GANNETT WELSH & KOTLER FUNDS, 485BPOS, 1998-11-30

GANNETT WELSH & KOTLER FUNDS
485BPOS, 1998-11-30

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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. 3
---
and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/

Amendment No. 4
---

(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)

/X/ immediately upon filing pursuant to paragraph (b) of Rule 485
/ / on (date) 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
November 30, 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 November 30, 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..........................................................
Financial Highlights.........................................................
Investment Objective, Investment Policies and
Risk Considerations........................................................
How to Purchase Shares.......................................................
Shareholder Services.........................................................
How to Redeem Shares.........................................................
Exchange Privilege...........................................................
Dividends and Distributions..................................................
Taxes........................................................................
Operation of the Fund........................................................
Distribution Plan............................................................
Calculation of Share Price...................................................
Performance Information......................................................
- --------------------------------------------------------------------------------

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
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 . . . . . . . . . . . .84%(A)
12b-1 Fees. . . . . . . . . . . . . . . . . . . . . .02%(B)
Other Expenses. . . . . . . . . . . . . . . . . . . .39%
-----
Total Fund Operating Expenses After Waivers . . . . 1.25%(C)
=====

(A) Absent waivers of management fees, such fees would have been 1.00%.
(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 1.41%.

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

- 2 -
<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, 1998 appear in the Statement of Additional Information of the
Fund, which can be obtained at no charge by calling (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 EACH PERIOD:

Year Ended Period Ended
Sept. 30, 1998 Sept. 30, 1997(A)
-------------- --------------

Net asset value at beginning of period ....... $ 12.93 $ 10.00
---------- ----------

Income from investment operations:
Net investment income ...................... 0.03 0.03
Net realized and unrealized
gains (losses) on investments ....... (0.80) 2.90
---------- ----------
Total from investment operations ............. (0.77) 2.93
---------- ----------

Less distributions:
Dividends from net investment income ....... (0.04) --
Distributions in excess of net
investment income ........................ -- --
Distribution from net realized gains ....... (1.22) --
---------- ----------
Total distributions .......................... (1.26) --
---------- ----------

Net asset value at end of period ............. $ 10.90 $ 12.93
========== ==========
RATIOS AND SUPPLEMENTAL DATA:

Total return ................................. (5.99%) 29.30%(D)
========== ==========

Net assets at end of period (000's) .......... $ 47,184 $ 37,347
========== ==========

Ratio of net expenses to average net assets(B) 1.25% 1.25%(C)

Ratio of net investment income to
average net assets ......................... 0.27% 0.43%(C)

Portfolio turnover rate ...................... 30% 13%(C)
- --------------------------------------------------------------------------------

(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 ratios of expenses to average net
assets would have been 1.41% and 1.51% (C) for the periods ended September
30, 1998 and 1997, respectively.
(C) Annualized.
(D) Not Annualized.

- 3 -
<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.

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. High
turnover may result in the

- 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 Trust and the
Transfer Agent reserve 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 bank 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
Transfer Agent 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:

- 10 -
<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 Transfer Agent. 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. If the name(s) or the address on your account has been changed
within 30 days of your redemption request, your signature must be guaranteed
regardless of the value of the shares being redeemed.

- 11 -
<PAGE>

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.

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.

Redemption requests may direct that proceeds be deposited directly in your
account with a commercial bank or other depository institution via an Automated
Clearing House (ACH) transaction. There is currently no charge for ACH
transactions. Contact the Transfer Agent for more information about ACH
transactions.

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 require you to close your account if at any time the value of your
shares is less than the minimum amount required by the Trust for your account
(based on actual amounts invested, unaffected by market fluctuations) or such
other minimum amount as the Trust may determine from time to time. After
notification to you of the Trust's intention to close your account, you will be
given thirty days to increase the value of your account to the minimum amount.

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.

- 12 -
<PAGE>

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 Investment 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.

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.

- 13 -
<PAGE>

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.

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.

TAXES
- -----

The Fund has qualified in all prior years 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 20% with respect to assets held more than
12 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"),

- 14 -
<PAGE>

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.

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.

- 15 -
<PAGE>

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.

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,

- 16 -
<PAGE>

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.

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.

- 17 -
<PAGE>

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.

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 closing bid price, (2) 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

- 18 -
<PAGE>

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 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

- 19 -
<PAGE>

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 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 of all expenses incurred.

- 20 -
<PAGE>

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%

January 1 -
September 30, 1998 -3.54%* 6.00%* -6.05%*

August 1, 1991
through September 30, 1998
- --------------------------
Annualized Return 14.45% 17.25% 12.65%
Cumulative Return 163.08% 212.89% 134.78%

* Not Annualized

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.

- 22 -
<PAGE>

[Logo] The
Gannett
Welsh &
Kotler
Funds

GW&K Equity Fund

Prospectus

No-Load Fund

- 23 -
<PAGE>

ACCOUNT APPLICATION
Please mail account application to:
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354

THE GANNETT WELSH & KOTLER FUNDS
GW&K EQUITY FUND
ACCOUNT NO. G2__________________
(For Fund Use Only)

FOR BROKER/DEALER USE ONLY
Firm Name:____________________________
Home Office Address:__________________
Branch Address:_______________________
Rep Name & No.:_______________________
Rep Signature:________________________

===============================================================================

Initial Investment of $____________________________ ($2,000 minimum)

o Check or draft enclosed payable to the Fund.

o Bank Wire From: __________________________________________________________

o Exchange From: __________________________________________________________
(Fund Name) (Fund Account Number)

ACCOUNT NAME S.S. #/TAX I.D.#

_________________________________________________ ________________________
Name of Individual, Corporation, (In case of custodial account
Organization, or Minor, etc. please list minor's S.S.#)

_________________________________________________ Citizenship: o U.S.
Name of Joint Tenant, Partner, Custodian o Other______

ADDRESS PHONE

_________________________________________________ ( )_______________________
Street or P.O. Box Business Phone

_________________________________________________ ( )_______________________
City State Zip Home Phone

Check Appropriate Box: o Individual
o Joint Tenant (right of survivorship presumed)
o Partnership
o Corporation
o Trust
o Custodial
o Non-Profit
o Other

Occupation and Employer Name/Address__________________________________________

Are you an associated person of an NASD member? o Yes o No

==============================================================================

TAXPAYER IDENTIFICATION NUMBER -- Under penalties of perjury I certify that the
Taxpayer Identification Number listed above is my correct number. Check box if
appropriate:

o I am exempt from backup withholding under the provisions of section
3406(a)(1)(c) of the Internal Revenue Code; or I am not subject to backup
withholding because I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends;
or the Internal Revenue Service has notified me that I am no longer subject
to backup withholding.
o I certify under penalties of perjury that a Taxpayer Identification
Number has not been issued to me and I have mailed or delivered an
application to receive a Taxpayer Identification Number to the Internal
Revenue Service Center or Social Security Administration Office. I understand
that if I do not provide a Taxpayer Identification Number within 60 days that
31% of all reportable payments will be withheld until I provide a number.
==============================================================================

DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
o Share Option -- Income distributions and capital gains distributions
automatically reinvested in additional shares.
o Income Option -- Income distributions and short term capital gains
distributions paid in cash, long term capital gains
distributions reinvested in additional shares.
o Cash Option -- Income distributions and capital gains distributions paid
in cash.
o By Check o By ACH to my bank checking or savings
account.
PLEASE ATTACH A VOIDED CHECK.
==============================================================================

SIGNATURES
By signature below each investor certifies that he has received a copy of the
Fund's current Prospectus, that he is of legal age, and that he has full
authority and legal capacity for himself or the organization named below, to
make this investment and to use the options selected above. The investor
appoints Countrywide Fund Services, Inc. as his agent to enter orders for shares
whether by direct purchase or exchange, to receive dividends and distributions
for automatic reinvestment in additional shares of the Trust for credit to the
investor's account and to surrender for redemption shares held in the investor's
account for payment of service charges incurred by the investor. The investor
further agrees that Countrywide Fund Services, Inc. can cease to act as such
agent upon ten days' notice in writing to the investor at the address contained
in this Application. The investor hereby ratifies any instructions given
pursuant to this Application and for himself and his successors and assigns does
hereby release the Trust, Gannett Welsh & Kotler, Inc., Countrywide Fund
Services, Inc., and their respective officers, employees, agents and affiliates
from any and all liability in the performance of the acts instructed herein.
Neither the Trust, Countrywide Fund Services, Inc., nor their respective
affiliates will be liable for complying with telephone instructions they
reasonably believe to be genuine or for any loss, damage, cost or expense in
acting on such telephone instructions. The investor(s) will bear the risk of any
such loss. The Trust or Countrywide Fund Services, Inc., or both, will employ
reasonable procedures to determine that telephone instructions are genuine. If
the Trust and/or Countrywide Fund Services, Inc. do not employ such procedures,
they may be liable for losses due to unauthorized or fraudulent instructions.
These procedures may include, among others, requiring forms of personal
identification prior to acting upon telephone instructions, providing written
confirmation of the transactions and/or tape recording telephone instructions.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.

