96 $50,393.28 $25,393.28 101.57%
31-May-96 $50,830.22 $25,830.22 103.32%
30-Jun-96 $51,368.44 $26,368.44 105.47%
31-Jul-96 $48,136.82 $23,136.82 92.55%
31-Aug-96 $48,718.55 $23,718.55 94.87%
30-Sep-96 $50,718.36 $25,718.36 102.87%
31-Oct-96 $51,161.93 $26,161.93 104.65%
30-Nov-96 5,354.886 $53,548.86 $28,548.86 114.20%
31-Dec-96 5,354.886 $0.00 $0.00 $10.04 0.000 0.000 5,354.886 $53,548.86 $28,548.86 114.20%
31-Jan-97 5,354.886 $0.00 $0.00 $10.61 0.000 0.000 5,354.886 $56,815.34 $31,815.34 127.26%
28-Feb-97 5,354.886 $0.00 $0.00 $10.41 0.000 0.000 5,354.886 $55,744.36 $30,744.36 122.98%
31-Mar-97 5,354.886 $0.00 $0.00 $9.83 0.000 0.000 5,354.886 $52,638.53 $27,638.53 110.55%
30-Apr-97 5,354.886 $0.00 $0.00 $10.03 0.000 0.000 5,354.886 $53,709.51 $28,709.51 114.84%
31-May-97 5,354.886 $0.00 $0.00 $10.92 0.000 0.000 5,354.886 $58,475.36 $33,475.36 133.90%
30-Jun-97 5,354.886 $0.00 $0.00 $11.47 0.000 0.000 5,354.886 $61,420.54 $36,420.54 145.68%
31-Jul-97 5,354.886 $0.00 $0.00 $12.31 0.000 0.000 5,354.886 $65,918.65 $40,918.65 163.67%
31-Aug-97 5,354.886 $0.00 $0.00 $12.04 0.000 0.000 5,354.886 $64,472.83 $39,472.83 157.89%
30-Sep-97 5,354.886 $0.00 $0.00 $12.93 0.000 0.000 5,354.886 $69,238.68 $44,238.68 176.95%
- ------------------------ ------------------------------------------
AVG. ANNUAL TOTAL RETURN
<FN>

INCEPTION 18.16% 5 YEAR 20.44% 3 YEAR 28.35% 1 YEAR 36.51%
=========== =========== =========== ===========
</FN>
</TABLE>
<PAGE>
<TABLE>

GW & K GOVERNMENT SECURITIES FUND AVERAGE ANNUAL TOTAL RETURNS
AMOUNT INVESTED ON 16-Dec-96 $10,000 ALL DIVIDENDS REINVESTED
SALES CHARGE 0.00% $10,000 ALL CAP GAINS REINVESTED
CURRENT DATE 30-Sep-97

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DIVIDEND DIVIDEND TOTAL TOTAL ADD'L ADD'L INCEPTION INCEPTION INCEPTION
DIVIDEND PER SHARE PER SHARE SHARE DIVIDEND DIVIDEND REINVEST SHARES SHARES NEW SHARE TOTAL DOLLAR TOTAL
DATE INCOME CAP GAIN BALANCE INCOME CAP GAIN PRICE INCOME CAP GAIN BALANCE VALUE INCREASE RETURN

