The
Gannett
[LOGO]Welsh &
Kotler
Funds
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GW&K Equity Fund
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GW&K Government Securities Fund
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ANNUAL REPORT
September 30, 1999
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>
LETTER FROM THE PRESIDENT NOVEMBER 5, 1999
================================================================================
Dear Shareholders,
The Federal Reserve (Fed) has economic powers that go far beyond raising or
lowering short-term interest rates. One such power is the ability to adjust the
margin requirement, altering how much an investor can borrow against his/her
assets. The current 50% margin requirement allows individuals to borrow up to
50% of the value of their portfolio. A move to raise the margin requirement
above 50% would reduce the borrowing threshold. This particular Fed policy of
preserving the current margin requirement is of critical importance today
because the appreciation enjoyed by stock investors is being converted into
consumer spending, and ultimately into asset inflation.
The Fed margin requirement, or Regulation T, has not been used as a fiscal
policy tool since January 3, 1974, when it was reduced from 65% to 50%. Prior to
that date, however, the margin requirement was frequently used as a tool of Fed
policy, as illustrated below.
FEDERAL RESERVE BANK INITIAL MARGIN REQUIREMENTS
PERCENT OF TOTAL VALUE REQUIRED TO PURCHASE STOCK
EFFECTIVE RATE EFFECTIVE RATE
--------- ---- --------- ----
10/15/34 ...... 45% 01/16/58 ...... 50%
02/01/36 ...... 55% 08/05/58 ...... 70%
11/01/37 ...... 40% 10/16/58 ...... 50%
02/05/45 ...... 50% 07/28/60 ...... 70%
07/05/45 ...... 75% 07/10/62 ...... 90%
01/21/46 ...... 100% 11/06/63 ...... 70%
02/01/47 ...... 75% 05/08/68 ...... 60%
03/30/49 ...... 60% 05/06/70 ...... 65%
01/17/51 ...... 75% 12/06/71 ...... 55%
02/20/53 ...... 60% 11/24/72 ...... 65%
01/14/55 ...... 60% 01/03/74 ...... 50%
04/23/55 ...... 70%
Chairman Greenspan has been concerned about an overvalued stock market dating
back to his December 1996 "irrational exuberance" comment. Given the stock
market's explosive 80% growth since then, it is surprising he has elected not to
use this powerful tool to slow the market's advance. Our concern is not so much
the increase in the value of the securities themselves as it is the use of these
values, i.e. the increase in consumer spending.
1
<PAGE>
LETTER FROM THE PRESIDENT (CONTINUED) NOVEMBER 5, 1999
================================================================================
According to a recent Merrill Lynch study, broker-dealer credit is now 2% of the
GDP, the highest level ever, representing $160 billion and close to 1.5% of
total stock value (Chart 1). Consumer debt has increased at an annualized rate
of 9.6% through August 1999 compared to 5.4% for last year. It is clear that
investors are borrowing assets to consume. Consequently, consumption growth is
outstripping income growth by 2% per month. Borrowing - credit creation - is the
only way this can occur. The consumer is enjoying the "wealth effect" of the
stock market, and using the balance sheet (assets) to finance consumption
instead of the more traditional reliance on the income statement (personal
income). In its desire to "fight inflation," the Fed raises interest rates
applying pressure to both domestic and international economies. However, the
only inflationary spiral we are experiencing is one of asset values, not prices.
CHART 1
BROKER/DEALER CREDIT
ABSOLUTE LEVEL, AND AS A PERCENT OF GDP (SOURCE: MERRILL LYNCH)
[GRAPHIC OMITTED]
While the Fed's unwillingness to change the margin requirement could, in itself,
have a major negative impact on the securities industry, the principal risks are
twofold. The first risk is that borrowing on stocks is done on a pre-tax basis,
while consumption takes place after tax. An investor who borrows on margin is at
greater financial risk if security values fall as he must repay the loan with
after-tax dollars. The second risk is that when the market goes through a normal
corrective cycle, consumption will be materially impacted, as the private
sector's
2
<PAGE>
LETTER FROM THE PRESIDENT (CONTINUED) NOVEMBER 5, 1999
================================================================================
financial deficit as a percentage of the GDP is at historical highs. Thus, when
the U.S. and world economies face retrenchment, problems could arise similar to
those experienced by real estate investors in the 1980's when debt levels
remained intact while asset values eroded.