____________________________________ _______________________________________
Signature of Individual Owner, Signature of Joint Owner, if Any
Corporate Officer, Trustee, etc.

____________________________________ _______________________________________
Title of Corporate Officer, Date
Trustee, etc.

NOTE:CORPORATIONS, BUSINESS TRUSTS AND OTHER ORGANIZATIONS MUST COMPLETE
THE RESOLUTION FORM ON THE REVERSE SIDE. UNLESS OTHERWISE SPECIFIED, EACH JOINT
OWNER SHALL HAVE FULL AUTHORITY TO ACT ON BEHALF OF THE ACCOUNT.

<PAGE>

AUTOMATIC INVESTMENT PLAN (COMPLETE FOR INVESTMENTS INTO THE FUND)
The Automatic Investment Plan is available for all established accounts of The
Gannett Welsh & Kotler Funds. There is no charge for this service, and it offers
the convenience of automatic investing on a regular basis. The minimum
investment is $100.00 per month. For an account that is opened by using this
Plan, the minimum initial and subsequent investments must be $100.00. Though a
continuous program of 12 monthly investments is recommended, the Plan may be
discontinued by the shareholder at any time.

Please invest $ _____ per month in the ABA Routing Number_______________
GW&K Equity Fund

FI Account Number________________

o Checking Account o Savings Account
_____________________________________
Name of Financial Institution (FI) Please make my automatic investment on:

o the last business day of each month
_____________________________________ o the 15th day of each month
City State o both the 15th and last business day

X____________________________________ X_____________________________________
(Signature of Depositor EXACTLY as it (Signature of Joint Tenant - if any)
appears on FI Records)

(Joint Signatures are required when bank account is in joint names. Please
sign exactly as signature appears on your FI's records.)

PLEASE ATTACH A VOIDED CHECK FOR THE AUTOMATIC INVESTMENT PLAN.

INDEMNIFICATION TO DEPOSITOR'S BANK
In consideration of your participation in a plan which Countrywide Fund
Services, Inc. ("Countrywide") has put into effect, by which amounts, determined
by your depositor, payable to the Fund, for purchase of shares of the Fund, are
collected by Countrywide, Countrywide hereby agrees:

Countrywide will indemnify and hold you harmless from any liability to any
person or persons whatsoever arising out of the payment by you of any amount
drawn by the Fund to its own order on the account of your depositor or from any
liability to any person whatsoever arising out of the dishonor by you whether
with or without cause or intentionally or inadvertently, of any such amount.
Countrywide will defend, at its own cost and expense, any action which might be
brought against you by any person or persons whatsoever because of your actions
taken pursuant to the foregoing request or in any manner arising by reason of
your participation in this arrangement. Countrywide will refund to you any
amount erroneously paid by you to the Fund if the claim for the amount of such
erroneous payment is made by you within six (6) months from the date of such
erroneous payment; your participation in this arrangement and that of the Fund
may be terminated by thirty (30) days written notice from either party to the
other.
==============================================================================

AUTOMATIC WITHDRAWAL PLAN (COMPLETE FOR WITHDRAWALS FROM THE FUND)
This is an authorization for you to withdraw $_________ from my mutual fund
account beginning the last business day of the month of:_____________.

Please Indicate Withdrawal Schedule (Check One):

o MONTHLY -- Withdrawals will be made on the last business day of each month.
o QUARTERLY -- Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31.
o ANNUALLY -- Please make withdrawals on the last business day of the
month of:___________.

Please Select Payment Method (Check One):

o EXCHANGE: Please exchange the withdrawal proceeds into another account number:
____ ____ -- ____ ____ ____ ____ ____ ____ -- ____
o CHECK: Please mail a check for my withdrawal proceeds to the mailing address
on this account.
o ACH TRANSFER: Please send my withdrawal proceeds via ACH transfer to my bank
checking or savings account as indicated below. I understand
that the transfer will be completed in two to three business
days and that there is no charge.
o BANK WIRE: Please send my withdrawal proceeds via bank wire, to the account
indicated below. I understand that the wire will be completed in
one business day and that there is an $8.00 fee.

PLEASE ATTACH A VOIDED ________________________________________________
CHECK FOR ACH OR BANK WIRE Bank Name Bank Address

________________________________________________
Bank ABA# Account # Account Name

o SEND TO SPECIAL PAYEE (OTHER THAN APPLICANT): Please mail a check for my
withdrawal proceeds to the mailing address below:

Name of payee_________________________________________________________________

Please send to:_______________________________________________________________
Street address City State Zip

==============================================================================

RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of The
Gannett Welsh & Kotler Funds (the Trust) and that

______________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf of
the corporation or organization and to take any action for it as may be
necessary or appropriate with respect to its shareholder account with the Trust,
and it is

FURTHER RESOLVED: That any one of the above noted officers is authorized to
sign any documents necessary or appropriate to appoint Countrywide Fund
Services, Inc. as redemption agent of the corporation or organization for shares
of the applicable series of the Trust, to establish or acknowledge terms and
conditions governing the redemption of said shares and to otherwise implement
the privileges elected on the Application.

CERTIFICATE

I hereby certify that the foregoing resolutions are in conformity with the
Charter and Bylaws or other empowering documents of the

______________________________________________________________________________
(Name of Organization)

incorporated or formed under the laws of______________________________________
(State)

and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on ______ at which a quorum was
present and acting throughout, and that the same are now in full force and
effect.

I further certify that the following is (are) duly elected officer(s) of
the corporation or organization, authorized to act in accordance with the
foregoing resolutions.

NAME TITLE

_________________________________________ __________________________________

Witness my hand and seal of the corporation or organization
this___________________day of____________________, 19_______

__________________________________________ __________________________________
*Secretary-Clerk Other Authorized Officer
(if required)

*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.

<PAGE>

PROSPECTUS
November 30, 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.

<PAGE>

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 . . . . . . . . . . . .39%(A)
12b-1 Fees. . . . . . . . . . . . . . . . . . . . . .03%(B)
Other Expenses. . . . . . . . . . . . . . . . . . . .58%
-----
Total Fund Operating Expenses After Waivers . . . . 1.00%(C)
=====

(A) Absent waivers of management fees, such fees would have been .75%.
(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 1.36%.

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

- 2 -
<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, 1998 appear in the Statement of Additional Information of the
Fund, which can be obtained at no charge by calling (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 EACH PERIOD:

Year Ended Period Ended
Sept. 30, 1998 Sept. 30, 1997(A)
-------------- --------------

Net asset value at beginning of period ....... $ 10.23 $ 10.00
---------- ----------

Income from investment operations:
Net investment income ...................... 0.56 0.50
Net realized and unrealized
gains (losses) on investments ....... (0.05) 0.23
---------- ----------
Total from investment operations ............. 0.51 0.73
---------- ----------
Less distributions:
Dividends from net investment income ....... (0.56) (0.50)
Distributions in excess of net
investment income ........................ (0.04) --
Distribution from net realized gains ....... (0.02) --
---------- ----------
Total distributions .......................... (0.62) (0.50)
---------- ----------

Net asset value at end of period ............. $ 10.12 $ 10.23
========== ==========
RATIOS AND SUPPLEMENTAL DATA:

Total return ................................. 5.07% 7.50%(D)
========== ==========

Net assets at end of period (000's) .......... $ 35,312 $ 24,855
========== ==========

Ratio of net expenses to average net assets(B) 1.00% 0.97%(C)

Ratio of net investment income to ............ 5.40% 6.19%(C)
average net assets

Portfolio turnover rate ...................... 37% 44%(C)
- --------------------------------------------------------------------------------

(A) Represents the period from the initial public offering of shares (December
16, 1996) through September 30, 1997.

(B) Absent fee waivers by the Adviser, the ratios of expenses to average net
assets would have been 1.36% and 1.47%(C) for the periods ended September
30, 1998 and 1997, respectively.

(D) Not Annualized.

- 3 -
<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

- 6 -
<PAGE>

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.

- 7 -
<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.

- 8 -
<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,

- 9 -
<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
or liquid securities in an amount at least equal to these commitments.