16-Dec-96 $10.00 1,000.000 $10,000.00 $0.00 0.00%
31-Dec-96 0.0000 1,000.000 $0.00 $0.00 $10.18 0.000 0.000 1,000.000 $10,180.00 $180.00 1.80%
31-Jan-97 0.0878 1,000.000 $87.80 $0.00 $10.16 8.642 0.000 1,008.642 $10,247.80 $247.80 2.48%
28-Feb-97 0.0567 1,008.642 $57.19 $0.00 $10.16 5.629 0.000 1,014.271 $10,304.99 $304.99 3.05%
31-Mar-97 0.0598 1,014.271 $60.65 $0.00 $10.10 6.005 0.000 1,020.276 $10,304.79 $304.79 3.05%
30-Apr-97 0.0560 1,020.276 $57.14 $0.00 $10.12 5.646 0.000 1,025.922 $10,382.33 $382.33 3.82%
31-May-97 0.0523 1,025.922 $53.66 $0.00 $10.13 5.297 0.000 1,031.218 $10,446.24 $446.24 4.46%
30-Jun-97 0.0498 1,031.218 $51.35 $0.00 $10.16 5.055 0.000 1,036.273 $10,528.53 $528.53 5.29%
31-Jul-97 0.0468 1,036.273 $48.50 $0.00 $10.19 4.759 0.000 1,041.032 $10,608.12 $608.12 6.08%
31-Aug-97 0.0470 1,041.032 $48.93 $0.00 $10.18 4.806 0.000 1,045.839 $10,646.64 $646.64 6.47%
30-Sep-97 0.0487 1,045.839 $50.93 $0.00 $10.23 4.979 0.000 1,050.817 $10,749.86 $749.86 7.50%

</TABLE>

1 YEAR 1 YEAR
NEW SHARE 1 YEAR DOLLAR TOTAL
BALANCE VALUE INCREASE RETURN

982.318 10,000.0 0.00 0.00%
990.807 10,066.6 66.60 0.67%
996.337 10,122.7 122.78 1.23%
1,002.236 10,122.5 122.58 1.23%
1,007.782 10,198.7 198.75 1.99%
1,012.985 10,261.5 261.54 2.62%
1,017.950 10,342.3 342.37 3.42%
1,022.625 10,420.5 420.55 4.21%
1,027.346 10,458.3 458.39 4.58%
1,032.237 10,559.7 559.79 5.60%

<FN>

AVG. ANNUAL TOTAL RETURN
- ---------------------------------

INCEPTION 9.56% 10 YEAR ERR 5 YEAR ERR 3 YEAR ERR 1 YEAR N/A
=============== ============ ============ ========== =========
</FN>
</TABLE>

<PAGE>

RUN DATE: 01/15/98, RUN TIME: 103344 PAGE: 3

SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 08/31/97 THROUGH 09/30/97

GANNETT WELSH & KOTLER EQUITY FUND 000000000001701
GANNETT WELSH & KOTLER FUNDS

S U M M A R Y D A T A

TOTAL DAILY INCOME......... 1,437.84

TOTAL INCOME............... 44,429.49

TOTAL EXPENSES............. 36,728.36-

AVERAGE SHARES............. 2,856,633.0143

MAXIMUM OFFERING PRICE..... 12.93

EXPONENT USED IN FORMULA... 6

SEC ADVERTISED YIELD....... 0.250330

<PAGE>

RUN DATE: 01/15/98, RUN TIME: 103344 PAGE: 12

SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 08/31/97 THROUGH 09/30/97

GANNETT WELSH & KOTLER GOVERNMENT SECURI 000000000001702
GANNETT WELSH & KOTLER FUNDS

S U M M A R Y D A T A

TOTAL DAILY INCOME......... 6,114.62

TOTAL INCOME............... 141,187.69

TOTAL EXPENSES............. 20,108.31-

AVERAGE SHARES............. 2,398,681.3650

MAXIMUM OFFERING PRICE..... 10.23

EXPONENT USED IN FORMULA... 6

SEC ADVERTISED YIELD....... 5.9946

<ARTICLE> 6
<CIK> 0001012401
<NAME> THE GANNETT WELSH & KOTLER FUNDS
<SERIES>
<NUMBER> 1
<NAME> GW&K EQUITY FUND

<S> <C>
<PERIOD-TYPE> 10-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
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 37,346,754
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<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
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0001012401
<NAME> THE GANNETT WELSH & KOTLER FUNDS
<SERIES>
<NUMBER> 2
<NAME> GW&K GOVERNMENT SECURITIES FUND

<S> <C>
<PERIOD-TYPE> 10-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
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.23
<EXPENSE-RATIO> .97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>