So if the Federal Reserve is worried about overvaluation of stocks, as it
apparently has been for years, why haven't they increased the margin
requirement? Any increase in the amount of unborrowed dollars required in a
portfolio would reduce speculation and overconsumption. Instead, the Fed is
attempting to use short-term rates as its policy tool, which so far has had
little effect on the economy. However, rising short-term rates creates
discomfort in both the bond and stock markets. As this uncertainty grows, so
does insecurity in the future direction of the stock market. New daily price
lows run far ahead of new daily price highs. More stocks are going down than are
going up and fewer stocks are holding up the average (Microsoft now represents
4% of the total value of the S&P 500).
Despite the current uncertainty, we believe inflation will stay low and, with
the Federal government running a surplus, bond rates will ultimately turn back
down resulting in higher bond prices. Remember that it was only a year ago that
the Fed increased the money supply in fear of a worldwide collapse. That
expansion also found its way into asset values, contributing to the rise in
stock market values and asset inflation. Now money supply growth is being
curtailed. We believe the Fed will look to bring interest rates back to where
they were early last year, prior to the three 1/4 point reductions in the Fed
Funds rate.
We view these times with caution. However, we pride ourselves on our disciplined
expertise in both bonds and stocks and our consistent application of our
strategies. Our promise to you is that we continue to be one of the very best
independent investment managers in the country, providing both personal service
and the highest commitment to investment results.
Harold G. Kotler, CFA
President
3
<PAGE>
GW&K EQUITY FUND
LETTER TO SHAREHOLDERS NOVEMBER 5, 1999
================================================================================
Dear Fellow Shareholders,
This Annual Report is the third for the GW&K Equity Fund. As we write to you,
the stock market has completed a year of dramatic performance. A year ago, the
Russian financial crisis and the bailout of Long Term Capital dominated the
financial news and stocks reflected the uncertainty. A strong U.S. economy and
the continued absence of inflation quickly blew these clouds away. Rising
earnings and the strongest productivity gains in history propelled stocks
higher.
At the end of the September 30, 1999 fiscal year for the GW&K Equity Fund, net
assets stood at a record $61 million, compared with $47 million a year ago. Net
new investment totaled approximately $1 million for the past twelve months. The
Fund experienced net redemptions late in 1998. Since April 1999, we have had net
purchases.
The Fund's total return (price change and reinvested distributions) for the year
ended September 30, 1999, was 28.62%, ahead of both the Standard & Poor's 500
Index, up 27.80%, and the Russell 2000 Index of smaller companies, which gained
19.07%. Compared with the Morningstar Growth and Income group, whose average
return was 20.93%, your Fund placed 107 out of 776 funds, or in the 14th
percentile. Your Fund has been placed into a new objective category by Lipper
Analytical Services, the Multi-Cap Core group, which showed an average return of
25.29%. Our return placed us 91st out of the 341 funds in this category, or in
the 27th percentile.
For the past quarter, the Fund declined by -5.47%, less than the -6.25% and
- -6.32% results for the S&P 500 and the Russell 2000 indices, respectively. Your
Fund's quarterly return was in the 20th percentile measured against the
Morningstar Growth and Income group's average return of -7.72% and above the
Lipper Multi-Cap Core group's average of 6.38%, or in the 40th percentile.
A year ago, for the twelve months ending September 30, 1998, the Russell 2000
Index of small company stocks was off almost 20%, while the S&P 500 was ahead by
almost 10%. This was the widest spread in history for these two groups of
stocks. The businesses of many of the smaller companies that we held were making
good progress. It was a bit puzzling that their returns were so far behind the
larger and better-known companies. Sure enough, for the past twelve months,
small company stocks delivered some of the highest returns among holdings in
your Fund. And today, many of the conditions that existed a year ago prevail.
Less well-known, smaller companies whose earnings have
4
<PAGE>
GW&K EQUITY FUND
LETTER TO SHAREHOLDERS (CONTINUED) NOVEMBER 5, 1999
================================================================================
grown consistently sell at price/earnings ratios that are a fraction of that of
the S&P 500, and some price/earnings ratios are below ten. We look for the
relative performance gap to continue narrowing.
During the fiscal year, we trimmed back some positions whose valuations seemed
generous compared with expectations for future growth and we eliminated others.
The net result will be a modest capital gain distribution, payable at the end of
November.
We like our classification in the new Lipper Multi-Cap Core designation, as it
much more closely captures the investment approach your Fund has always taken.