- 10 -
<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

- 11 -
<PAGE>

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.

HOW TO PURCHASE SHARES
- ----------------------

- 12 -
<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.

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.

- 13 -
<PAGE>

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

Tax-Deferred Retirement Plans
-----------------------------

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

Direct Deposit Plans
--------------------

Automatic Investment Plan
-------------------------

- 14 -
<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
- --------------------

- 15 -
<PAGE>

Shares are redeemed at their net asset value per share next determined
after receipt by the Transfer Agent of a proper 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, government 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 require you to
close your account if at any time the value of your shares is less than the
minimum amount required by the Trust for your account (based on actual amounts
invested, unaffected by market fluctuations) or such other minimum amount as the
Trust may determine from time to time. After notification to you of the Trust's
intention to close your account, you will be given thirty days to increase the
value of your account to the minimum amount.

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 Investment 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.

- 16 -
<PAGE>

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:

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.

- 17 -
<PAGE>

TAXES
- -----

The Fund has qualified in all prior years 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.

OPERATION OF THE FUND
- ---------------------

- 18 -
<PAGE>

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.

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.

- 19 -
<PAGE>

$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.

DISTRIBUTION PLAN
- -----------------

- 20 -
<PAGE>

CALCULATION OF SHARE PRICE
- --------------------------

- 21 -
<PAGE>

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.

- 22 -
<PAGE>

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.

- 23 -
<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)

- 24 -
<PAGE>

[Logo] The
Gannett
Welsh &
Kotler
Funds

GW&K Government Securities Fund

Prospectus

No-Load Fund

- 25 -
<PAGE>

ACCOUNT APPLICATION
Please mail account application to:
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354

THE GANNETT WELSH & KOTLER FUNDS
GW&K GOVERNMENT SECURITIES FUND
ACCOUNT NO. G1__________________
(For Fund Use Only)

===============================================================================

Initial Investment of $____________________________ ($2,000 minimum)

o Check or draft enclosed payable to the Fund.

o Bank Wire From: __________________________________________________________

o Exchange From: __________________________________________________________
(Fund Name) (Fund Account Number)

ACCOUNT NAME S.S. #/TAX I.D.#

_________________________________________________ ________________________
Name of Individual, Corporation, (In case of custodial account
Organization, or Minor, etc. please list minor's S.S.#)

_________________________________________________ Citizenship: o U.S.
Name of Joint Tenant, Partner, Custodian o Other______

ADDRESS PHONE

_________________________________________________ ( )_______________________
Street or P.O. Box Business Phone

_________________________________________________ ( )_______________________
City State Zip Home Phone

Check Appropriate Box: o Individual
o Joint Tenant (right of survivorship presumed)
o Partnership
o Corporation
o Trust
o Custodial
o Non-Profit
o Other

Occupation and Employer Name/Address__________________________________________

Are you an associated person of an NASD member? o Yes o No

==============================================================================

TAXPAYER IDENTIFICATION NUMBER -- Under penalties of perjury I certify that the
Taxpayer Identification Number listed above is my correct number. Check box if
appropriate:

____________________________________ _______________________________________
Signature of Individual Owner, Signature of Joint Owner, if Any
Corporate Officer, Trustee, etc.

____________________________________ _______________________________________
Title of Corporate Officer, Date
Trustee, etc.

<PAGE>

Please invest $ _____ per month in the ABA Routing Number_______________
GW&K Government Securities Fund

FI Account Number________________

o Checking Account o Savings Account
_____________________________________
Name of Financial Institution (FI) Please make my automatic investment on:

o the last business day of each month
_____________________________________ o the 15th day of each month
City State o both the 15th and last business day

X____________________________________ X_____________________________________
(Signature of Depositor EXACTLY as it (Signature of Joint Tenant - if any)
appears on FI Records)

(Joint Signatures are required when bank account is in joint names. Please
sign exactly as signature appears on your FI's records.)

PLEASE ATTACH A VOIDED CHECK FOR THE AUTOMATIC INVESTMENT PLAN.

Please Indicate Withdrawal Schedule (Check One):

Please Select Payment Method (Check One):

PLEASE ATTACH A VOIDED ________________________________________________
CHECK FOR ACH OR BANK WIRE Bank Name Bank Address

________________________________________________
Bank ABA# Account # Account Name

o SEND TO SPECIAL PAYEE (OTHER THAN APPLICANT): Please mail a check for my
withdrawal proceeds to the mailing address below:

Name of payee_________________________________________________________________

Please send to:_______________________________________________________________
Street address City State Zip

==============================================================================

CERTIFICATE

I hereby certify that the foregoing resolutions are in conformity with the
Charter and Bylaws or other empowering documents of the

______________________________________________________________________________
(Name of Organization)

incorporated or formed under the laws of______________________________________
(State)

I further certify that the following is (are) duly elected officer(s) of
the corporation or organization, authorized to act in accordance with the
foregoing resolutions.

NAME TITLE

_________________________________________ __________________________________

Witness my hand and seal of the corporation or organization
this___________________day of____________________, 19_______

__________________________________________ __________________________________
*Secretary-Clerk Other Authorized Officer
(if required)

*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.

<PAGE>

THE GANNETT WELSH & KOTLER FUNDS
--------------------------------

STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------

November 30, 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 November 30, 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).

<PAGE>

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

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

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

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

HISTORICAL PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . 27

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

CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

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

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

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

- 2 -
<PAGE>

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

- 3 -
<PAGE>

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;

- 4 -
<PAGE>

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

- 5 -
<PAGE>

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

- 6 -
<PAGE>

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

- 7 -
<PAGE>

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

- 8 -
<PAGE>

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 or 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 TBA basis and
the securities held in the Fund's

- 9 -
<PAGE>

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 effective for the period
of time the Fund's money will be

- 10 -
<PAGE>

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.

- 11 -
<PAGE>

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,

- 12 -
<PAGE>

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.

- 13 -
<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.

- 14 -
<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.

- 15 -
<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.

- 16 -
<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.

- 17 -
<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 (above). 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.

- 18 -
<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 54 President/Trustee $ 0
*Benjamin H. Gannett 56 Treasurer/Trustee 0
Arlene Zoe Aponte-Gonzalez 42 Trustee 4,000
Morton S. Grossman 75 Trustee 3,500
Timothy P. Neher 51 Trustee 4,000
+Josiah A. Spaulding, Jr. 47 Trustee 4,500
+Allan Tofias 68 Trustee 4,000
Irwin M. Heller 52 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 previously 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.

- 19 -
<PAGE>

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.

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 receives an annual retainer of $2,000 and a
$500 fee for each Board meeting attended and is 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 periods ended
September 30, 1998 and 1997, the GW&K Equity Fund paid advisory fees of $384,880
(net of voluntary fee waivers of $75,000) and $160,252 (net of voluntary fee
waivers of $58,128), respectively. For the fiscal periods ended September 30,
1998 and 1997, the GW&K Government Securities Fund paid advisory fees of
$112,824 (net of voluntary fee waivers of $104,000) and $39,071 (net of
voluntary fee waivers of $80,153), respectively.

- 20 -
<PAGE>

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 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, 1999 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

- 21 -
<PAGE>

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. For the fiscal year ended September 30, 1998, the GW&K Equity Fund
incurred distribution expenses of $9,345 and the GW&K Government Securities Fund
incurred distribution expenses of $8,127, which were incurred for the
preparation of prospectuses and reports for prospective shareholders.

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

- 22 -
<PAGE>

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.

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 periods
ended September 30, 1998 and 1997, the GW&K Equity Fund paid brokerage
commissions of $54,920 and $32,918, respectively.

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

- 23 -
<PAGE>

Funds and to accounts over which it exercises investment discretion. During the
fiscal year ended September 30, 1998, the amount of brokerage transactions and
related commissions for the GW&K Equity Fund directed to brokers due to research
services provided were $1,470,450 and $1,128, respectively.

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 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. 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 access persons
of the Adviser also include a ban on acquiring any securities in an initial
public offering and trading "blackout periods" which prohibit trading by access
persons of the Adviser within periods of trading by either Fund in the same (or
equivalent) security.

- 24 -
<PAGE>

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.

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 periods ended September 30, 1998 and 1997, the
annualized portfolio turnover rate was 30% and 13%, respectively, for the GW&K
Equity Fund and 37% and 44%, respectively, 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

- 25 -
<PAGE>

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 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. As of September 30, 1998, the GW&K Equity Fund and the
GW&K Government Securities Fund had capital loss carryforwards for federal
income tax purposes of $111,490 and $296,060, respectively, none of which expire
prior to September 30, 2006.

