G The
W Gannett
& Welsh &
K Kotler
Funds
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GW&K Equity Fund
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GW&K Government Securities Fund
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Annual Report
September 30, 1998
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Letter from the President November 4, 1998
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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
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GW&K Equity Fund
Letter to Shareholders November 4, 1998
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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
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GW&K Equity Fund
Letter to Shareholders (Continued) November 4, 1998
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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
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GW&K Government Securities Fund
Letter to Shareholders November 4, 1998
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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
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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.
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Sept 98
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GW&K Equity Fund $26,308
S&P 500 Index $31,289
Russell 2000 Index $23,478
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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.
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* 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.
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Sept 98
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GW&K Government Securities Fund $11,294
Lehman 1-3 Year Government Bond Index $11,324
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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.
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*Initial public offering of shares was December 16, 1996.
5
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<TABLE>
<CAPTION>
The Gannett Welsh & Kotler Funds
Statements of Assets and Liabilities
September 30, 1998
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GW&K
GW&K GOVERNMENT
EQUITY SECURITIES
FUND FUND
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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
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TOTAL ASSETS ......................................................... 47,261,073 35,679,172
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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
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TOTAL LIABILITIES .................................................... 77,420 367,101
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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
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<TABLE>
<CAPTION>
The Gannett Welsh & Kotler Funds
Statements of Operations
For the Year Ended September 30, 1998
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GW&K
GW&K GOVERNMENT
EQUITY SECURITIES
FUND FUND
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INVESTMENT INCOME
<S> <C> <C>
Interest ........................................................ $ -- $ 1,828,212
Dividends ....................................................... 698,574 24,823
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TOTAL INVESTMENT INCOME ....................................... 698,574 1,853,035
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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
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TOTAL EXPENSES ................................................ 649,849 393,099
Fees waived by the Adviser (Note 4) ............................. (75,000) (104,000)
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NET EXPENSES .................................................. 574,849 289,099
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NET INVESTMENT INCOME .............................................. 123,725 1,563,936
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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)
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NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS .................. (3,630,085) (165,623)
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NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .............. $(3,506,360) $ 1,398,313
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</TABLE>
See accompanying notes to financial statements.
7
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<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
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YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1998 1997(A) 1998 1997(A)
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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
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<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
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YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1998 1997(A) 1998 1997(B)
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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
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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
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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.
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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>
$ 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 [LOGO]
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>
THIS PAGE INTENTIONALLY LEFT BLANK
18
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
19
<PAGE>
THE GANNETT WELSH & KOTLER FUNDS
222 Berkeley Street
Boston, Massachusetts 02116
BOARD OF TRUSTEES
Arlene Zoe Aponte-Gonzalez
Benjamin H. Gannett
Morton S. Grossman
Harold G. Kotler
Timothy P. Neher
Josiah A. Spaulding, Jr.
Allan Tofias
INVESTMENT ADVISER
GANNETT WELSH & KOTLER, INC.
222 Berkeley Street
Boston, Massachusetts 02116
(617) 236-8900
TRANSFER AGENT
COUNTRYWIDE FUND SERVICES, INC.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
SHAREHOLDER SERVICE
Nationwide: (Toll-Free) 888-GWK-FUND
(888-495-3863)
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001012401
<NAME> THE GANNETT WELSH & KOTLER FUNDS
<SERIES>
<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>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001012401
<NAME> THE GANNETT WELSH & KOTLER FUNDS
<SERIES>
<NUMBER> 2
<NAME> GW&K GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 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
<ACCUMULATED-GAINS-PRIOR> 42,296
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 216,824
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 393,099
<AVERAGE-NET-ASSETS> 28,938,617
<PER-SHARE-NAV-BEGIN> 10.23
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> (.05)
<PER-SHARE-DIVIDEND> .56
<PER-SHARE-DISTRIBUTIONS> .02
<RETURNS-OF-CAPITAL> .04
<PER-SHARE-NAV-END> 10.12
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