For example, many studies of long-term returns show that smaller companies
provide higher and, yes, more consistent results. Yet, for more than a decade,
indices led by larger companies have produced higher returns. Since we do not
think anyone knows how these two groups of stocks will behave in the future, we
think it makes sense to own both. Similarly, many other studies provide evidence
of the superior returns a value investment approach produces. Recent results
have been dramatically different. Again, looking for good businesses whose
stocks have value characteristics makes sense. Turning to economic sectors,
while technology stocks have led returns this year, many analysts are providing
sound arguments why other sectors offer better future returns. Your Fund's
approach is to use rigorous research to find stocks that represent many of these
disparate ideas. When blended together, we hope the portfolio holdings will
produce results year in and year out that meet your expectations.
Sincerely,
Edward B. White, CFA, CIC
GW&K Equity Fund
Portfolio Manager
5
<PAGE>
GW&K GOVERNMENT SECURITIES FUND
LETTER TO SHAREHOLDERS NOVEMBER 5, 1999
================================================================================
Dear Fellow Shareholders,
We are pleased to report on the status of the GW&K Government Securities Fund
for the fiscal year ended September 30, 1999. The net asset value of the Fund
decreased over the twelve-month period, reflecting the effects of principal
paydowns, higher interest rates and reduced sector allocation. Shares of the
Fund decreased slightly to 3.05 million, down from 3.49 million as of September
30, 1998 due primarily to reduced sector allocation among managed accounts at
GW&K.
The bond market is experiencing one of its weakest periods in history. The yield
on the 10-year Treasury bond, a benchmark for mortgage pricing, moved from 4.42%
on September 30, 1998 to 5.88% on September 30, 1999. Interest rates have been
steadily moving higher due to continued strength of the U.S. economy and
subsequent Fed tightening. The healthy economy has kept home sales quite strong
which in turn has placed upward pressure on mortgage prepayments. Going into the
fourth quarter of the calendar year, higher rates have begun to both slow
housing activity and refinancing opportunities, which suggest a potential
slowing of prepayments.
The net asset value per share on September 30, 1999 was $9.76, $0.36 lower than
it was on September 30, 1998. Although the Fund's share price declined, its
dividend distribution rate increased to 7.40%, which has satisfied our objective
of substantial current income flow. As a result, the total return of the Fund
was 3.68% for the fiscal year, compared to the Lehman Brothers 1-3 year U.S.
Government Bond Index return of 3.19% over the same period.
At Gannett Welsh & Kotler, we continue to search for value within the premium
mortgage-backed sector. In the past year we added $8.83 million in new
mortgage-backed pools, while only selling $3.09 million. As of September 30,
1999, we continued to hold one pool of home equity loans worth $0.40 million.
This type of security is not government guaranteed, but is rated AAA, and may be
backed by private insurance. We will continue to look for additional types of
securities that meet the maturity and income requirements for the Fund, while
also exhibiting reduced prepayment risk.
Sincerely,
David M. Carter
GW&K Government Securities Fund
Portfolio Manager
6
<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 S&P 500 Index
and the Russell 2000 Index.
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Sept 99
-------
GW&K Equity Fund $33,837
S&P 500 Index $39,987
Russell 2000 Index $27,941
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GW&K Equity Fund
Average Annual Total Return
1 Year 5 Years From Inception*
28.62% 20.65% 16.10%
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.
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Sept 99
-------
GW&K Government Securities Fund $11,710
Lehman 1-3 Year Government Bond Index $11,685
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GW&K Government Securities Fund
Average Annual Total Return
1 Year Since Inception
3.68% 5.82%
Past performance is not indicative of future performance.
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*Initial public offering of shares was December 16, 1996.
7
<PAGE>
THE GANNETT WELSH & KOTLER FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
================================================================================
GW&K
GW&K Government
Equity Securities
Fund Fund
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ASSETS
Investments in securities:
At amortized cost ........................... $42,687,980 $ 29,332,772
=========== ============
At market value (Note 2) .................... $60,774,518 $ 29,195,431
Cash ........................................... 37,951 2,181
Dividends and interest receivable .............. 57,937 294,344
Receivable for principal paydowns .............. -- 247,111
Receivable for capital shares sold ............. 4,535 60,000
Receivable for securities sold ................. 900,420 --
Organization expenses, net (Note 2) ............ 14,517 14,517
Other assets ................................... 16,371 10,508
----------- ------------
TOTAL ASSETS ................................ 61,806,249 29,824,092
----------- ------------
LIABILITIES
Dividends payable to shareholders .............. -- 36,568
Payable for capital shares redeemed ............ 10,600 5,500
Payable for securities purchased ............... 269,002 --
Payable to affiliates (Note 4) ................. 69,565 30,543
Other accrued expenses and liabilities ......... 16,228 9,568
----------- ------------
TOTAL LIABILITIES ........................... 365,395 82,179
----------- ------------
NET ASSETS ..................................... $61,440,854 $ 29,741,913
=========== ============
Net assets consist of:
Paid-in capital ................................ $41,746,636 $ 30,883,553
Accumulated net realized gains (losses)
from security transactions .................. 1,607,680 (1,004,299)
Net unrealized appreciation (depreciation)
on investments (Note 1) ..................... 18,086,538 (137,341)
----------- ------------
Net assets ..................................... $61,440,854 $ 29,741,913
=========== ============
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) ............................... 4,392,396 3,047,097
=========== ============
Net asset value, offering price and
redemption price per share (Note 1) ......... $ 13.99 $ 9.76
=========== ============
See accompanying notes to financial statements.