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

- 26 -
<PAGE>

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:

n
P (1 + T) = 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
returns of the GW&K Government Securities Fund for the one year period ended
September 30, 1998 and the period since inception (December 16, 1996) until
September 30, 1998 are 5.07% and 7.04%, respectively. The average annual total
returns of the GW&K Equity Fund for the periods ended September 30, 1998 are as
follows:

- 27 -
<PAGE>

1 Year -5.99%
5 Years 14.20%
Since Inception (August 1, 1991) 14.45%

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.

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:

6
Yield = 2[(a-b/cd + 1) - 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, 1998 were .50% and 5.13%,
respectively.

- 28 -
<PAGE>

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:

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 Russell 2000 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 Russell 2000 Average, 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.

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 November 6, 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 6.5% of the outstanding shares of the GW&K
Government Securities Fund.

- 29 -
<PAGE>

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 each
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.

AUDITORS
- --------

The firm of Arthur Andersen LLP has been selected as independent public
accountants for the Trust for the fiscal year ending September 30, 1999. 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

- 30 -
<PAGE>

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. 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. During the
fiscal periods ended September 30, 1998 and 1997, the Transfer Agent received
administrative fees of $46,066 and $19,090, respectively, from the GW&K Equity
Fund and $28,882 and $13,305, respectively, from the GW&K Government Securities
Fund.

ANNUAL REPORT
- -------------

The Funds' financial statements as of September 30, 1998, which have been
audited by Arthur Andersen LLP, are attached to this Statement of Additional
Information.

- 31 -
<PAGE>

G The
W Gannett
& Welsh &
K Kotler
Funds

- --------------------------------------------------------------------------------
GW&K Equity Fund
- --------------------------------------------------------------------------------
GW&K Government Securities Fund
- --------------------------------------------------------------------------------

Annual Report
September 30, 1998

<PAGE>

Letter from the President November 4, 1998
- --------------------------------------------------------------------------------

Dear Shareholders,

Economic globalization has provided wonderful benefits to world economies such
as heightened living standards and new avenues for growth; however, it has also
created a new level of economic interdependence. Nations today are tied together
as never before. This interdependence is defined not only by global trade for
goods and services, but also by flows of capital from country to country. For
example, when one country lacks capital, another country provides it in the form
of loans or investment. This chain of financing and flow of capital has aided
the rapid development of many economies and nations in recent years. Even here
in the U.S., our persistent trade deficit is largely financed by the sale of
Treasury securities to foreign nations like Japan.

For a myriad of reasons, including the economic and political turmoil in much of
Southeast Asia, Russia, and Latin America, the confidence needed to maintain the
orderly flow of capital has been upset and we find ourselves in a liquidity
squeeze. Investors worldwide have sought the safety and liquidity of U.S.
government securities, which have become the storage for world value since the
gold standard was abandoned. As global investment shifted to Treasuries, almost
all other securities were avoided, and in many cases sold. Few markets have
sufficient liquidity to withstand such a unilateral mass exodus.

Just as confidence and liquidity factors have skewed the bond market toward
Treasuries, they have caused a significant shift in our equity markets away from
small capitalization companies. Outside the largest multinational corporations
and banks, business appears healthy for the majority of medium and small sized
U.S. companies. Their stock price declines are more symptomatic of a liquidity
squeeze, not an earnings crisis. Smaller stocks are getting overlooked and sold
irrespective of the fundamental strength of their businesses.

As painful as corrections are, they bring about positive changes by directing
attention to the problems at hand. The world is now focusing on our global
economic problems. Though these problems are not easily solved, this heightened
attention will make the world's capital markets safer. Better that issues are
resolved while our trading partners have a manageable impact on our domestic
business, than years from now when globalization will create a higher degree of
interdependency. While market corrections are an integral part of the investment
process, we remain confident that fundamental research, the mainstay of our
investment philosophy, is rewarded.

Gannett Welsh & Kotler's investment advisory business continues to grow at a
steady pace, as do our mutual funds. As of September 30, 1998, the firm's total
assets under management were approaching $2.7 billion, and the Equity and
Government Securities Funds reached $47 million and $35 million, respectively.
The Funds allow clients to access our management, exclusive of account size. We
are committed to meeting the financial aspirations of all our clients.

Harold G. Kotler, CFA
President

1
<PAGE>

GW&K Equity Fund
Letter to Shareholders November 4, 1998
- --------------------------------------------------------------------------------

Dear Fellow Shareholders,

The second annual report of the GW&K Equity Fund is coming to you reflecting a
period of weakness in the stock market. Just as in past declines, there are many
causes for the market weakness, and, we believe, more reasons for focusing on
the long-term potential of well-run businesses. Declining stock prices create
opportunities for investors to search out undervalued companies that will
benefit from the inevitable rise in worldwide demand for goods and services by a
population that is both increasing and growing wealthier.

At the end of the fiscal year the Fund's assets stood at $47 million, down from
the peak of over $50 million in July, but ahead of the $37 million a year ago.
Net inflows have continued, totaling $13 million for the past twelve months.

We have made a commitment to holding about half of the portfolio in a carefully
selected group of smaller capitalization companies. Their sharp price declines
created the large difference between the Fund's returns and those of the average
growth and income fund. However, this same investment approach created the top
quartile results that we reported to you in our March semi-annual report.

For the year ending September 30, 1998, the total return (price change and
reinvested distributions) for the GW&K Equity Fund was -5.99%, which compares
with 9.05% for the Standard & Poor's 500 Index and -18.90% for the Russell 2000
Index of smaller companies. This placed the Fund in the 76th percentile as
measured against 715 growth and income funds tracked by Lipper Analytical
Services whose average return was -1.08%. The Fund's entire decline occurred in
the fourth quarter when the Fund was down 17.11%. This compares with the Lipper
average of -12.47%, placing the Fund in the 90th percentile. When compared with
the Morningstar growth and income funds, our percentile rankings were 93rd for
the quarter and 80th for the past year.

Just as in past periods of uncertainty, small company stocks go down more than
stocks of the larger "blue chip" companies. Importantly, over the long term,
smaller companies' stocks have provided excellent returns, and most of their
good performance comes during the sharp rebounds that follow market declines.
While the recent past has been unsettling, we believe that continuing to hold
smaller company stocks will enhance long-term results. We further believe that
to react now to declining share prices by selling underperforming stocks to seek
the apparent protection of larger companies would be an unwise maneuver.

2
<PAGE>

GW&K Equity Fund
Letter to Shareholders (Continued) November 4, 1998
- --------------------------------------------------------------------------------

Establishing a sound investment plan and consistently adhering to that plan
irrespective of short-term trends is for us the correct approach. Our investment
strategy provides diversification across the market capitalization spectrum. In
the past we have done better than average among our growth and income peer group
during rising markets, and have done best when small stocks lead the way.

In the midst of weak stock prices we realized losses in a few positions. We did
this by selling some stocks, with the intention of repurchasing them, and by
doubling up on others, waiting for the appropriate time to sell the higher cost
shares. For this reason, some holdings in the Portfolio of Investments may
appear to be out of line with others. We executed these trades to offset the
significant gains we had taken much earlier in the fiscal year. As a result, the
Fund will not pay a capital gain distribution to shareholders this year. In
December, you will receive the net income distribution.

Periods of uncertainty and reduced investor confidence occur more often than we
realize. Stocks have declined 15% or more many times since the 1950's. Each time
it looks like new and more intractable problems will derail stocks' favorable
performance. While we do not have a crystal ball, we believe that the odds favor
continued good performance from well-researched stock portfolios. We remain
committed to investing in a diverse group of companies.

Sincerely,

Edward B. White, CFA, CIC
GW&K Equity Fund
Portfolio Manager

3
<PAGE>

GW&K Government Securities Fund
Letter to Shareholders November 4, 1998
- --------------------------------------------------------------------------------

Dear Fellow Shareholders,

We are pleased to report on the status of the GW&K Government Securities Fund
for the fiscal year ending September 30, 1998. Assets have grown to $35 million
from $24 million as of September 30, 1997. This growth came from both an
increase in the number of Fund shareholders as well as from an increased
allocation to the Fund by existing shareholders.

The interest rate backdrop for this past fiscal year was one of dramatic rate
declines. The yield on the 10-year Treasury bond, a benchmark for fixed rate
mortgage pricing, dropped by 170 basis points from 6.1% on September 30, 1997,
to 4.4% on September 30, 1998. Coupled with this drop in rates, employment in
the U.S. was strong, consumer confidence was high, housing values appreciated
across much of the country, and new housing starts surged. This environment made
it easier for consumers to refinance an existing mortgage or to pay off an
existing mortgage and relocate. Consequently, prepayment rates for
mortgage-backed securities rose. Although the GW&K Fund purchases only seasoned
pools, we did not escape the prepayment wave. The NAV of the Fund dropped over
the twelve-month period, reflecting not only the effects of the accelerating
rate of principal paydowns, but also the impact of significant spread widening
in the valuation of mortgage-backed securities. As a result, the total
performance of the fund was 5.1% for the year, versus 7.9% for the Lehman U.S.
Government 1-3 Year Index. However, we were able to maintain the dividend
distribution rate on the Fund close to 6.0%, consistent with our objective for
good current income flow.

We believe that there are now significant opportunities in this market sector as
the flight to the U.S. Treasury market has enabled us to purchase
mortgage-backed pools at significant yield premiums to comparable Treasury
notes. Our strategy will continue to be one of diversification within the
seasoned premium mortgage-backed sector and we will continue to buy pools that
should deliver strong relative value based on our research.

Sincerely,

Jeanne M. Skettino, CFA
GW&K Government Securities Fund
Portfolio Manager

4
<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.

- --------------------------------------------------------------------------------
Sept 98
-------
GW&K Equity Fund $26,308
S&P 500 Index $31,289
Russell 2000 Index $23,478

- --------------------------------------------------------------------------------
GW&K Equity Fund
Average Annual Total Return

1 Year 5 Years From Inception*
(5.99)% 14.20% 14.45%

Past performance is not indicative 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 peirods 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.

GW&K Government Securities Fund

Comparision 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.

- --------------------------------------------------------------------------------
Sept 98
-------
GW&K Government Securities Fund $11,294
Lehman 1-3 Year Government Bond Index $11,324
- --------------------------------------------------------------------------------
GW&K Government Securities Fund
Average Annual Total Return

1 Year Since Inception
5.07% 7.04%

Past performance is not indicative of future performance.
- --------------------------------------------------------------------------------

*Initial public offering of shares was December 16, 1996.

5
<PAGE>

<TABLE>
<CAPTION>
The Gannett Welsh & Kotler Funds
Statements of Assets and Liabilities
September 30, 1998
==========================================================================================================
GW&K
GW&K GOVERNMENT
EQUITY SECURITIES
FUND FUND
- ----------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities:
<S> <C> <C>
At amortized cost .................................................... $ 40,518,443 $ 34,691,473
============ ============
At market value (Note 2) ............................................. $ 46,953,669 $ 34,861,098
Cash .................................................................... 34,720 1,189
Dividends and interest receivable ....................................... 61,219 340,476
Receivable for capital shares sold ...................................... 53,691 260,000
Receivable for securities sold .......................................... 132,819 --
Receivable for principal paydowns ....................................... -- 190,591
Organization expenses, net (Note 2) ..................................... 21,217 21,217
Other assets ............................................................ 3,738 4,601
------------ ------------
TOTAL ASSETS ......................................................... 47,261,073 35,679,172
------------ ------------
LIABILITIES
Dividends payable to shareholders ....................................... -- 29,395
Payable for capital shares redeemed ..................................... 350 3,000
Payable for securities purchased ........................................ -- 284,377
Payable to affiliates (Note 4) .......................................... 56,564 35,269
Other accrued expenses and liabilities .................................. 20,506 15,060
------------ ------------
TOTAL LIABILITIES .................................................... 77,420 367,101
------------ ------------
NET ASSETS .............................................................. $ 47,183,653 $ 35,312,071
============ ============
Net assets consist of:
Paid-in capital ......................................................... $ 40,837,585 $ 35,308,773
Undistributed net investment income ..................................... 77,789 129,733
Accumulated net realized losses from security transactions .............. (166,947) (296,060)
Net unrealized appreciation on investments (Note 1) ..................... 6,435,226 169,625
------------ ------------
Net assets .............................................................. $ 47,183,653 $ 35,312,071
============ ============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) ........................... 4,327,356 3,489,898
============ ============

Net asset value, offering price and redemption price per share (Note 1) . $ 10.90 $ 10.12
============ ============
</TABLE>

See accompanying notes to financial statements.

6
<PAGE>

<TABLE>
<CAPTION>
The Gannett Welsh & Kotler Funds
Statements of Operations
For the Year Ended September 30, 1998
===================================================================================================
GW&K
GW&K GOVERNMENT
EQUITY SECURITIES
FUND FUND
- ---------------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Interest ........................................................ $ -- $ 1,828,212
Dividends ....................................................... 698,574 24,823
----------- -----------
TOTAL INVESTMENT INCOME ....................................... 698,574 1,853,035
----------- -----------
EXPENSES
Investment advisory fees (Note 4) ............................... 459,880 216,824
Administration fees (Note 4) .................................... 46,066 28,882
Accounting services fees (Note 4) ............................... 26,000 24,000
Custodian fees .................................................. 24,186 16,055
Pricing fees .................................................... 1,205 27,562
Professional fees ............................................... 12,787 12,787
Insurance expense ............................................... 15,131 9,371
Transfer agent fees (Note 4) .................................... 12,000 12,000
Trustees' fees and expenses ..................................... 11,328 11,328
Registration fees ............................................... 10,907 9,467
Distribution expenses (Note 4) .................................. 9,345 8,127
Reports to shareholders ......................................... 9,162 6,281
Organization expenses (Note 2) .................................. 6,700 6,700
Postage and supplies ............................................ 5,152 3,715
----------- -----------
TOTAL EXPENSES ................................................ 649,849 393,099
Fees waived by the Adviser (Note 4) ............................. (75,000) (104,000)
----------- -----------
NET EXPENSES .................................................. 574,849 289,099
----------- -----------

NET INVESTMENT INCOME .............................................. 123,725 1,563,936
----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains (losses) from security transactions .......... 2,930,429 (31,710)
Net change in unrealized appreciation/depreciation on investments (6,560,514) (133,913)
----------- -----------

NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS .................. (3,630,085) (165,623)
----------- -----------

NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .............. $(3,506,360) $ 1,398,313
=========== ===========
</TABLE>

See accompanying notes to financial statements.

7
<PAGE>

<TABLE>
<CAPTION>
The Gannett Welsh & Kotler Funds
Statements of Changes in Net Assets
For the Periods Ended September 30, 1998 and 1997
=============================================================================================================================
GW&K GW&K
EQUITY FUND GOVERNMENT SECURITIES FUND
- -----------------------------------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1998 1997(A) 1998 1997(A)
- -----------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ................................. $ 123,725 $ 94,608 $ 1,563,936 $ 985,602
Net realized gains (losses) from security transactions 2,930,429 694,978 (31,710) 42,296
Net change in unrealized appreciation/depreciation
on investments ...................................... (6,560,514) 6,776,858 (133,913) 303,538
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from operations .... (3,506,360) 7,566,444 1,398,313 1,331,436
------------ ------------ ------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income .................. (140,544) -- (1,563,936) (985,602)
Distributions in excess of net investment income ...... -- -- (134,858) --
Distributions from net realized gains ................. (3,792,354) -- (42,055) --
------------ ------------ ------------ ------------
Decrease in net assets from distributions to shareholders (3,932,898) -- (1,740,849) (985,602)
------------ ------------ ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold ............................. 15,867,029 30,589,751 13,536,142 25,204,381
Net asset value of shares issued in
reinvestment of distributions to shareholders ....... 3,902,989 -- 1,393,399 686,801
Payments for shares redeemed .......................... (2,493,861) (809,441) (4,129,661) (1,382,289)
------------ ------------ ------------ ------------
Net increase in net assets from capital share transactions 17,276,157 29,780,310 10,799,880 24,508,893
------------ ------------ ------------ ------------

TOTAL INCREASE IN NET ASSETS ............................. 9,836,899 37,346,754 10,457,344 24,854,727

NET ASSETS:
Beginning of period ................................... 37,346,754 -- 24,854,727 --
------------ ------------ ------------ ------------
End of period ......................................... $ 47,183,653 $ 37,346,754 $ 35,312,071 $ 24,854,727
============ ============ ============ ============
UNDISTRIBUTED NET
INVESTMENT INCOME ..................................... $ 77,789 $ 94,608 $ 129,733 $ --
============ ============ ============ ============
NUMBER OF SHARES:
Sold .................................................. 1,290,520 2,962,639 1,330,599 2,497,150
Reinvested ............................................ 354,791 -- 136,897 67,615
Redeemed .............................................. (206,950) (73,644) (406,243) (136,120)
------------ ------------ ------------ ------------
Net increase in shares outstanding .................... 1,438,361 2,888,995 1,061,253 2,428,645
Shares outstanding, beginning of period ............... 2,888,995 -- 2,428,645 --
------------ ------------ ------------ ------------
Shares outstanding, end of period ..................... 4,327,356 2,888,995 3,489,898 2,428,645
============ ============ ============ ============
</TABLE>

(A) Represents the period from the commencement of operations (October 17,
1996) through September 30, 1997.