8
<PAGE>
THE GANNETT WELSH & KOTLER FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
================================================================================
GW&K
GW&K Government
Equity Securities
Fund Fund
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest ................................... $ -- $ 1,963,637
Dividends .................................. 681,726 52,328
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TOTAL INVESTMENT INCOME ................. 681,726 2,015,965
------------ -----------
EXPENSES
Investment advisory fees (Note 4) .......... 583,783 259,571
Administration fees (Note 4) ............... 58,285 34,608
Accounting services fees (Note 4) .......... 29,000 24,000
Custodian fees ............................. 30,689 17,367
Pricing fees ............................... 1,066 36,214
Professional fees .......................... 17,951 17,951
Transfer agent fees (Note 4) ............... 12,000 12,000
Insurance expense .......................... 14,354 9,193
Trustees' fees and expenses ................ 10,981 10,981
Registration fees .......................... 8,312 10,247
Reports to shareholders .................... 8,779 6,113
Postage and supplies ....................... 8,274 5,946
Organization expenses (Note 2) ............. 6,700 6,700
Distribution expenses (Note 4) ............. 1,554 1,204
------------ -----------
TOTAL EXPENSES .......................... 791,728 452,095
Fees waived by the Adviser (Note 4) ........ (62,000) (106,000)
------------ -----------
NET EXPENSES ............................ 729,728 346,095
------------ -----------
NET INVESTMENT INCOME (LOSS) .................. (48,002) 1,669,870
------------ -----------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses)
from security transactions .............. 1,816,559 (89,284)
Net change in unrealized appreciation/
depreciation on investments ............. 11,651,312 (306,966)
------------ -----------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS .................... 13,467,871 (396,250)
------------ -----------
NET INCREASE IN NET ASSETS FROM OPERATIONS .... $ 13,419,869 $ 1,273,620
============ ===========
See accompanying notes to financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
THE GANNETT WELSH & KOTLER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
============================================================================================================================
GW&K GW&K
Equity Fund Government Securities Fund
----------------------------- -----------------------------
Year Year Year Year
Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
<S> <C> <C> <C> <C>
Net investment income (loss) ......................... $ (48,002) $ 123,725 $ 1,669,870 $ 1,563,936
Net realized gains (losses) from
security transactions ............................. 1,816,559 2,930,429 (89,284) (31,710)
Net change in unrealized appreciation/
depreciation on investments ....................... 11,651,312 (6,560,514) (306,966) (133,913)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from operations ... 13,419,869 (3,506,360) 1,273,620 1,398,313
------------ ------------ ------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income ................. (77,789) (140,544) (1,669,870) (1,563,936)
Distributions in excess of net investment income ..... -- -- (748,688) (134,858)
Return of capital .................................... -- -- (86,428) --
Distributions from net realized gains ................ (41,932) (3,792,354) -- (42,055)
------------ ------------ ------------ ------------
Decrease in net assets from distributions to shareholders (119,721) (3,932,898) (2,504,986) (1,740,849)
------------ ------------ ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ............................ 7,113,037 15,867,029 4,372,991 13,536,142
Net asset value of shares issued in
reinvestment of distributions to shareholders ..... 118,604 3,902,989 2,059,395 1,393,399
Payments for shares redeemed ......................... (6,274,588) (2,493,861) (10,771,178) (4,129,661)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
capital share transactions ........................... 957,053 17,276,157 (4,338,792) 10,799,880
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ................. 14,257,201 9,836,899 (5,570,158) 10,457,344
NET ASSETS
Beginning of year .................................... 47,183,653 37,346,754 35,312,071 24,854,727
------------ ------------ ------------ ------------
End of year .......................................... $ 61,440,854 $ 47,183,653 $ 29,741,913 $ 35,312,071
============ ============ ============ ============
UNDISTRIBUTED NET INVESTMENT INCOME ..................... $ -- $ 77,789 $ -- $ 129,733
NUMBER OF SHARES
Sold ................................................. 525,932 1,290,520 440,081 1,330,599
Reinvested ........................................... 8,938 354,791 206,831 136,897
Redeemed ............................................. (469,830) (206,950) (1,089,713) (406,243)
------------ ------------ ------------ ------------
Net increase (decrease) in shares outstanding ........ 65,040 1,438,361 (442,801) 1,061,253
Shares outstanding, beginning of year ................ 4,327,356 2,888,995 3,489,898 2,428,645
------------ ------------ ------------ ------------
Shares outstanding, end of year ...................... 4,392,396 4,327,356 3,047,097 3,489,898
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
THE GANNETT WELSH & KOTLER FUNDS
GW&K EQUITY FUND
FINANCIAL HIGHLIGHTS
============================================================================================================
Year Year Period
Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30,
1999 1998 1997(A)
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PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<S> <C> <C> <C>
Net asset value at beginning of period .................... $ 10.90 $ 12.93 $ 10.00
---------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss) ........................... (0.01) 0.03 0.03
Net realized and unrealized gains (losses)
on investments ...................................... 3.13 (0.80) 2.90
---------- ---------- ----------
Total from investment operations .......................... 3.12 (0.77) 2.93
---------- ---------- ----------
Less distributions:
Dividends from net investment income ................... (0.02) (0.04) --
Distributions from net realized gains .................. (0.01) (1.22) --
---------- ---------- ----------
Total distributions ....................................... (0.03) (1.26) --
---------- ---------- ----------
Net asset value at end of period .......................... $ 13.99 $ 10.90 $ 12.93
========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA:
Total return .............................................. 28.62% (5.99%) 29.30%(C)
========== ========== ==========
Net assets at end of period (000's) ....................... $ 61,441 $ 47,184 $ 37,347
========== ========== ==========
Ratio of net expenses to average net assets(B) ............ 1.25% 1.25% 1.25%(D)
Ratio of net investment income (loss) to average net assets (0.08)% 0.27% 0.43%(D)
Portfolio turnover rate ................................... 28% 30% 13%(D)
</TABLE>
(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 1.36%, 1.41% and 1.51%(C) for the periods ended
September 30, 1999, 1998 and 1997, respectively (Note 4).
(C) Not annualized.
(D) Annualized.
See accompanying notes to financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
THE GANNETT WELSH & KOTLER FUNDS
GW&K GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
============================================================================================================
Year Year Period
Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30,
1999 1998 1997(A)
- ------------------------------------------------------------------------------------------------------------
Per share data for a share outstanding throughout each period:
<S> <C> <C> <C>
Net asset value at beginning of period .................... $ 10.12 $ 10.23 $ 10.00
---------- ---------- ----------
Income from investment operations:
Net investment income .................................. 0.45 0.56 0.50
Net realized and unrealized gains (losses)
on investments ...................................... (0.09) (0.05) 0.23
---------- ---------- ----------
Total from investment operations .......................... 0.36 0.51 0.73
---------- ---------- ----------
Less distributions:
Dividends from net investment income ................... (0.45) (0.56) (0.50)
Distributions in excess of net investment income ....... (0.24) (0.04) --
Return of capital ...................................... (0.03) -- --
Distributions from net realized gains .................. -- (0.02) --
---------- ---------- ----------
Total distributions ....................................... (0.72) (0.62) (0.50)
---------- ---------- ----------
Net asset value at end of period .......................... $ 9.76 $ 10.12 $ 10.23
========== ========== ==========
Ratios and supplemental data:
Total return .............................................. 3.68% 5.07% 7.50%(C)
========== ========== ==========
Net assets at end of period (000's) ....................... $ 29,742 $ 35,312 $ 24,855
========== ========== ==========
Ratio of net expenses to average net assets(B) ............ 1.00% 1.00% 0.97%(D)
Ratio of net investment income to average net assets ...... 6.62% 5.40% 6.19%(D)
Portfolio turnover rate ................................... 27% 37% 44%(D)
</TABLE>
(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 1.31%, 1.36% and 1.47%(C) for the periods ended
September 30, 1999, 1998 and 1997, respectively (Note 4).
(C) Not annualized.
(D) Annualized.
See accompanying notes to financial statements.
12
<PAGE>
THE GANNETT WELSH & KOTLER FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
================================================================================
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
(normally 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.
13
<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 determined on a specific identification basis.