See accompanying notes to financial statements.

8
<PAGE>

<TABLE>
<CAPTION>
The Gannett Welsh & Kotler Funds
Financial Highlights
For the Periods Ended September 30, 1998 and 1997
=======================================================================================================================
GW&K GW&K
EQUITY FUND GOVERNMENT SECURITIES FUND
- -----------------------------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1998 1997(A) 1998 1997(B)
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD:
<S> <C> <C> <C> <C>
Net asset value at beginning of period ............. $ 12.93 $ 10.00 $ 10.23 $ 10.00
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ............................ 0.03 0.03 0.56 0.50
Net realized and unrealized gains (losses)
on investments .................................. (0.80) 2.90 (0.05) 0.23
---------- ---------- ---------- ----------
Total from investment operations ................... (0.77) 2.93 0.51 0.73
---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income ............. (0.04) -- (0.56) (0.50)
Distributions in excess of net investment income . -- -- (0.04) --
Distributions from net realized gains ............ (1.22) -- (0.02) --
---------- ---------- ---------- ----------
Total distributions ................................ (1.26) -- (0.62) (0.50)
---------- ---------- ---------- ----------

Net asset value at end of period ................... $ 10.90 $ 12.93 $ 10.12 $ 10.23
========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA:

Total return ....................................... (5.99%) 29.30%(E) 5.07% 7.50%(E)
========== ========== ========== ==========

Net assets at end of period (000's) ................ $ 47,184 $ 37,347 $ 35,312 $ 24,855
========== ========== ========== ==========

Ratio of net expenses to average net assets(C) ..... 1.25% 1.25%(D) 1.00% 0.97%(D)

Ratio of net investment income to average net assets 0.27% 0.43%(D) 5.40% 6.19%(D)

Portfolio turnover rate ............................ 30% 13%(D) 37% 44%(D)
</TABLE>

(A) Represents the period from the initial public offering of shares (December
10, 1996) through September 30, 1997.

(B) Represents the period from the initial public offering of shares (December
16, 1996) through September 30, 1997.

(C) Absent fee waivers by the Adviser, the ratios of expenses to average net
assets would have been 1.41% and 1.51%(D) for the periods ended September
30, 1998 and 1997, respectively, for the Equity Fund, and 1.36% and
1.47%(D) for the periods ended September 30, 1998 and 1997, respectively,
for the Government Securities Fund.

(D) Annualized.

(E) Not annualized.

See accompanying notes to financial statements.

9
<PAGE>

The Gannett Welsh & Kotler Funds
Notes to Financial Statements
September 30, 1998
================================================================================

1. ORGANIZATION

The GW&K Equity Fund and the GW&K Government Securities Fund (individually, a
Fund and, 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 Trust commenced operations on October 17, 1996, when shares of each Fund
were issued at $10.00 per share to affiliates of Gannett Welsh & Kotler, Inc.,
the Funds' investment adviser, in order to provide the initial capitalization of
the Trust.

On December 10, 1996, the GW&K Equity Fund, prior to offering shares to the
public, exchanged its shares for portfolio securities of GW&K Equity Fund, L.P.
(the Partnership) as part of a tax-free reorganization of the Partnership. The
GW&K Equity Fund acquired the securities of the Partnership at the Partnership's
cost basis and holding periods, thus resulting in the acquisition of securities
with unrealized appreciation of $6,218,882 as of December 10, 1996. Subsequent
to the exchange transaction, the Fund began its initial public offering of
shares.

The GW&K Government Securities Fund began its initial public offering of shares
on December 16, 1996.

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.

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 trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time). U.S. Government obligations,
mortgage-backed securities and municipal obligations are generally valued at
their most recent bid prices as obtained from one or more of the major market
makers for such securities or are valued by an independent pricing service based
on estimates of market values obtained from yield data relating to instruments
or securities with similar characteristics. Portfolio securities traded on stock
exchanges or quoted by NASDAQ are valued at the closing sales price or, if not
traded on a particular day, at the closing bid price. Securities traded in the
over-the-counter market, and which are not quoted by NASDAQ, are valued at the
last sales price, if available, otherwise, at the last quoted bid price.
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 offering price and redemption price per
share of each Fund is equal to the net asset value per share.

Investment income -- Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date. Discounts and premiums on securities purchased
are amortized in accordance with income tax regulations which approximate
generally accepted accounting principles.

10
<PAGE>

Distributions to shareholders -- Dividends arising from net investment income
are declared daily and paid on the last business day of each month to
shareholders of the GW&K Government Securities Fund. Dividends arising from net
investment income, if any, are declared and paid annually to shareholders of the
GW&K Equity Fund. With respect to each Fund, net realized short-term capital
gains, if any, may be distributed throughout the year and net realized long-term
capital gains, if any, are distributed at least once each year. Income dividends
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.

Organizational expenses -- Expenses of organization, net of certain expenses
paid by the Adviser, have been capitalized and are being amortized on a
straight-line basis over five years.

Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income 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 has been 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, 1998:

- --------------------------------------------------------------------------------
GW&K
GW&K GOVERNMENT
EQUITY SECURITIES
FUND FUND
- --------------------------------------------------------------------------------
Gross unrealized appreciation ............ $ 11,018,793 $ 223,610
Gross unrealized depreciation ............ (4,639,393) (53,985)
------------ ------------
Net unrealized appreciation .............. $ 6,379,400 $ 169,625
============ ============

Federal income tax cost .................. $ 40,574,269 $ 34,691,473
============ ============
- --------------------------------------------------------------------------------

The difference between the federal income tax cost of portfolio investments and
financial statement cost for the GW&K Equity Fund is due to certain timing
differences in the recognition of capital losses under income tax regulations
and generally accepted accounting principles.

As of September 30, 1998, the GW&K Equity Fund and the GW&K Government
Securities Fund had capital loss carryforwards for federal income tax purposes
of $111,490 and $296,060, respectively, none of which expire

11
<PAGE>

prior to September 30, 2006. These capital loss carryforwards may be utilized in
future years to offset net realized capital gains prior to distribution to
shareholders.

Reclassification of capital accounts -- As of September 30, 1998, the GW&K
Government Securities Fund reclassified $264,591 from accumulated net realized
losses to undistributed net investment income. This reclassification, which was
the result of permanent differences between financial statement and income tax
reporting requirements pertaining to the treatment of losses on mortgage-backed
security prepayments, has no effect on the Fund's net assets or net asset value
per share.

3. INVESTMENT TRANSACTIONS

For the year ended September 30, 1998, cost of purchases and proceeds from sales
and maturities of investment securities, other than short-term investments,
amounted to $24,778,498 and $13,277,071, for the GW&K Equity Fund and
$21,905,001 and $10,544,077, respectively, for the GW&K Government Securities
Fund.

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, shareholder servicing and
transfer agent, and accounting services agent.

ADVISORY AGREEMENT
Each Fund's investments are managed by the Adviser pursuant to the terms of an
Advisory Agreement. The GW&K Equity Fund and the GW&K Government Securities Fund
each pay the Adviser a fee, which is computed and accrued daily and paid
monthly, at an annual rate of 1.00% and 0.75%, respectively, of 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 year ended September 30, 1998, the Adviser
voluntarily waived advisory fees of $75,000 and $104,000, respectively.

ADMINISTRATIVE SERVICES AGREEMENT
Under the terms of an Administration Agreement, 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, CFS receives a monthly fee from each Fund at the annual rate of 0.10%
on each Fund's respective average daily net assets up to $100 million; 0.075% on
such net assets from $100 million to $200 million; and 0.05% on such net assets
in excess of $200 million, subject to a $1,000 minimum monthly fee from each
Fund.

TRANSFER AGENT AGREEMENT
Under the terms of a Transfer, Dividend Disbursing, Shareholder Service and Plan
Agency Agreement, CFS maintains the records for each shareholder's account,
answers shareholders' inquiries concerning their accounts, processes purchases
and redemptions of each Fund's shares, acts as dividend and distribution
disbursing agent and performs other shareholder service functions. For these
services, CFS receives a monthly fee at an annual rate of $17 per shareholder
account from the GW&K Equity Fund and $21 per shareholder account from the GW&K
Government Securities Fund, subject to a $1,000 minimum monthly fee for each
Fund. In addition, each Fund pays out-of-pocket expenses including, but not
limited to, postage and supplies.

ACCOUNTING SERVICES AGREEMENT
Under the terms of an Accounting Services Agreement, 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, based on current asset
levels, 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
directly 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.

12
<PAGE>

GW&K Equity Fund
Portfolio of Investments
September 30, 1998
================================================================================
Market
Shares COMMON STOCKS -- 94.9% Value
- --------------------------------------------------------------------------------
BASIC MATERIALS -- 3.6%
40,000 Huntco, Inc. - Class A ..................... $ 280,000
8,000 Ionics, Inc.* .............................. 212,000
75,000 Universal Forest Products, Inc. ............ 1,190,625
------------
$ 1,682,625
------------
CONSUMER, CYCLICAL -- 10.9%
30,000 Career Blazers, Inc.*+ ..................... $ 195,000
80,000 DeVry, Inc.* ............................... 1,875,000
45,800 Extended Stay America, Inc.* ............... 366,400
16,000 May Department Stores Company .............. 824,000
20,000 Sears Roebuck & Co. ........................ 883,750
70,000 Standard-Pacific Corp. ..................... 988,750
------------
$ 5,132,900
------------
CONSUMER, NON-CYCLICAL -- 18.7%
44,000 Chiron Corp.* .............................. $ 874,500
16,000 General Mills, Inc. ........................ 1,120,000
43,000 First Health Group Corp.* .................. 1,042,750
8,500 Merck & Co., Inc. .......................... 1,101,281
38,000 NCO Group, Inc.* ........................... 1,056,875
34,000 Panamerican Beverages, Inc. ................ 605,625
29,000 PepsiCo, Inc. .............................. 853,688
10,000 Pfizer, Inc. ............................... 1,059,375
33,000 Sunrise Assisted Living, Inc.* ............. 1,132,313
------------
$ 8,846,407
------------
ENERGY -- 9.6%
35,972 AES Corp.* ................................. $ 1,333,212
57,000 Questar Corp. .............................. 1,097,250
22,000 Royal Dutch Petroleum Company .............. 1,047,750
21,240 Schlumberger Ltd. .......................... 1,068,637
------------
$ 4,546,849
------------
FINANCIAL SERVICES -- 14.7%
80,000 Berkshire Realty Company, Inc. ............. $ 835,000
30,000 Boston Properties, Inc. .................... 855,000
23,000 Capital One Financial Corp. ................ 2,380,500
6,000 Citigroup, Inc. ............................ 557,625
70,000 CRIIMI MAE, Inc. ........................... 616,875
3,800 General Re Corp. ........................... 771,400
17,000 MBIA, Inc. ................................. 912,688
------------
$ 6,929,088
------------

13
<PAGE>

GW&K Equity Fund
Portfolio of Investments (continued)
================================================================================
Market
Shares COMMON STOCK -- 94.9% Value
- --------------------------------------------------------------------------------
INDUSTRIAL -- 8.2%
13,000 Boeing Company ............................. $ 446,063
14,000 General Electric Company ................... 1,113,875
18,000 General Motors Corp. - Class H ............. 662,625
46,100 Republic Industries, Inc.* ................. 671,331
40,425 United Rentals, Inc.* ...................... 967,673
------------
$ 3,861,567
------------
TECHNOLOGY -- 14.6%
88,100 Brightpoint, Inc.* ......................... $ 677,269
41,000 Cognex Corp.* .............................. 476,625
23,000 Lernout & Hauspie Speech Products N.V.* .... 924,312
73,000 Mastech Corp.* ............................. 1,756,563
36,000 Oracle Corp.* .............................. 1,048,500
57,000 SDL, Inc.* ................................. 712,500
15,000 Xerox Corp. ................................ 1,271,250
------------
$ 6,867,019
------------
UTILITIES -- 14.6%
15,000 AT&T Corp. ................................. $ 876,562
22,000 Enron Corp. ................................ 1,161,875
20,000 GTE Corp. .................................. 1,100,000
40,000 Houston Industries, Inc. ................... 1,245,000
25,000 Northern Telecom Ltd. ...................... 800,000
35,000 MCI WorldCom, Inc.* ........................ 1,710,625
------------
$ 6,894,062
------------

TOTAL COMMON STOCKS ........................ $ 44,760,517
(Cost $38,325,291) ------------

================================================================================
Market
Shares CASH EQUIVALENTS -- 4.6% Value
- --------------------------------------------------------------------------------
2,193,152 Merrimac Cash Fund - Institutional Class ... $ 2,193,152
(Cost $2,193,152) ------------

TOTAL INVESTMENT SECURITIES -- 99.5% ...... $ 46,953,669
(Cost $40,518,443)

OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.5% 229,984
------------

NET ASSETS-- 100.0% ........................ $ 47,183,653
============

* Non-income producing security.
+ Restricted security.

See accompanying notes to financial statements.

14
<PAGE>

<TABLE>
<CAPTION>
GW&K Government Securities Fund
Portfolio of Investments
September 30, 1998
============================================================================================================
Par Market
Value MORTGAGE-BACKED SECURITIES-- 96.3% Value
- ------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION -- 39.9%
<S> <C> <C> <C>
$ 298,964 7.50%, 02/01/22................................................................ $ 310,084
247,783 8.00%, 11/01/10................................................................ 254,521
447,909 8.25%, 06/01/17................................................................ 465,826
872,144 8.50%, 03/01/08 thru 09/01/17.................................................. 908,046
998,559 8.75%, 10/01/08 thru 10/01/17.................................................. 1,044,268
812,906 9.00%, 06/01/08 thru 07/01/18.................................................. 859,034
1,851,238 9.25%, 10/01/08 thru 12/01/10.................................................. 1,968,207
983,800 9.50%, 03/01/09 thru 02/01/21.................................................. 1,058,930
2,036,209 9.75%, 04/01/08 thru 02/01/18.................................................. 2,198,009
1,176,085 10.00%, 01/01/01 thru 10/01/20................................................. 1,284,391
1,676,563 10.25%, 04/01/09 thru 09/01/12................................................. 1,822,605
224,845 10.50%, 06/01/00 thru 10/01/19................................................. 243,723
233,716 10.75%, 07/01/10............................................................... 255,263
895,118 11.00%, 12/01/00 thru 01/01/19................................................. 984,988
41,874 11.25%, 09/01/09 thru 11/01/13................................................. 46,768
172,810 11.50%, 09/01/11 thru 06/01/19................................................. 193,810
46,444 11.75%, 02/01/11 thru 07/01/13................................................. 52,489
118,543 12.50%, 01/01/10 thru 05/01/15................................................. 134,759
------------ -----------
$ 13,135,510 TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION .................................. $14,085,721
------------ (Amortized Cost $14,032,121) -----------

FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 26.3%
$ 402,702 7.50%, 02/01/14................................................................ $ 413,776
329,937 8.00%, 08/01/19................................................................ 343,560
1,277,657 8.50%, 12/01/08 thru 03/01/22.................................................. 1,335,560
655,362 8.75%, 08/01/07 thru 08/01/17.................................................. 687,217
376,388 9.00%, 06/01/10................................................................ 394,384
215,980 9.25%, 12/01/15................................................................ 231,401
599,614 9.50%, 02/01/11 thru 07/01/17.................................................. 646,375
110,204 9.75%, 05/01/09................................................................ 118,934
3,162,726 10.00%, 11/01/00 thru 02/01/21................................................. 3,439,819
74,811 10.25%, 05/01/09 thru 03/01/16................................................. 82,201
452,852 10.50%, 08/01/00 thru 09/01/20................................................. 494,916
71,370 10.75%, 09/01/09 thru 03/01/14................................................. 79,820
361,609 11.00%, 10/01/11 thru 07/01/15................................................. 388,975
16,865 11.25%, 10/01/15............................................................... 19,010
192,028 11.50%, 05/01/19............................................................... 217,472
256,115 11.75%, 04/01/12 thru 02/01/14................................................. 292,202
47,768 12.00%, 03/01/13 thru 07/01/13................................................. 54,910
28,667 12.25%, 05/01/10 thru 06/01/15................................................. 32,912
------------ -----------
$ 8,632,655 TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION ................................... $ 9,273,444
------------ (Amortized Cost $9,245,899) -----------
</TABLE>