Securities traded on a to-be-announced basis - The GW&K Government Securities
Fund occasionally 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, 1999:
- --------------------------------------------------------------------------------
GW&K
GW&K Government
Equity Securities
Fund Fund
- --------------------------------------------------------------------------------
Gross unrealized appreciation ................ $ 20,179,875 $ 77,005
Gross unrealized depreciation ................ (2,130,908) (214,346)
------------ ------------
Net unrealized appreciation (depreciation) ... $ 18,048,967 $ (137,341)
============ ============
Federal income tax cost ...................... $ 42,725,551 $ 29,332,772
============ ============
- --------------------------------------------------------------------------------
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.
14
<PAGE>
As of September 30, 1999, the GW&K Government Securities Fund had capital loss
carryforwards for federal income tax purposes of $915,015, none of which expire
prior to September 30, 2006. In addition, the Fund elected to defer until its
subsequent tax year $89,284 of net realized capital losses incurred after
October 31, 1998. These capital loss carryforwards and "post-October" losses may
be utilized in future years to offset net realized capital gains, if any, prior
to distribution to shareholders.
Reclassification of capital accounts - As of September 30, 1999, the GW&K Equity
Fund reclassified $48,002 of net investment loss to paid-in capital on the
Statements of Assets and Liabilities. The GW&K Government Securities Fund
reclassified $618,955 of distributions in excess of net investment income and
$86,428 of return of capital to accumulated net realized losses from security
transactions and paid-in capital, respectively. Such reclassifications, the
result of permanent differences between financial statement and income tax
reporting requirements, have no effect on each Fund's net assets or net asset
value per share.
3. INVESTMENT TRANSACTIONS
For the year ended September 30, 1999, cost of purchases and proceeds from sales
and maturities of investment securities, other than short-term investments,
amounted to $15,471,249 and $18,118,320, respectively, for the GW&K Equity Fund
and $8,828,338 and $14,373,853, 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, 1999, the Adviser
voluntarily waived advisory fees of $62,000 and $106,000, respectively.
ADMINISTRATION 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 CFS 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 $2,500 and $2,000 from the GW&K Equity Fund and the GW&K Government
Securities Fund, respectively. In addition, each Fund pays CFS certain
out-of-pocket expenses incurred by CFS in obtaining valuations of such Fund's
portfolio securities.
15
<PAGE>
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.
5. FEDERAL TAX INFORMATION FOR SHAREHOLDERS (UNAUDITED)
On December 31, 1998, the GW&K Equity Fund declared and paid a long-term capital
gain distribution of $0.0098 per share. In January of 1999, shareholders were
provided with Form 1099-DIV which reported the amounts and tax status of capital
gain distributions paid during calendar year 1998.
16
<PAGE>
GW&K EQUITY FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1999
================================================================================
Market
Shares COMMON STOCKS - 90.4% Value
- --------------------------------------------------------------------------------
BASIC MATERIALS - 3.3%
32,000 Ionics, Inc.* ................................... $ 1,036,000
77,000 Universal Forest Products, Inc. ................. 1,005,813
------------
$ 2,041,813
------------
CONSUMER, CYCLICAL - 14.2%
12,100 AutoNation, Inc.* ............................... $ 152,006
100,000 DeVry, Inc.* ............................ 2,000,000
90,000 Extended Stay America, Inc.* .................... 810,000
31,000 Insight Communications Company, Inc.* ........... 887,375
27,000 May Department Stores Company ................... 983,812
15,000 MediaOne Group, Inc.* ........................... 1,024,688
59,000 Provant, Inc.* .................................. 951,375
85,000 Standard-Pacific Corp. .......................... 871,250
49,000 Staples, Inc.* .................................. 1,068,813
------------
$ 8,749,319
------------
CONSUMER, NON-CYCLICAL - 11.5%
17,000 Merck & Co., Inc. ............................... $ 1,101,812
39,000 NCO Group, Inc.* ................................ 1,833,000
42,000 Panamerican Beverages, Inc. ..................... 695,625
32,000 PepsiCo, Inc. ................................... 968,000
22,500 Pfizer, Inc. .................................... 808,594
74,000 Service Corporation International ............... 781,625
33,000 Sunrise Assisted Living, Inc.* .................. 876,563
------------
$ 7,065,219
------------
ENERGY - 9.3%
35,972 AES Corp.* ...................................... $ 2,122,348
40,000 Noble Affiliates, Inc. .......................... 1,160,000
58,000 Questar Corp. ................................... 1,051,250
23,000 Royal Dutch Petroleum Company ................... 1,358,437
------------
$ 5,692,035
------------
FINANCIAL SERVICES - 11.7%
29,000 Bank of New York Company, Inc. .................. $ 969,687
80,000 Berkshire Realty Company, Inc. .................. 960,000
32,000 Boston Properties, Inc. ......................... 982,000
63,000 Capital One Financial Corp. ..................... 2,457,000
27,000 Citigroup, Inc. ................................. 1,188,000
13,000 MBIA, Inc. ...................................... 606,125
------------
$ 7,162,812
------------
INDUSTRIAL - 7.1%
10,000 General Electric Company ........................ $ 1,185,625
18,000 General Motors Corp. - Class H .................. 1,030,500
12,500 Tyco International, Ltd. ........................ 1,290,625
40,425 United Rentals, Inc.* ........................... 879,243
------------
$ 4,385,993
------------
17
<PAGE>
GW&K EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
================================================================================
Market
Shares COMMON STOCKS - 90.4% (Continued) Value
- --------------------------------------------------------------------------------
TECHNOLOGY - 24.6%
45,000 Cognex Corp.* ................................... $ 1,358,438
23,000 Dell Computer Corp.* ............................ 961,688
18,000 EMC Corp.* ...................................... 1,285,875
17,000 Lucent Technologies, Inc. ....................... 1,102,875
102,000 Mastech Corp.* .................................. 1,377,000
54,000 Oracle Corp.* ................................... 2,457,000
70,000 SDL, Inc.* ...................................... 5,341,875
30,000 Xerox Corp. ..................................... 1,258,125
------------
$ 15,142,876
------------
UTILITIES - 8.7%
44,000 Enron Corp. ..................................... $ 1,815,000
34,000 MCI WorldCom, Inc.* ............................. 2,443,750
40,000 Reliant Energy, Inc. ............................ 1,082,500
------------
$ 5,341,250
------------
TOTAL COMMON STOCKS (Cost $37,494,779) .......... $ 55,581,317
------------
================================================================================
Market
Shares CASH EQUIVALENTS - 8.5% Value
- --------------------------------------------------------------------------------
5,193,201 Merrimac Cash Fund - Institutional Class
(Cost $5,193,201) ............................... $ 5,193,201
------------
TOTAL INVESTMENT SECURITIES - 98.9%
(Cost $42,687,980) .............................. $ 60,774,518
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.1% .... 666,336
------------
NET ASSETS - 100.0% ............................. $ 61,440,854
============
* Non-income producing security.
See accompanying notes to financial statements.
18
<PAGE>
GW&K GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1999
================================================================================
Par Market
Value MORTGAGE-BACKED SECURITIES - 91.3% Value
- --------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 37.7%
$ 170,201 7.50%, 02/01/22 ................................. $ 172,393
166,360 8.00%, 11/01/10 ................................. 169,288
803,438 8.50%, 03/01/08 thru 09/01/17 ................... 832,115
807,102 8.75%, 10/01/08 thru 10/01/17 ................... 837,891
799,327 9.00%, 06/01/08 thru 06/01/21 ................... 836,019
1,398,139 9.25%, 10/01/08 thru 12/01/10 ................... 1,472,643
710,333 9.50%, 03/01/09 thru 02/01/21 ................... 756,092
1,810,874 9.75%, 04/01/08 thru 02/01/18 ................... 1,928,495
980,331 10.00%, 01/01/01 thru 11/01/20 .................. 1,060,447
1,307,967 10.25%, 04/01/09 thru 09/01/12 .................. 1,403,552
319,543 10.50%, 06/01/00 thru 10/01/19 .................. 349,490
367,953 10.75%, 07/01/10 thru 04/01/11 .................. 398,974
101,835 11.00%, 12/01/00 thru 01/01/19 .................. 110,191
391,332 11.25%, 09/01/09 thru 11/01/13 .................. 427,951
152,792 11.50%, 09/01/11 thru 06/01/19 .................. 170,200
27,003 11.75%, 02/01/11 thru 07/01/13 .................. 29,873
99,159 12.50%, 01/01/10 thru 05/01/15 .................. 111,330
122,283 13.50%, 01/01/11 ................................ 138,081
- ----------- ------------
$10,535,972 TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION .... $ 11,205,025
- ----------- (Amortized Cost $11,252,163) ------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 30.9%
$ 291,026 7.50%, 02/01/14 ................................. $ 288,916
224,026 8.00%, 08/01/19 ................................. 229,721