15
<PAGE>

<TABLE>
<CAPTION>
GW&K Government Securities Fund
Portfolio of Investments (Continued)
============================================================================================================
Par Market
Value MORTGAGE-BACKED SECURITIES-- 96.3% (CONTINUED) Value
- ------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 30.0%
<S> <C> <C> <C>
$ 501,794 7.00%, 05/15/23................................................................ $ 517,069
209,443 8.75%, 11/15/08................................................................ 222,330
725,908 9.00%, 11/15/19 thru 06/15/21.................................................. 776,577
1,304,043 9.50%, 06/15/09 thru 08/20/19.................................................. 1,411,007
6,234 9.75%, 12/15/00 thru 01/15/01.................................................. 6,407
3,178,208 10.00%, 10/15/00 thru 10/15/21................................................. 3,486,944
15,783 10.25%, 05/15/99 thru 02/15/01................................................. 16,239
973,230 10.50%, 02/20/05 thru 10/20/19................................................. 1,079,566
427,865 11.00%, 12/15/09 thru 01/15/16................................................. 480,187
7,003 11.25%, 04/15/01............................................................... 7,321
1,911,982 11.50%, 03/15/10 thru 08/20/19................................................. 2,179,784
213,336 11.75%, 05/15/04 thru 08/15/13................................................. 238,190
16,211 12.00%, 08/15/13 thru 09/15/14................................................. 18,806
143,526 13.00%, 01/15/11 thru 01/15/15................................................. 168,682
------------ -----------
$ 9,634,566 TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ................................ $10,609,109
------------ (Amortized Cost $10,542,868) -----------

OTHER MORTGAGE-BACKED SECURITIES -- 0.1%
$ 45,931 Arkansas Development Finance Authority REMIC # 93-C, 8.20%, 02/15/14........... $ 48,062
------------ (Amortized Cost $46,972) -----------

$ 31,448,662 TOTAL MORTGAGE-BACKED SECURITIES .............................................. $34,016,336
============ (Amortized Cost $33,867,860) -----------

============================================================================================================
Par Market
Value MUNICIPAL OBLIGATIONS-- 1.7% Value
- ------------------------------------------------------------------------------------------------------------
$ 300,000 Texas St. HFA SFM Rev. Bond, 8.05%, 12/01/01................................... $ 325,830
250,000 Mississippi Housing Rev. Bond, 9.15%, 09/15/14 ................................ 272,650
------------ -----------
$ 550,000 TOTAL MUNICIPAL OBLIGATIONS ................................................... $ 598,480
============ (Amortized Cost $577,331) -----------

============================================================================================================
Market
Shares CASH EQUIVALENTS -- 0.7% Value
- ------------------------------------------------------------------------------------------------------------
246,282 Merrimac Cash Fund - Institutional Class ...................................... $ 246,282
(Amortized Cost $246,282) -----------

TOTAL INVESTMENT SECURITIES-- 98.7% ........................................... $34,861,098
(Amortized Cost $34,691,473)

OTHER ASSETS IN EXCESS OF LIABILITIES-- 1.3% .................................. 450,973
-----------

NET ASSETS-- 100.0% ........................................................... $35,312,071
===========
</TABLE>

See accompanying notes to financial statements.

16
<PAGE>

Report of Independent Public Accountants
================================================================================

Arthur Andersen LLP

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

We have audited the statements of assets and liabilities, including the
portfolio of investments, of The Gannett, Welsh & Kotler Funds (a Massachusetts
business trust) (comprising, respectively, the GW&K Government Securities Fund
and the GW&K Equity Fund), as of September 30, 1998, 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, 1998, 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 each
of the respective portfolios constituting The Gannett, Welsh & Kotler Funds as
of September 30, 1998, 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 30, 1998

17
<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, 1998 and 1997

(ii) Financial Statements included in Part B:

Statements of Assets & Liabilities,
September 30, 1998

Statements of Operations for the Year Ended
September 30, 1998

Statements of Changes in Net Assets for the
Periods Ended September 30, 1998 and 1997

Financial Highlights for the Periods Ended
September 30, 1998 and 1997

Notes to Financial Statements, September 30, 1998

Portfolios of Investments, September 30, 1998

(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 October 31,
1998, of the shares of beneficial interest of the Registrant.

Number of
Title of Class Record Holders
-------------- --------------

GW&K Equity Fund 283

GW&K Government Securities Fund 69

- 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 reason of disabling conduct, by (a) the vote of
a

- 3 -
<PAGE>

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. Formerly, 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. Formerly, 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, CFA - 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) Thomas J. Duff, CFA - Vice President of the Adviser.

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

(x) Karen Brack Gadbois, CFA - Vice President of the Adviser.

- 6 -
<PAGE>

(xi) James W. Karamourtopoulos - Vice President of the Adviser.

(xii) Janet M. Owens - Vice President of the Adviser.

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

(xiv) Kristen E. Stewart - 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
30th day of November, 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 November 30, 1998
- ------------------------------ and Trustee
Harold G. Kotler

/s/ Benjamin H. Gannett Treasurer November 30, 1998
- ------------------------------ and Trustee
Benjamin H. Gannett

- ------------------------------ Trustee
Arlene Zoe-Aponte Gonzalez*

- ------------------------------ Trustee By:/s/Tina D. Hosking
Morton S. Grossman* ------------------
Tina D. Hosking
Attorney-in-Fact*
- ------------------------------ Trustee November 30, 1998
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 in this
Post-Effective Amendment No. 3 of our report dated October 30, 1998 and to all
references to our Firm included in or made a part of this Post-Effective
Amendment.

/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP

Cincinnati, Ohio
November 23, 1998

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

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 40,518,443
<INVESTMENTS-AT-VALUE> 46,953,669
<RECEIVABLES> 247,729
<ASSETS-OTHER> 3,738
<OTHER-ITEMS-ASSETS> 55,937
<TOTAL-ASSETS> 47,261,073
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 77,420
<TOTAL-LIABILITIES> 77,420
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40,837,585
<SHARES-COMMON-STOCK> 4,327,356
<SHARES-COMMON-PRIOR> 2,888,995
<ACCUMULATED-NII-CURRENT> 77,789
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (166,947)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,435,226
<NET-ASSETS> 47,183,653
<DIVIDEND-INCOME> 698,574
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 574,849
<NET-INVESTMENT-INCOME> 123,725
<REALIZED-GAINS-CURRENT> 2,930,429
<APPREC-INCREASE-CURRENT> (6,560,514)
<NET-CHANGE-FROM-OPS> (3,506,360)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 140,544
<DISTRIBUTIONS-OF-GAINS> 3,792,354
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,290,520
<NUMBER-OF-SHARES-REDEEMED> 206,950
<SHARES-REINVESTED> 354,791
<NET-CHANGE-IN-ASSETS> 9,836,899
<ACCUMULATED-NII-PRIOR> 94,608
<ACCUMULATED-GAINS-PRIOR> 694,978
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 459,880
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 649,849
<AVERAGE-NET-ASSETS> 46,014,829
<PER-SHARE-NAV-BEGIN> 12.93
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> (.80)
<PER-SHARE-DIVIDEND> .04
<PER-SHARE-DISTRIBUTIONS> 1.22
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.90
<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> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 34,691,473
<INVESTMENTS-AT-VALUE> 34,861,098
<RECEIVABLES> 791,067
<ASSETS-OTHER> 4,601
<OTHER-ITEMS-ASSETS> 22,406
<TOTAL-ASSETS> 35,679,172
<PAYABLE-FOR-SECURITIES> 284,377
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 82,724
<TOTAL-LIABILITIES> 367,101
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,308,773
<SHARES-COMMON-STOCK> 3,489,898
<SHARES-COMMON-PRIOR> 2,428,645
<ACCUMULATED-NII-CURRENT> 129,733
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (296,060)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 169,625
<NET-ASSETS> 35,312,071
<DIVIDEND-INCOME> 24,823
<INTEREST-INCOME> 1,828,212
<OTHER-INCOME> 0
<EXPENSES-NET> 289,099
<NET-INVESTMENT-INCOME> 1,563,936
<REALIZED-GAINS-CURRENT> (31,710)
<APPREC-INCREASE-CURRENT> (133,913)
<NET-CHANGE-FROM-OPS> 1,398,313
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,563,936
<DISTRIBUTIONS-OF-GAINS> 42,055
<DISTRIBUTIONS-OTHER> 134,858
<NUMBER-OF-SHARES-SOLD> 1,330,599
<NUMBER-OF-SHARES-REDEEMED> 406,243
<SHARES-REINVESTED> 136,897
<NET-CHANGE-IN-ASSETS> 10,457,344
<ACCUMULATED-NII-PRIOR> 0
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</TABLE>