1,005,683 8.50%, 12/01/08 thru 03/01/22 ................... 1,042,752
538,631 8.75%, 08/01/07 thru 08/01/17 ................... 560,380
729,506 9.00%, 06/01/10 thru 09/01/21 ................... 759,587
165,658 9.25%, 12/01/15 ................................. 175,518
374,372 9.50%, 02/01/11 thru 07/01/17 ................... 400,184
325,392 9.75%, 03/01/06 thru 02/01/19 ................... 345,263
1,837,907 10.00%, 11/01/00 thru 02/01/21 .................. 1,971,143
41,570 10.25%, 05/01/09 thru 03/01/16 .................. 45,248
357,993 10.50%, 08/01/00 thru 09/01/20 .................. 391,213
68,115 10.75%, 09/01/09 thru 03/01/14 .................. 75,262
197,093 11.00%, 10/01/11 thru 07/01/15 .................. 214,969
13,601 11.25%, 10/01/15 ................................ 15,229
188,346 11.50%, 05/01/19 ................................ 212,034
213,991 11.75%, 04/01/12 thru 02/01/14 .................. 242,297
1,971,923 12.00%, 03/01/13 thru 10/01/15 .................. 2,217,093
15,291 12.25%, 05/01/10 thru 07/01/13 .................. 17,372
- ----------- ------------
$ 8,560,124 TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION ..... $ 9,204,181
- ----------- (Amortized Cost $9,277,713) ------------
19
<PAGE>
GW&K GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
================================================================================
Par Market
Value MORTGAGE-BACKED SECURITIES - 91.3% (Continued) Value
- --------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 21.2%
$ 402,166 7.00%, 05/15/23 ................................. $ 396,950
194,373 8.75%, 11/15/08 ................................. 204,438
414,401 9.00%, 11/15/19 thru 06/15/21 ................... 437,905
100,487 9.25%, 09/15/09 ................................. 107,178
910,754 9.50%, 06/15/09 thru 08/20/19 ................... 979,334
1,357 9.75%, 12/15/00 thru 01/15/01 ................... 1,378
2,294,290 10.00%, 10/15/00 thru 10/15/21 .................. 2,509,137
4,011 10.25%, 12/15/00 thru 02/15/01 .................. 4,078
540,485 10.50%, 02/20/05 thru 10/20/19 .................. 598,319
422,495 11.00%, 12/15/09 thru 02/15/16 .................. 469,313
1,965 11.25%, 04/15/01 ................................ 2,016
235,187 11.50%, 01/20/13 thru 08/20/19 .................. 266,700
163,740 11.75%, 05/15/04 thru 08/15/13 .................. 184,717
15,388 12.00%, 08/15/13 thru 09/15/14 .................. 17,723
109,028 13.00%, 01/15/11 thru 01/15/15 .................. 126,773
- ----------- ------------
$ 5,810,127 TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION .. $ 6,305,959
- ----------- (Amortized Cost $6,296,713) ------------
OTHER MORTGAGE-BACKED SECURITIES - 1.5%
$ 34,862 Arkansas Development Finance Authority
REMIC #93-C, 8.20%, 02/15/14 .................... $ 35,123
395,000 Delta Funding Home Equity Loan Trust #96-1-A7,
- ----------- 7.95%, 06/25/27 ................................. 396,234
------------
$ 429,862 TOTAL OTHER MORTGAGE-BACKED SECURITIES .......... $ 431,357
- ----------- (Amortized Cost $455,995) ------------
$25,336,085 TOTAL MORTGAGE-BACKED SECURITIES ................ $ 27,146,522
=========== (Amortized Cost $27,282,584) ============
================================================================================
Par Market
Value MUNICIPAL OBLIGATIONS - 1.9% Value
- --------------------------------------------------------------------------------
$ 300,000 Texas St. HFA SFM Rev. Bond, 8.05%, 12/01/01 .... $ 310,143
250,000 Mississippi Housing Rev. Bond, 9.15%, 09/15/14 .. 261,748
- ----------- ------------
$ 550,000 TOTAL MUNICIPAL OBLIGATIONS ..................... $ 571,891
=========== (Amortized Cost $573,170) ------------
20
<PAGE>
GW&K GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
================================================================================
Market
Shares CASH EQUIVALENTS - 5.0% Value
- --------------------------------------------------------------------------------
1,477,018 Merrimac Cash Fund - Institutional Class
(Cost $1,477,018)................................ $ 1,477,018
------------
TOTAL INVESTMENTS SECURITIES - 98.2%
(Cost $29,332,772) .............................. $ 29,195,431
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.8% .... 546,482
------------
NET ASSETS - 100.0% ............................. $ 29,741,913
============
See accompanying notes to financial statements.
21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
================================================================================
Arthus 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
portfolios 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, 1999, 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, 1999, 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, 1999, 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 27, 1999
22
